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 Liverpool's fourth quarter 2023 earnings call. There will be a question-and-answer session after the speaker's opening remarks, and instructions will be given at that time. Today we have with us Mr. Enrique Güijosa, Chief Financial Officer, Mr. José Antonio Diego, Treasury and Investor Relations Director, and Mr. Enrique Griñán, Investor Relations Officer. They will be discussing the company's performance as per the earnings release for the fourth quarter and full year 2023 issued yesterday. If you did not receive this report, please contact Liverpool's IR department, and they will email it to you, or you can download it at the IR website.
Please note that this call is for investors and analysts only, and questions from the media will not be taken, nor should the call be recorded on. Any forward-looking statements made during this earnings call are based on information that is currently available. They 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. Please refer to the disclaimer in the earnings release for guidance on this matter. I will now turn the call over to Mr. Enrique Güijosa.
Thank you. Thank you, Daniela. Welcome, everyone, to our Q4 conference call. I hope you are certainly doing well. Today we will review the progress we made in the fourth quarter on our key objectives and our full fiscal year 2023 financial results. After that, I will cover quickly our key strategies and our guidance for 2024. As usual, we will then devote the rest of the call to answer your questions. I started last quarter's call by asserting Liverpool's strong results and reinforcing our commitment to our strategic initiatives. I am proud to share with you that Liverpool closed the year on a strong note, reaching record-setting figures in most of our key performance metrics. During the fourth quarter, consolidated revenue increased 9.4% year-on-year.
Retail revenue was 9.1% above year ago, and we continue to achieve double-digit growth rates in both our financial services and real estate business units, 14.4% and 10.4%, respectively. On a fiscal year 2023 basis, our consolidated revenue increased 11.3%, and our three business segments posted double-digit growth rates. Our successful promotional activities throughout the holiday season were one of the key drivers to deliver a strong performance for both Liverpool and Suburbia. Home sales for Liverpool grew 6.7%, and 2/3 of this increase was explained by higher traffic. Positive top-line results were achieved despite facing a challenging base period as same-store sales during the fourth quarter of 2022 grew 11.5%. We continue to see our soft-line categories growing above average, particularly cosmetics, fragrances, formal apparel, and accessories. Furthermore, Suburbia achieved its best result in the last five quarters, delivering same-store sales 8% above year ago.
Our focus on improving the shopping experience with better merchandise selection, enhanced store maintenance, clearer brand IDs and signage, and the Redescubre Suburbia campaign resulted in a 4.6% increase in traffic. On a full-year basis, Liverpool grew comps 8.6%, while Suburbia's increased 4.7%. It is important to mention that these results were obtained in an environment of soft industry trends. For perspective, ANTAD department stores reported a 4.4% increase in same-store sales during the fourth quarter, and total ANTAD apparel and footwear categories grew comps only 1.6%, while general merchandise increased 5%. We entered the fourth quarter with a healthy inventory position that allowed us to have an adequate response to our customer needs throughout the peak season.
The disciplined approach regarding our promotions throughout the quarter, together with a higher share of soft lines and a strong exchange rate, resulted in a retail gross margin of 34.6%, an improvement of 260 basis points when compared to 2022. Our retail gross margin for the full fiscal year improved 90 basis points to reach 33.3%. Importantly, we closed the year with an inventory growing just 0.3% year-on-year. As I mentioned before, the top-line of our financial services business unit increased 4.4% versus year-ago. This reflects a 23% increase in our net credit portfolio as we continue to pursue a more aggressive role in our credit card business. We achieved a 9% increase in the number of cardholders to reach 7.2 million, a new milestone. For perspective, Suburbia grew its cardholder base 17% to reach 1.6 million.
Furthermore, the share of sales with our own credit cards during 2023 was 48.2% in Liverpool. This is 230 basis points above year-ago, while in Suburbia we reached 30%, 360 basis points above. On a fiscal year 2023 basis, financial services revenue grew 23.2%. Revenues from our shopping centers grew 12.4% year-on-year during the fourth quarter as we were able to increase occupancy by two percentage points to reach 92.3%, and we continue to see heavy growth rates in the number of visitors to our shopping centers. On a total year basis, and excluding the one-time gain from the insurance recovery that was posted in the third quarter, the top-line for this business unit grew 16.9%.
Our consolidated gross margin of 40.1% was 260 basis points above year ago as the business segment mix effect, together with above-mentioned improvement in our retail gross margin, contributed to this result. The full-year gross margin improved 150 basis points to reach 40.4%. Operating expenses without VAT, depreciation and amortization grew 18.3% year-on-year. The main factors behind this increase were, once again, the higher payroll expenses and headcount increases in both digital and technology. On a full-year basis, the increase in OpEx was 14.6%. We closed Q4 with an NPL ratio of only 2.7%. This is 35 basis points above year ago due to the higher entry rates that we faced early in the year. To note, the NPL ratio for Liverpool was 2.6%, while Suburbia closed at 4.8%.
