Good morning. My name is Daniela, I will be your conference operator. All lines have been placed on mute to prevent any background noise. This is Liverpool's second quarter 2021 conference call. There will be a question and answer session after the speaker's opening remarks, instructions will be given at that time. With us are Mr. Enrique Güijosa, CFO, El Puerto de Liverpool, Mr. Santiago de Abiega, General Manager of Financial Services, Mr. José Antonio Diego, Treasury and IR Director, Mr. Enrique Griñán, Investor Relations Officer. Our speakers will present the results for the second quarter 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 Liverpool's most recent annual report. At this time, I will now turn the conference over to Mr. Enrique Güijosa. Please go ahead.
Thank you, Daniela. Good morning to everyone. Thanks for joining us. Welcome to Liverpool's Q2 2021 conference call. First of all, 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 de Abiega. As you know, Santiago is the General Manager for Financial Services business unit. 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&A. Throughout the second quarter of this year, all our stores and shopping centers were open and operating with very few non-material constraints. Our retail revenues during the second quarter 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 MXN 6.1 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 new accounts. In the second quarter, the company reported an operating cash of MXN 8.6 billion and free cash flow of MXN 7.6 billion, reflecting the positive operating performance, strict inventory control, and the normalization of accounts payable to suppliers. We are to highlight the cash balance as of June 30th was MXN 24.9 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 second quarter was 24%, this is 2.4 times higher than in the same quarter of 2019. On a cumulative basis, the digital channel is 9% above year ago, regardless of the very high comparison base. Sales in our marketplace during the first six months of this year grew by more than 80%, SKUs doubles, and our sellers grew by 60%. For perspective, marketplace sales in the first 6 months of this year were 24 times higher than in the first semester of 2019. Results of Liverpool Pocket were encouraging in terms of participation 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 to achieve a 31% reduction in last mile costs and deliver 96% of our orders on time. During the second quarter, direct store deliveries represented 11% of our total home deliveries. With the reopening of stores, Click & Collect levels continue to improve. During the second quarter, 23% of deliveries were made through this option. The Arco Norte project continues to advance according to plan. The start of phase I, which is for big ticket items, is scheduled for the second quarter of 2022, and our cumulative CapEx for this project during the first six months of this year was MXN 663 million.
This is around 1/3 of our total cumulative CapEx of MXN 2.2 billion. During this year, we will open just one 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 Suburbia front, eight stores will be opened this year and it's worth to highlight that five 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. I will be presenting some highlights on all of the financial services business. Total balances of the credit portfolio, this includes the Liverpool and the Suburbia 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 5.75 million accounts. Regarding the quality of the portfolio, we keep seeing a very important improvement on the delinquency rate, decreasing from 5.2% 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 2020 and 2021 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 programs actually account for less than 7% of the total outstanding balances, and the non-performing loans for this segment is much better than our expectations. Loan loss provisions for this quarter was MXN 214 million versus MXN 1,126 million we had last year, representing an 81% reduction. 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. 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% below 2019. Lower revenues are basically explained by three drivers. Number one, an increase of customers paying their total balances and therefore not generating interest. Number two, lower rates applied to customers with relief programs during the pandemic period. Number three, and most important, is the credit tightening to 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 criteria for line management programs, but also always keeping a very strong focus on maintaining the credit quality of the portfolio.
Some of the main projects that we're 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 score models. We expect by December 2021 to have 80 new score models. We recently incorporated additional channels to our credit origination process. Online credit application was launched during the first 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, et cetera, and our Monedero Digital, which is our digital Liverpool money. Well, these are just some examples of the initiatives we are working on today. I will turn the word back to Enrique. Thank you very much.
Thank you, Santiago. Well, I think that's all we have in terms of our prepared remarks. We can now move straight to the Q&A. Thank you very much.
Thank you. We will now conduct a Q&A session. If you would like to ask a question, please press the Raise Your Hand button located at the bottom of the screen. If you are connected via telephone, please dial star nine. We remind you that all lines have been placed on mute. When it is your turn to ask a question, you will be unmuted. If you have placed yourself on mute, you will need to unmute yourself to ask a question. We will now pause for questions. Our first question comes from Andrew Ruben. Please state your company name and ask your question.
Hi. Andrew Ruben 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, I think, 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, Andrew. Yes, you're right. We said that we saw a significant reduction, in fact, a 31% reduction in our last mile delivery cost. This is basically a reflection of all the improvements that we have made making it for the past several months or several quarters for that fact, in terms of our delivery, logistics and 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. We already fulfill 90%+ of our orders from the stores, but only 10% of the total orders are delivered straight from the store straight to the customer homes. 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. That's one of the things that drove this reduction. The other thing is that, if you compare to the second quarter of 2020, of course, we have that surge that we saw because the stores were closed. 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.
We have been able to handle more of the total deliveries through our internal fleet. Finally, we have also been working very hard in order to improve our rates with our partners. We have seen a lot of excess capacity that was built in the previous year. Our suppliers are willing to reduce our rates. That's also something that we have been taking advantage of. We achieve very promising reductions with several of our partners. Also we have been putting in place a lot of smaller delivering companies that we do some online bidding in order to get the most favorable rates. Both with the big, the FedEx, the DHLs and the Estafetas partners, and also with smaller suppliers on a local basis, we have been doing more business with them and negotiating better rates.
That's more or less like painting a picture of why we're seeing this significant reduction in our delivery last mile costs.
Got it. Thank you. That's all very helpful. Maybe just as a quick follow-up, the Click & 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? How does Click & Collect feature into your plans in terms of what you think for the mix?
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 top value, gross margin. The fact that the Click & Collect has been improving month by month. I frankly don't think that we will go back to the 40+ share that we had in Click & Collect before the pandemic. I think that a lot of customers that were not comfortable asking for a home delivery before trying it out, they have tried it, and they're happy with the timeliness of the delivery. I think that we will hopefully go back to low 30s. That's our expectation. What I think it's going to be little by little. I think that we're today close to 23%, 24%. Has been improving 1, 2 percentage points month on month.
Again, I think it's going to be very hard to go back to the pre-pandemic 40 + 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. Alvaro Garcia from BTG Pactual. Two questions for Santiago. You mentioned that the 2020 and 2021 vintages were performing better on the credit front. I was wondering if you could expand on that a bit, what that means exactly. On the digital payments and the Monedero Digital, any sort of initial learnings on how consumers are engaging with the Monedero Digital and any initial learnings there would be great. Thank you.
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 on all of the digital bill payments that we have. I think it's something like, we've only had 5,000 payments, and this is because we are just finishing tuning up. We haven't even done a big campaign, which we are just about to launch. I think it's going to be interesting once we launch the marketing campaign for the customers to know that they have these services. I think I will be able to tell you more about the engagement of the customers with this service, no?
What we've seen is that by just putting it on the app, is 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, no. That we've had. On the Monedero Digital 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. What we're going to be able to learn from the customers is that we're going to be able to track down is 100% of our customers, because as you know, most of our promotions are done with the Monedero Digital, and you can transfer to that Monedero.
You can transfer either the Monedero 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 Monederos. You are going to be able to transact online, and you're going to be able to transact with your Digital Monedero just with your phone, in the stores, no. We do have very big expectations on these two things in order to have a much better engagement of our customers. Your first question, going to your first question, Alvaro, regarding 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're seeing on the early stages of these customers are even better than the ones that we've had on the pre-pandemic period. 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 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. On the early stages, on 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 answered your question, Alvaro.
Yeah. No, that was clear. Just to clarify that, it's fair to say that the Monedero Digital, the digital payments, is still sort of on a friends and family, say, pre-launch sort of stage.
No, I would say that pretty soon, in the next weeks.
Okay.
You will see the big launch.
Great. Awesome. Thank you.
Thank you. Our next question comes from Joaquin Ley from Itaú. Please state your question.
Hi. Good morning. Can you hear me?
Yes, Joaquin, go ahead.
Hi. Hi, Enrique. Hi. Congratulations on the results, and thank you for the call. Two questions. First, on the balance sheet, the free cash flow generation in the quarter was impressive, right? The way you are performing, it's likely that you're going to end this year below 1 x net debt to EBITDA, financial debt to EBITDA. How should we think about balance sheet management and dividends and so on going forward? 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.