As I have explained in the previous quarters, in 2023 we decided to make a significant change to the way we account for VAT deposits in our quarterly results. For perspective, in Q4 2022, the VAT deposit in our P&L was MXN 1.2 billion, or 2/3 of the total for the year. This year we posted a VAT deposit of close to MXN 940 million, just 1/3 of the total for the year. This resulted in a 22% reduction. The VAT deposit for the full year was almost MXN 2.9 billion, 61% above year ago, and this resulted in a negative effect in our EBITDA margin of 56 basis points. Our coverage ratio at the end of the quarter was 8.5% of the gross credit portfolio, 110 basis points below year ago. The ending balance of the VAT deposit represented 3.4 x the NPL balance.
Our Q4 EBITDA of MXN 14.1 billion was almost 20% above year-ago, while our EBITDA margin of 20.4% was 167 basis points above the same period of 2022, as the strong consolidated gross margin allowed us to more than offset the higher operating expenses. Cumulative EBITDA margin was 17.9%, a 42 basis points improvement when compared to 2022. Net profit increased 14% year-on-year, achieving MXN 8.7 billion, reflecting the strong operating results partially offset by a higher effective tax rate. Our bottom line for the full year reached MXN 19.5 billion, a 12% increase. Digital GMV in the fourth quarter was 23% above year-ago. The digital share for Liverpool was 27%, and this was 260 basis points above the same period last year. Monthly active users of Liverpool Pocket increased 12%.
During the fourth quarter, the digital orders that were delivered in 48 hours or less accounted for 41% of the total orders. The share of Click & Collect was 39%, 220 basis points above the same period last year, and direct store deliveries were 29% of the total home deliveries. This was five percentage points above year ago. In the case of Suburbia, our Q4 digital share more than doubled to reach 5.1%. Monthly active users in the Suburbia app increased 34%, while transactions grew 3.5 x. We now have a digital kiosk in more than 60% of our stores, and we are taking full advantage of our recently implemented fulfillment capabilities for digital orders in all our Suburbia store base. Our marketplace GMV during the fourth quarter grew 63% year- on- year, and we closed the year with 49% more sellers and 28% more SKUs.
To note, our marketplace GMV in fiscal year 2023 was 27 x higher than our pre-pandemic level. Regarding the financial services ecosystem, we continue to roll out our personal loans offer to selected Liverpool cardholders. We closed the year with a Liverpool Livercash portfolio of more than MXN 1 billion, and this is 5 x the balance we had a year ago. Furthermore, we continue testing our deposit and investment offer with a group of our own employees. Cash flow from operations during the quarter was MXN 20.3 billion, and this was MXN 3.2 billion, or 19% above the same period of 2022 due to the above-mentioned favorable operating results and lower working capital requirements. CapEx for the full year reached MXN 8.6 billion, 9.5% above year ago.
About half of this amount was invested in our Arco Norte project, and another 31% was allocated to new stores, remodeling, and expansion projects. Importantly, the remodeling of our Liverpool Santa Fe, one of our flagship stores, continues as planned. At the end of the quarter, cash on hand was MXN 29.8 billion, and our net debt-to-EBITDA ratio is a negative figure very close to zero. Regarding dividends, the first installment of MXN 1.57 per share was paid on May 26th, and the remainder of MXN 1.04 per share was paid on October 13th. In terms of new stores, we opened six new Suburbia stores during the fourth quarter to finish 2023 with a total of 10 new Suburbia stores.
We also opened three new Liverpool Express units to reach a total of 17 units of this new format that brings the Liverpool experience closer to our customers in small cities. Well, that's it in terms of results. Since we're not planning to conduct an investor day this year, let me do a very quick recap of our strategic goals and initiatives which have not changed. As you know, our ecosystem strategy and key initiatives are leveraging our strongest assets: our brand, our loyal customer base, our financial services capabilities, our footprint, and our vendor brands and assortment. Our overall goal is for El Puerto de Liverpool to be part of the lives of all our customers in all channels and continue being one of the top options for Mexican shoppers.
Our key objectives are to grow e-commerce, to become the undisputed omnichannel leader, and to create a differentiated experience for every customer journey needs. Number two, differentiate our offering with sticky value-added services. Number three, maximize the ecosystem reach. Number four, provide the best advice and inspiration. Let me now share with you our 2024 guidance for our key performance metrics. In the case of store openings, we're planning to open around between 8-10 new Suburbia stores. In terms of same-store sales, for Liverpool we're targeting 8% and for Suburbia 13% as we continue the turnaround of this banner. Our digital GMV growth should be in the 16% growth rate, and the marketplace GMV growth should be 31%. Our EBITDA margin should be in the 16.5%-17.0% range as we continue to face operating expense pressures, mainly due to payroll increases.
In terms of financial services, we expect our net loan portfolio to grow 14%, our NPLs to reach 3.0% at the end of fiscal year 2024, and our NPL provision, which is going to be posted in our P&L, to grow 38% to reach almost MXN 4 billion. Finally, our CapEx should be in the MXN 11 billion-MXN 12 billion range as we continue with the next phase of our Arco Norte project related to the soft lines category. Over the last years, operations have faced unusual and rapidly changing external conditions. During these challenging times, our continuous success has been the result of our ability to adapt and execute, reflecting the capabilities of our organization. I would like to thank the more than 80,000 Liverpool employees for this achievement.
I'm incredibly proud to be a member of this great team and excited to maintain this positive momentum for the years ahead. Let's now move into our 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 your question. We will now pause for questions. Our first question is coming from Ben Theurer from Barclays.
Yeah, good morning, Enrique. And first of all, congrats on the results, and thank you very much for taking questions. Two quick ones. And one, I'd like to follow up on the guidance you just shared and the outlook in general that you've provided in regards to the capital allocation and the most likely very strong cash generation again in 2024. So as we look at it, given your guidance and what cash flow usually looks like, even with a CapEx of call at roughly MXN 11 billion, what you're calling out MXN 11 billion-MXN 12 billion, it would still generate a lot of excess cash versus what the dividend payments are, are less. So how do you think right now in terms of capital allocation and the ability to return maybe excess cash to shareholders, just given that the leverage is so low?
Just to understand a little bit the priorities, despite the CapEx increase, there's so much cash left. What are your plans to doing with that? That would be my first question.
Yes, thank you, Ben. Well, as you know, we're a very conservative company by nature. We have certainly posted very strong results during the past several years coming out of the pandemic. And as you correctly point out, I mean, we have been generating this issue in particular, operating cash flow close to MXN 21 billion. And we don't see any major reason for that to change. However, as you know, there are lots of uncertainties in the outlook for especially the second semester of this year. We don't know what's going to happen after the Mexican elections, but I'm more concerned about the U.S. elections. And Mexico is going to be probably in the headlines for both candidates in the U.S. And that may cause some turbulence, I think, probably in the FX market.
Also, looking ahead at 2025, there's a lot of uncertainty in terms of economic growth, how strong that's going to be, how the new administration is going to face the challenging economic environment they're going to inherit, particularly in terms of the fiscal deficit and so on and so forth. That's why we want to keep a high level of cash for the time being, whether hopefully that's not the case, but in that case, whether it's a minor storm in 2025, and still complete our CapEx plan, which still will require a heavy investment in 2025. That's the way I would be thinking, that we don't want to commit to higher dividends or even share repurchases until we're behind this heavy investment period that will end by the end of 2025.
Okay, perfect. And then as we look into it, and it's also part of the guidance within the financial services, obviously, there have been significant increases in terms of the write-offs, etc. And you've pointed out even the impact that you had throughout 2023. Just to understand what the strategy is behind the maybe a little bit more aggressive lending in order to drive commercial revenues through the financial arm and the strength you have with your balance sheet to actually do so, as you look beyond and just in light of the commentary around cautiousness, would there be caution needed if things were to turn sour into the second half, also maybe on the credit granting side? Or how should we think about your wish and your ability to further grow the portfolio?
Well, our base plan, as I said in the guidance, is that the portfolio should grow a little bit ahead of sales, 14%. And that's the idea. Behind that is we don't have any plans to restrict credit. I think that we still see very low levels of NPLs. As you know, before the pandemic, we used to run the financial services business unit with an NPL in the 4%-5% range. So we're still well below those levels.
And even though the fact that the portfolio growth and the slight increase in NPLs are putting some pressure in terms of the NPL provisions, we can accommodate those pressures in our P&L, still maintain healthy EBITDA margins, and continue to pursue a healthy growth rate in loan portfolio, not only because of the credit cards, but also everything we're doing in terms of things like cash advances, personal loans, and those kinds of new kinds of offerings that we are expanding to our customers.
Okay, perfect. Thank you very much, Enrique. And congrats again.
Thank you, Ben.
Our next question comes from Sara Maldonado. Please state your company name and then ask your question.