Thank you, Joaquin. 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 2020 when we were stopping all merchandise receipts in our warehouses, in our stores, in order to face the pandemic. Now it's the other way around. We have very strict inventory controls, performing very well. That has helped us to rebuild our accounts payable. You see accounts payable compared to inventories were around 90%+, which is even better than we had pre-pandemic. In terms of our balance sheet management, you're right, we will probably end the year at a level that we describe below the 1.0x net debt to EBITDA.
In terms of dividends, the last shareholders meeting approved the dividends, the timing of the dividends is still to be confirmed by the Board of Directors. 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 is performing. As you know, we are in the middle of the third wave, or whatever is the right name of the pandemic. We're not sure what's going to happen in terms of, particularly, customers visiting our stores. It's highly unlikely there's going to be a shutdown ordered by the government, but I'm sure that a lot of customers are going to be very hesitant to probably visit our physical stores.
We will have to see. That's why we want to be very cautious on that front. That's basically what I can say is that these high levels of cash gives us a lot of flexibility. As usual, we have shared with you also that we have very strong plans CapEx-wise for the next couple of years, when CapEx probably is going to be in the MXN 10 billion-MXN 12 billion. What we have seen is that we will be able to do that very strong investment in the next two years without having to go to raise additional debt.
All right. Thank you. Just to follow up also on the balance sheet, if I may. You mentioned that your same-store sales are roughly 9% better than second Q 2019, right? At the same time, your inventory is 2% lower than second Q 2019. I'm curious to learn if you have changed the way that you negotiate with suppliers regarding terms of delivery for the different seasons, so on and so forth, particularly in apparel.
No, not really. We have respected the terms that we have with suppliers. Even in the pandemic, we paid with the terms that 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 process, we're close to 9% ahead of 2019. Frankly, what we have in our financial plans, as I shared with you in the previous calls, we were expecting a -6% in same-store sales compared to 2019. Frankly, we were surprised by what we saw in terms of the top-line growth. That has put our inventory levels below what we expected. We are now doing everything we can to secure supply for the second 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 of supply chains for things like consumer electronics. We have been working very hard on our buying organization in order to secure supply for the second semester and particularly for Q4, which is the critical quarter for retail. If anything, again, I think that we are now facing some issues in terms of low inventories in certain categories. That's where we're trying to fix as soon as possible.
Okay, fantastic. Thank you, Enrique.
Thank you, Joaquin.
Our next question comes from Rodrigo Alcántara. Please state your company name and ask your question.
Hi, good morning. This is Rodrigo Alcántara from UBS. Can you hear me?
Yes, Rodrigo, please go ahead.
Sure. Thanks. Just a quick one here on the delivery times, if I may. You mentioned 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, Monterrey, Guadalajara. How do you stand in terms of two-day delivery, same-day delivery? What's the target that you have there? The second one would be just a follow-up here on the CapEx. You mentioned this MXN 10 billion-MXN 12 billion for the next year, right? We know the investments that you have on Arco Norte, I just was wondering if perhaps, for next year, we would expect a new distribution center or some of these projects that you mentioned on Investor Day. Those would be my two questions. Thank you.
Yes. Thank you, Rodrigo. In terms of our delivery times, I think that our average delivery times on a national basis are around 5.5 days. That's the average on a national basis again. You see the major metro areas of the country, that's Mexico City, Guadalajara, Monterrey, Querétaro, Puebla. Those are the most important metro areas for us. I would say that we're delivering between two to three days. I think that same-day delivery, we can do that on the Click & Collect, where we have the merchandise in the store. We are advertising that you can pick up your merchandise in four hours. In fact, we have the merchandise ready before that. When we have to deliver to your home, I think it usually takes us two, three 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 deliver, 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 two 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 major changes in our supply chain, particularly the fulfillment centers that we also announced in our Investor Day. Those are not going to be ready until next year, a couple of them. That's what's going to be critical in order to be able to deliver on that time frames.
In terms of the CapEx of the MXN 10 billion-MXN 12 billion that was mentioned, basically, we're not changing what I shared with you in the previous call or in the Investor Day. A significant chunk of that is going to be earmarked to logistics and technology. We're expecting that probably 35%-40% of those levels of CapEx are going to be targeted to these two spending categories, and that's still going to be the case. We also, in terms of new store openings, we have announced also that in the case of Liverpool, we're just planning to open two 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 three Liverpool stores in 2022.