[Foreign language] Sorry. Can you hear me? I'm Sara Maldonado from Santander Asset Management. Thank you for taking my question and congrats for the results. I would like to know more about Suburbia's strategy. Suburbia showed the best trends in the last quarters, and you're expecting to regain 1% for this year. Can you comment about if you are comfortable with all the changes you have done to achieve these results or still need to do something? And also about the new Suburbias, are you thinking about some region in special, maybe the north, or what are your thoughts about that? Thank you.
Yeah, thank you, Sara. Yes, well, quite frankly, I mean, we're really happy that it looks like we have reached an inflection point in terms of the performance of Suburbia. Q3 was already better than the previous quarters, and Q4 was relatively strong. And we closed the year. The operating profit for Suburbia at the end of the year was well below what we expected just three or four months before the year ended close. So that was certainly a very welcome surprise. We think that the fact that we have a better and differentiated merchandise offer with our private labels, we feel also very, very good about the way the stores are looking. I mean, we have done major interventions in terms of the look and feel of the stores and the maintenance standards. So I think that the Suburbia stores have never looked better.
We also, as you know, launched a new campaign to make sure that our customers know that Suburbia looks different, both in terms of the store and also in terms of merchandise. So I think that all those changes are finally kicking in. We have made a number of significant or essential changes, particularly in our merchandising to our buyers' organization. We feel confident that we're entering the spring, summer season with fresh merchandise, very healthy inventory levels. On the other hand, the first semester for Suburbia in 2023 was not very good. The base is relatively easy. We feel good that Suburbia, as I pointed out, should grow its same-store sales around 13% compared to a year ago. In terms of the new store openings, frankly, I mean, we're looking at the whole country.
There are some regions that, based on the low Suburbia presence, are more attractive to us, states like Veracruz, like Nuevo León, or Monterrey in particular. But overall, I mean, we're looking at projects all across the country. Perhaps where we're looking less is in the central part of the country where we already have a relatively strong presence.
Thank you.
Thank you, Sara.
Thank you. Our next question comes from Irma Sgarz from Goldman Sachs.
Yes, hi. Thank you for taking my question. I wanted to just double-click a little bit more on the CapEx guidance that you provided for 2024. If you could just break down in a little bit more detail what is specifically for the Arco Norte project and what is for store openings and maybe sort of the remainder, and then how we should think about—I know you alluded to higher CapEx levels also still into 2025 as you continue to finalize the Arco Norte project. How should we think sort of about the level? Should it, in terms of absolute magnitude, be still similar into 2025? And what are the final sort of touches that you're looking to complete in that year and the benefits that you're looking to get out of that in your operation?
And then final question, just if you could also just allude a little bit to more or enter into a bit more detail on the strong traffic dynamics that you're seeing in Liverpool. I think it's clear on Suburbia the turnaround that is happening there. But in Liverpool, I was just curious if you think it's much more sort of to do with consumer backdrop and obviously, the stores are back from the pandemic. Or do you also think you're gaining share through specific campaigns? And if so, who are you gaining that share from and how? Thank you.
Yes, thank you. Well, in terms of the CapEx breakdown for 2024, Arco Norte will require more or less 35% of the total. The investment for Arco Norte is going to be around MXN 4 billion for 2024. And then for Arco Norte, we'll require around MXN 2 billion for 2025. So probably 2024 is going to be the peak of the next years. And then the CapEx will certainly go down as we complete the next phases of that very important project. I would say that another more or less 35% of the CapEx will go to both new stores and remodeling. In the case of Liverpool, we will finish the remodeling of the Santa Fe store. We're just starting the remodeling of another very important store for us, which is in León.
We also are starting a major renovation or remodeling of our Liverpool Metepec store, which goes hand in hand with the expansion of the shopping center there. In the case of Suburbia, we're also planning to remodel three or four, more or less, of the flagship stores that we have, most of them in the eastern part of Mexico City. So that's more or less there. I would say that around 10% of the total will be allocated to technology, to IT. So that's more or less the big building blocks of the CapEx investment for 2024. Regarding your question on what's the outlook for CapEx for 2025, I think that we will still be in the MXN 10 billion-MXN 11 billion range, so a little bit below 2024, but not much.
And that's why I was saying to your previous question that we want to be conservative in terms of dividends and make sure that we protect those big investments. Now, to your question in terms of the strong traffic at Liverpool, yes, I mean, based on what we see on the shopping centers, we're seeing traffic still growing. It's basically, I think, that back to the pre-pandemic levels now. And I think that the Liverpool stores, as usual, I mean, we strive to have the latest and greatest in terms of fashion brands. We have been very active in terms of strengthening the relationships that we have with our key vendors to make sure that we have the most complete offering for those vendors inside our department stores to complement that offering with new and exciting and fashionable new brands.