In the case of Suburbia, we're going to go back to, not to the 30+ per year we had announced pre-pandemic, but probably between 15-20 stores per year starting next year and for the next three to four years. Again, in terms of changes to our CapEx plans, there are not any major deviations. We're also planning to invest, as we had announced, in the case of Liverpool and also in the case of Suburbia, although much smaller amounts. Also in terms of remodeling, making sure that our flagships stay fresh, stay current. That's another important spending item for our CapEx.
Yeah. That is very clear. Thank you, Enrique. Just to confirm here, on these seven new distribution centers over the next few years that you spoke about in Investor Day, should we expect any of these in 2022, any of these seven new DCs that you announced on Investor Day?
Yeah. You can expect two of them in next year. One in Guadalajara, one here in Mexico City. Those are not going to be new ones. We're going to use the same distribution center that we have in those two metro areas, and we're just going to put some new work processes. We're going to start storing merchandise instead of just using them as cross-docks. It's more a change of our work processes and doing some kind of automatization. We're not talking about new facilities, but just, again, making a better use of what ones what we already have.
Okay. That's very clear. Thank you very much.
Thank you, Rodrigo.
Our next question comes from Antonio Hernández. Please state your company name and ask your question.
Hi. Good morning. Thanks for taking my question. This is Antonio Hernández from Barclays. My question is regarding any change in consumer habits. You've been mentioning throughout the last quarters how consumers were, of course, growing ticket and there was decreasing traffic. Basically, consumers were going to the store more straightly to buy what they needed instead of just wandering around and seeing what else they could shop. Are you seeing a continuation of these type of purchasing habits? Also, are you seeing any change of how consumers might be reacting to rising inflation? Well, a little bit related to that, are you also seeing a relevant increase, maybe to pre-pandemic levels, of how consumers are also eating in your stores and seeing that as a whole consumer experience visit? Thanks.
Yes. Thank you, Antonio. Well, in terms of consumer habits, we still see what we have seen since the stores were open after the pandemic. Hardlines performing better than Softlines, that's still the case. Although we were glad to see that, particularly in May and June with the promotions of Mother's Day and Father's Day, we saw an uptick in terms of Softlines, which was very welcome. That's going to be one of the challenges that we have for the second semester. We're expecting that Softlines are going to start to normalize little by little. It's not going to be overnight. We hope that for Q4, things are going to be more normalized and going back to our pre-pandemic shares between Hardlines and Softlines. Again, Hardlines continue to perform well. We are seeing still what you mentioned in terms of conversion rates.
I think that Liverpool has the benefit of having a lot of different categories under the same roof. Based on the figures that we see in our shopping centers, consumers are still spending little time in our shopping centers. They're not wandering around. I think that they prefer to go to a big store such as Liverpool and do all their purchases there instead of circulating and moving around the different parts of the shopping center. That, we still are seeing that. Hopefully, that will change later in the year, but that's still something that we're observing. In terms of inflation, we haven't seen inflation still forcing us to increase our prices. That's something that we are monitoring very closely. We haven't seen anything significant in terms of price increases.
Again, that's something that we have to monitor very closely for the second half of the year as the suppliers are going to probably want to try to pass their inflation that they're seeing in their inputs to their prices. Again, that hasn't been a factor for the first semester, but will probably be a factor in the second semester. Still too early to tell what's going to be the impact on purchases of our consumers.
Perfect. Thanks a lot, and have a nice day.
Thank you. You too.
Our next question comes from Ulises Argote from JP Morgan. Please ask your question.
Hi, guys. Good morning. 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. Also 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? Also wanted to hear your thoughts around the expectations around NPL evolution. Do you see the current levels being sustainable, probably in the coming quarters? Do you expect any significant shifts there? Thank you.
Thank you, Ulises, for your question. If you want, Enrique, you can start.
Yes, please, go ahead.
Our expectations for the NPLs, obviously, are that they will be lower compared to the 6.7% that we had in 2020. Given the improvement trend that we observed during this first semester of 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 December 2019, which was a pre-pandemic period. 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 fourth quarter, since we have the Buen Fin, and we have all of the Christmas promotion.