So I think that that's why we're seeing healthy traffic growth rates in the Liverpool stores as well. In terms of gaining share, if you only see the department store business or the segment in the ANTAD readings, we have certainly been performing better than the whole segment. But that is becoming an outdated segment in the total space. We're still facing a lot of competition from the digital players. So it's hard to say whether we are gaining share or not. You see only the ANTAD figures and only the very low growth of the apparel segment in particular, only 1.3%. You might say that we're gaining share. But on the other hand, based on what we hear about Shein, about Temu, I mean, it's hard to say.
Great. Thank you so much. Very helpful responses. Thank you.
Thank you, Irma.
Our next question comes from Renata Cabral from Citi.
Hi, everyone. Thank you so much for taking my question and congrats for the results. So I have two questions here. The first one is about the digital share that reached 27% this quarter, is one of the highest levels since 2021. I do like to understand your view on how these numbers should evolve and if Suburbia or Liverpool should increase more in terms of digital penetration. And my second question is if you could give some update about the new industrial warehouse, Arco Norte. Thank you.
Yes, thank you, Renata. Well, in terms of the digital share, yes, as we reported, the Q4 numbers, yeah, the share for Q4 was very strong, 27%. And significant ahead of what we reached a year ago, we still continue to see very healthy growth rates in our digital business. But frankly, I mean, we don't have a specific target for that. I mean, the way we see that the business is on an omnichannel, let's say, basis for the full, both Liverpool and Suburbia. I think that based on the number that I shared, that the digital GMV should grow around 16% for 2024, that should result in probably 2.5 percentage points of higher penetration. So we're going to probably be close to 30%, a little bit below 30%. But again, we're not pursuing a particular target on that front.
That's going to be a result of what our customer wants to do in terms of buying on one channel or the other. In the case of Suburbia, though, we certainly see a huge upside. I mean, in the Q4, digital for Suburbia performed very well. We basically more than doubled the share to 5%. But that's still, obviously, well below what we see in the case of Liverpool. Obviously, the customer base is very different between Liverpool and Suburbia. So I don't think that Suburbia will reach the high 20s anytime soon. But I feel that eventually, we should be in the low teens, hopefully, quite soon. Now, in terms of the Arco Norte project, we have finished the phase one, which was the big-ticket merchandise. So that phase is now done and completed. And we are full speed ahead on building the new building to house the soft lines categories.
We expect, I mean, we have more or less 40%-45% advance in our progress in the building as we speak. We expect to complete the building in the next 4- 5 months. We expect for the new soft line building, we'll have a heavy component of automation. So we're expecting for the sorters and all those fancy equipment to arrive from Europe at the end of the first semester to start the installation of that equipment, which should be ready to start the mechanical test together with the IT integration test by the end of this year. And then we'll go into the full test of the digital space in Q1 2025. And our target is to start moving our soft line operation by the end of Q1 or the early Q2 2025. So that's the idea. And those are the plans.
We are confident that that's what we're going to achieve. Moving the soft lines supply chain will be certainly much more challenging than what we faced with moving the big-ticket items, which frankly didn't entail many changes in terms of technology or way of working. In the case of the soft lines, it's going to be a huge and very complex project, both in terms of the new equipment of the new warehouse and the changes we are planning to do to the whole supply chain together with the fulfillment centers and centralizing more merchandise instead of only cross-docking and so on and so forth.
Super clear. Thank you so much for the update.
Thank you, Renata.
Thank you. Our next question comes from Luis Willard from GBM.
Hi, Enrique. Good morning. Congrats on the results. Very impressive. I wanted to touch a couple of points. The first, I mean, as you probably know, the COFECE ruled something or put some limits on some practices made by two of your main e-commerce competitors. I mean, it's still a long way to see if that, one, changes the market and, two, if it ever is enforceable. But based on what we all know in public information, can you give us your thoughts? Do you see any opportunities for Liverpool to take advantage of those rulings? Anything they can share at a high level that will be perfect. That's my first kind of follow-up.
Hi, Luis. Thank you. Well, it's hard to tell. I mean, these two, I mean, e-com competitors, are you saying, or digital natives, are formidable competitors. So as you know, and we have said that we are as paranoid as all the other original brick-and-mortar business trying to evolve and become an omnichannel retailer. And that's what we have been focused on in the past several years now. The limits that the COFECE has imposed on these two competitors, to me, I mean, they don't sound like too, frankly, too strict or too rigid or that they are imposed to them like very tight rules. As far as I read it, is that they're going to ask them to get rid of the bundles so they cannot bundle their streaming offer together with their loyalty programs.