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 doing adjustments to all those tightenings that we did during the pandemic period. 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. Even though we are opening all these tightenings that we did, like for example, in cash advances, in overdrafts, in line increases, in cross-sell, while doing that, we don't want to lose the focus on controlling the risks, since, as I mentioned, today there are still some things that, like the increasing COVID cases. Things that we need to be very careful.
Definitely, that is I think one of our main challenges right now, is to start growing the portfolio, but with this controlling the risk. I don't know if that answers Ulises.
Yeah, that is very perfect. 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 are right now on the relief programs. These relief programs, let me mention you that the behaviors that they're having, I think we feel very, very comfortable with the NPLs that we have on relief programs.
Okay. That is super helpful. Thank you so much, Santiago, for the color there.
Thank you, Ulises.
Thank you. Our next question comes from Nicolas Riva. Please state your company name and ask your question.
Thanks very much. Nicolas Riva from Bank of America. I have two questions on the funding side. Enrique, 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 million. Is that still the idea this year? If you can give us any color in terms of the amount you would be looking to buy back of that bond. My second question on your next more immediate maturity, the 2022 local bonds for MXN 3.4 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, we are still 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 $750 million. We have been discussing internally whether it makes sense for us to use around $250 million of our cash position in order to do that buyback. We are still not sure in terms of the timing. I think that we were planning to do that sometime after Labor Day. We are monitoring very closely what's happening with this third wave of the pandemic. 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 third wave. 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 that the bond still has the size that it needs to have, the liquidity that it requires. That's going to be one of the key factors that we will take into account. In terms of the maturities for next year, you're right, that is MXN 3.4 billion in two payments, different payments that we have due next year. Our plans are to use our cash, to pay those maturities.
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 third wave, which hopefully is not the case, we will not need to raise debt for the next couple of years and execute to our plan.
Thanks very much, Enrique.
You're very welcome.
Our next question comes from Irma Sgarz. Please state your company name and then ask your question.
Hi, it's Irma Sgarz from Goldman Sachs. Thank you for taking my question. Just had a follow-up question on Suburbia. It sounds like you're sort of confident about resuming your growth plans there. 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 Softlines, but Hardlines obviously have been a category that's generally done better. I think my question is not just about near term sort of recovery curve, and what that looks like, but also sort of maybe more sort of strategically the positioning of Suburbia. 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?
Do you think that the online shift ultimately ends up being a little bit of a threat for Suburbia 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, Suburbia is still facing challenging times. As we have said in the previous calls, there were a number of factors that affected Suburbia significantly since the pandemic. One is the importance of the metro area, Mexico City and the central part of Mexico has in terms of the sales mix. All the store closures affected us way more than Liverpool, which has more of a national footprint. The second one, of course, is the impact of the pandemic on all the apparel categories. Of course, Suburbia is heavily dependent on apparel. The Hardlines are a very small part of the mix. Finally, the other one is e-commerce. No e-commerce in the case of Suburbia. We had an offering, but frankly, it was well below the capabilities that we have in the case of Liverpool.
Those three things have combined and made a very hard time for Suburbia for the past several quarters. 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. We have been forced in order not to liquidate and do very strong promotions for Suburbia banner basically for the past four or five quarters since the start of the pandemic. That has put a lot of pressure in terms of gross margins and of course, in terms of profitability. 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 with this third wave of the pandemic.
We will have to monitor that very closely to see what are the implications. Hopefully, by the Q4 of this year, that has gone away. Also being very frank, also I think that we have missed the ball slightly in the case of Suburbia in case of protecting our built loyal customer base and having the right merchandise for that customer base, not being so sophisticated. We're working, as we speak, very hard to go back to the fundamentals of the business and to fix those. That's part of the things that we're doing as we speak now. 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 two years, even before the pandemic. We have gone a little bit far away from the successful Suburbia model.
We're going back to basics or going back to the fundamentals of the business. The other thing that we're doing, and we are planning to launch that hopefully for the high season, is to make sure that the e-commerce capabilities for Suburbia are exactly the same ones that we have for Liverpool. That's a project we call to homologar, to have the same backend for Suburbia that we have for Liverpool and just to have a different front end because of the merchandise. Again, everything is working according to plan. 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. Fair to 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 Sergio Matsumoto from Citi. Enrique, my question is on the operating expenses in the second half of 2021. I know you talked about the third wave, but let's consider a scenario that we 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 staff in the stores? There's probably more cleaning to be done or certain other COVID expenses. 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, after pandemic, the effects that we have been putting a very strict control in terms of our operating expenses. You see our operating expenses without depreciation and without the bad debt provision for the Q2 2021, and compare those to 2019, two years ago, before the pandemic, they have increased only 4.2% over two years. That's well below even the inflation. Frankly, what we're expecting for the second semester is the general operating expenses are gonna be more normalized. 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 put a break in terms of new hires.