But quite frankly, I think that particularly in the case of Mercado Libre, the streaming offer was quite new. So I don't think that's going to be a major change. And on the other hand, it's not very clear to me what's going to happen with their algorithms and the way they present the information from their sellers in terms of the ranking. That, to me, is still like a black box. I'm not very familiar with what the result of that restriction is going to entail. And the other one has to do with the logistics. I think that both Mercado Libre and Amazon are very competitive in logistics.
So even though the sellers are going to have the chance to work with another, let's say, third party, and not only with Amazon or Mercado Libre in terms of the fulfillment services or the last mile, frankly, I think that both Amazon and Mercado Libre will probably going to be still the best option for the sellers. So again, all in, I don't see that this is going to be a major change in terms of how competitive both Mercado Libre and Amazon are and will be.
Thank you, Enrique. Very clear. Another very specific, you mentioned that you are expecting some volatility from the peso for 2024. So my question is, with all this excess cash, are you increasing the portion of the cash that you will hold in U.S. dollars as trying to hedge your U.S. dollar needs for the rest of the year? Thank you.
Yes, we are. I mean, if you see our cash position at the end of the year, we have close to $400 million of our cash in that currency. So yes, we have taken advantage of when the peso has been a little bit below 17 or around 17 to buy U.S. dollars. And again, this is just a precaution. As you know, I mean, you see the expected exchange rate by the end of this year, based on the surveys that both the Banco de México does or Citi does, the expectation is that the exchange rate is going to close the year around 18.5%. So end to end, apparently, there's not going to be a major change, probably an 8%-10% devaluation, but probably around September, October, we may see some volatility because of the political campaigns in the U.S.
And again, that's just a risk, right?
Absolutely. Thank you.
Thank you, Luis.
Our next question comes from Álvaro García from BTG.
Hi, Enrique. Hope you're doing well. I wanted to explore a couple of things. One, on CapEx, I'm trying to sort of get to the bottom of what a normal CapEx number would be post-Arco Norte if you're thinking about maybe more investment in Galerías down the road or if it's fair to assume sort of a step down in 2026 to, let's say, a MXN 7 billion-MXN 8 billion range, or would that be too low? That's my first question.
It's difficult to go beyond 2025, Álvaro. Frankly, I mean, in terms of the Galerías, we have been very selective, although we don't have an aggressive plan of growing our shopping or real estate business. We have been receiving some offers in terms of taking advantage of our strong balance sheet to buy some shopping centers. So that, again, is going to be very opportunistic. We don't have a growth agenda upfront, but we have received just in the past several weeks, I mean, some offers to buy a shopping center here or there. So we are analyzing those options, but those are hard to predict, right? So I would say that probably in 2026, we should be in the MXN 8 billion-MXN 9 billion range. That should be more or less the normal. But again, that's still well beyond the forecasting period, frankly.
No, I hear you. I hear you. I hear you. That's helpful, though. Appreciate that. And then on the marketplace, obviously, it's outperformed. I know it's a lot smaller, but I was wondering if you could talk about what categories are seeing strong growth in that marketplace. What sort of niches are you seeing strong results in there? That'd be helpful.
Yes. On the marketplace, as you know, our marketplace is not open. I mean, we see our marketplace as complementary to our 1P offer. And what we're seeing is that things like, for example, sleeping mattresses have been performing very well. Things like shoes have been; all kinds of shoes have been performing very well, including sneakers. What else? Sports equipment has also been performing very well. And mobile phones have been performing very well. Laptops and computers have been performing very well. So that's, I would say, more or less the categories that we highlight that have been performing well and complementing in a very strong way what we can offer as a 1P in our stores or our digital channels.
Yeah, it's super, super helpful. Oh, one last one. If we could zoom in a bit on Suburbia, the 13% same-store sales growth guidance for this year, I would say we thought it was a bit higher than expected. It's obviously a very solid print. Sort of what underpins that 13%? Is there an expected recovery in traffic, maybe something you saw in the second half that you didn't see in the first half of 2023? What's behind that 13% growth? Is it maybe the digital thing that you just mentioned?
No, I think that, well, digital is going to help because it's growing a lot, but from a very low base. I think it's the combination of better merchandise selection, healthier inventories coming into the spring-summer season, the way the stores are looking, the new advertising campaign. So I think that it's a combination of those drivers that we feel that and also, as I said, the first semester for Suburbia in 2023 was, frankly, quite disappointing. So particularly in the first semester, we should see high growth rates. And as we progress throughout the year, probably the Q4 is going to be more challenging. But January and February are looking very much in line with this figure that I'm providing as guidance.
Awesome. Super clear. Thank you very much.
Thank you, Álvaro.