What you can expect for the second semester is that probably, compared to 2019, operating expenses, without the 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 very good level, considering that we're talking about a two-year comparison. In terms of our temporary workers, frankly, the only thing that we will do, for the high season, is that instead of hiring them through third parties, we will have to hire them on temporary work arrangements, but as part of our payroll. We're 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.
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, but on our own payroll. Again, you're not going to see that as a negative impact in our sales floor.
Got it. If I may ask the second question. Your gross margin for the second half, you mentioned lower inventory right now, and if we 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 are there some other factors that might keep you from doing that?
I think if you compare our gross margin, retail gross margin to 2019 for the second semester, I think it's still going to be under pressure. I think that apparel is going to recover hopefully by late 2021. It's going to be a gradual improvement. We have the negative impact of logistic expenses, which are having more favorable than a year ago because of the store reopening, but still well above what we saw before the pandemic. Digital is still going to continue to be probably around 24%, 25%, 26% of our sales. That negative impact of our logistic is going to still take a toll on our gross margin. I think it's going to be highly unlikely that we will see, for the second semester, a retail gross margin in the same level as of 2019.
I think it's still going to be at least 100, 150 basis points below that year.
Okay, perfect. Thank you so much, Enrique.
Thank you, Sergio. Take care.
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 Monedero Electrónico available online as well as the functionality roadmap that you have for the app, loyalty elements and CRM tools?
Yes. The Monedero Electrónico is now available on the app. As Santiago described, we just launched it two or three weeks ago. We started on a friends and family basis and have been gradually expanding it. We are planning a strong marketing campaign in the next several weeks in order to make sure that the customers know that is now. Now, something very important, you can generate these funds in the Monedero on our digital channel, not only on the physical channel. You can both generate funds and redeem funds in both channels. 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 Monedero Electrónico as an option. That's going to be a big change, I think.
You will be able to transfer your balances from your physical Monedero, your card, to the wallet in the app and use that again on the digital front and on the store. I think this is going to be big news. It also, as Santiago said, will allow us to identify a lot of customers that buy with other credit cards other than our own. We will be able to identify those customers that we don't know who they are. 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.
That's great to hear. Does Mexican law enable you to tailor discounts and incentives to individually calculated price elasticity, or do you have to do a one-shoe-fits-all when it comes to discounts and incentives?
No. There is no legal requirement that the discounts that you can offer are done on a general basis. That's a preference that we have, that we don't discriminate in terms of the discounts or promotions that we offer, whether you're on the physical channel or the digital channel, or only very few instances. We do that, for example, in the wholesale. In general, we don't do that. What we are doing as we speak is also taking a very thorough look at designing a loyalty program 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, something that we are planning to use, but as part of our loyalty program, and not so much as part of our overall general promotion.
That's very helpful. Thank you very much.
Thank you, Bob. Take care.
Thank you. We have time for one more question today, which comes from Alvaro Garcia. Please state your company once again and ask your question.
Hey, Alvaro from BTG. Just a very quick follow-up. Thanks for taking the follow-up. Enrique, you mentioned we're in this third 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. 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.
July is still running ahead where we expected. Recall I said that we beat our financial plan. We are -6% of same-store sales against 2019. Of course, we surpassed it handsomely in the case of Liverpool in Q2. In July, particularly the case of Liverpool, we also saw better numbers than the ones that just described. We haven't seen any reduction in terms of visit to our stores yet. Again, I think that we're just getting into probably the most critical part of this third wave. We will have to see what happens in August.
Agreed. Interesting. Thanks for the color. Appreciate it.
Thank you, Alvaro. Take care.
Thank you. That concludes our question and answer session. I would now like to hand the call back over to Enrique Güijosa 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. We'll see you in a few months to review our Q3 figures. Take care. Bye-bye.
That concludes today's call. You may now disconnect.