Thank you. Our next question comes from Andrew Ruben from Morgan Stanley.
Thanks very much for the question. I'm curious if you could dig in a bit more on the wage pressures you've mentioned? If you could quantify what type of increases you saw in 2023? And then as you think about the year ahead, understanding minimum wages are coming up, but what type of increases you're expecting and essentially how sensitive your wage costs are relative to changes in the minimum wage? Thanks very much.
Well, yeah. I mean, the increases in minimum wage have been certainly a headache in terms of OpEx. And obviously, also in terms of consumer purchasing power has been a big benefit. But in terms of our OpEx, our payroll expenses, more or less, used to be like 40% of our total OpEx. Now it's close to 50%-55% of the overall OpEx. So for obvious reasons, it has gained a lot of ground. So it's not only the increase in the minimum wage. The thing is that after all these years of 20+ minimum wage increases, that has also it certainly bumps the salaries for the people that used to be close to the minimum wage.
So now we have some cases where the boss, if we don't increase their salaries, are earning less than the people at the, let's say, the bottom of the pyramid in our salary structure. So it's not only the minimum wage by itself, but also, let's say, the chain reaction it has on the rest of our salary structure, particularly for middle management and below. There are some parts of the company, for example, logistics today, more or less around 60% of the total workforce in our logistics side has to do with the minimum wage. But looking at the next minimum wage increase, which will probably be another 20% in January 2025, that will push that figure close to 80%. So again, as the minimum wage continues to increase, it has a greater effect on our overall salary structure.
And then on top of that, of course, we have had some legal changes like more vacation days, the pension reform that increases basically one percentage point per year for the next several years, the contribution that we make as a company to the AFOREs. So as you put all those together, we have certainly faced a lot of pressures in terms of our payroll expenses. And 2024 is not going to be an exception. And quite frankly, I think that 2025 will still continue to be one of the things that we have to keep in mind and that is forcing us to take a look at what's the compensation, the package that we pay. If we need to make changes within our variable and fixed compensation plans. So it's really forcing us to take a very deep and thorough look at all we do in terms of payroll.
Very helpful. Thank you for all the color.
Thank you, Andrew.
Our next question comes from Alejandro Fuchs from Itaú.
Hello, Enrique. Thank you for the presentation, and congratulations to you and the team for the results. Two quick questions from our side. The first one, in terms of commercial gross margin and the very solid expansion that we saw in the quarter, we wanted to know if you could maybe share a little bit more detail on what's driving the expansion on the commercial side and how sustainable you think this is for the future. And then the second, maybe a quick follow-up on the capital allocation question that was made before. We wanted to see, how is the company thinking about potential M&A activity? We know that you have a high CapEx for the next two years, as you have stated. But are you guys actively looking for any deals or if it presents the opportunity, would the company be willing to look at them?
Those two questions would be from our side. Thank you.
Yes. Thank you, Alejandro. Well, in terms of the gross margin, yes. I mean, quite frankly, I was personally very surprised by how well we performed in 2023, not only in Q4, but the full year, I mean, was fantastic in terms of gross margin. It has to do, I think, with several things. Number one, soft lines, which, of course, have a higher margin than the hard lines having any share. We are now basically back to the pre-pandemic mix between soft lines and hard lines in the case of Liverpool, probably even a little bit ahead in terms of the soft line penetration. So that's a big help in terms of the overall gross margin. The second one has to do with the fact that we have had very healthy inventory levels. I think that that has been one also of the highlights of the year.
Our commercial planning teams have been doing a fantastic job together with our merchants, and we have been able to make sure that we go through this, basically, the past two years with very healthy inventory levels, both for the case of Liverpool and Suburbia. The third one has to do, particularly in Q4, with the fact that Suburbia performed a little bit ahead of Liverpool. Suburbia, because of the mix, is heavily skewed, obviously, to the soft lines. It has a higher gross margin than the Liverpool gross margin. So that was another help. Finally, I would say also that the exchange rate, the strong exchange rate, has been also a significant help. I would say that probably 50-probably 100 basis points improvement as we have because of a strong exchange, we have had a lower cost of goods.
And so that has been quite helpful. Going forward, frankly, I think that it's going to be hard to maintain these levels of gross margin. I think that we're seeing a lot of competition. We have had to, although we are careful with our promotional activities, we have to remain competitive. And as I said before, we have a big question mark in terms of what's going to happen with the exchange rate, particularly in the second half of the year, at least in some months. So that's more or less the color in terms of gross margin. In terms of capital allocation, we're not actively pursuing any M&A activity. But we always tell our investment bankers that if they see anything that makes a strategic fit with what we're doing, that to tell us no.
So we have seen some activity right now, as I was saying before, in terms of shopping centers, people knocking on our doors, knowing that we have a strong cash position to see if we are interested in buying some shopping centers. So we are analyzing those to see if they make sense and complement our offer or not. But that's more or less what I can tell you in terms of M&A. Again, we are not doing anything actively pursuing from our side.
Thank you very much.
Thank you, Alejandro.
Thank you. Our next question comes from Andrés Ortiz from BTG.
Hello. Thank you for taking my question. Andrés Ortiz from BTG Pactual Asset Management. I would like to ask, some companies have already mentioned a proactive approach towards changes in labor law, particularly the 40-hour week. Are you planning to do something? What is your plan of action there? And another question on your guidance. Basically, you are projecting that the portfolio growth of 14%, however, provisions growing 38%. And this already happened during 2023. What explains such a large growth in provisions above the loan portfolio growth? Thank you.
Yes. Thank you, Andrés. Well, in terms of the payroll expenses here, as you might imagine, we're following up very closely these things that our lawmakers are thinking about, not only the reduced schedule from 48 hours to 40 hours. That's by itself not that cumbersome for us, but the fact that they're also looking at to have two consecutive days to not to work, let's say, that's an important change for us. I mean, it will force us to take, as I was saying before, to take a very thorough look at the way we schedule our workforce at our basically all our facilities. We are, as we speak, designing a new workforce management tool to put more science to the way we allocate the hours or the headcount in all our business units. So that's one of the things that we're doing.
For example, we want to take also a very thorough look at the way we, as I was saying before, how much we pay on a fixed basis and how much we pay on a variable, like commissions, for example. So again, all these changes regarding the labor loss are really forcing us to, let's say, challenge what we have done through the past many, many years. And so now, in terms of your other question regarding what's the driver behind the provision growth, well, it has to do with the first driver, obviously, as you were pointing out, is the portfolio growth. In 2023, the portfolio growth was 23%. So that's the key driver. And the other key driver is write-offs. So write-offs have been growing significantly as we basically came out of the pandemic. We had big write-offs basically in 2021, but then in 2022, we're relatively low.
That's what we're seeing right now is basically going back to the pre-pandemic levels in terms of write-offs.
Understood. Thank you very much.
Thank you, Andrés.
Thank you. Our next question comes from Cristina Morales. Please state your company name and then ask your question.
Thank you. Hi, this is Cristina Morales from Signum Research. I was wondering if you could give us any update on BYD. How many cars did you sell last year, and what is the expectation for this year? Thank you.
Yes. Last year, in total, I think that we sold around 350 cars, more or less. That was significantly below what we were expecting when we launched this new offering, let's say. It has mainly two reasons. The first one is that the original calendar that we envisioned in terms of opening our showrooms and our dealerships was very optimistic, and we faced some delays. Most of the dealerships, the two dealerships that we have and the three showrooms opened later than what we thought originally. On the other hand, in terms of the models that BYD was ready to offer in Mexico, together with the fact that, frankly, nobody knew BYD and the advertising campaign was launched by the BYD guys very late in the year.
So now, if you go, for example, to the airport here in Mexico City, you finally see some billboards advertising BYD, but that was very late in the year. So for this year, our target is to sell around 150 cars per month. So our idea is to close the year with more or less 1,800 cars sold for the full year. That's our plan. And we are planning to open new dealerships in Guadalajara, in Cuernavaca, and in Monterrey, I think, in Zacatecas, to expand beyond Mexico City with some dealerships.
Perfect. Thank you.
Thank you, Cristina.
Thank you. We have one last question today. It's from Fernando Herrera from Compass Group.
Hi, guys. Congrats on the good results. Here, I just want to question about what are your expectations or what are your plans regarding the Nordstrom investment you made a couple of years ago? You're planning to increment your exposure, or what are your plans there?
Yeah. Thank you, Fernando. No, we don't have any plans. I mean, as we announced, I mean, I imagine we took advantage of what we thought was a good price level for the Nordstrom share price. So that's why we decided to take a position of close to 10% of the Nordstrom equity. But we don't have any specific plans. It's just a long-term financial investment, and that's the way we are thinking about it as we speak.
Amazing. Thanks.
Thank you, Fernando.
Thank you. That concludes our question-and-answer session. I would now like to hand the call back over to Enrique Güijosa for some closing remarks.
Well, thank you very much. I mean, as we revised, I mean, we had a very successful year. We now have a challenging 2024, but we're confident that we're going to hit our targets. And thank you all for your questions. I thought we made this a lot of fun. And see you in a couple of months to review our Q1 performance. Thank you. Bye-bye.
That concludes today's call. You may now disconnect.