Good morning. My name is Sofia, and I will be your conference operator. All lines have been placed on mute to prevent any background noise. This is Liverpool's first quarter 2025 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. Gonzalo Gallegos, Chief Financial Officer; Mr. José Antonio Diego, Treasury and Investor Relations Director; Mr. Enrique Griñán, Investor Relations Officer; and Ms. Nidia Garrido, Investor Relations. They will be discussing the company's performance as per the earnings release for the first quarter 2025, issued last Thursday, April 24. If you did not receive the report, please contact Liverpool's IR department, and they will email it to you, or you can download it at its IR's website.
To ensure focused discussion, this call is for investors and analysts only, and we will be taking questions exclusively from them. 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. Gonzalo Gallegos.
Thank you and good morning, everyone. Thank you for joining us. Today we will discuss our financial performance for the past quarter, which has shown mixed results. While we experienced strong top-line growth, there were also challenges that impacted our overall performance. As an omnichannel retailer, our unique business model enables us to engage customers through various channels, including physical stores, online, and value-added services, across all our business segments. We remain committed to our long-term strategy and are taking necessary steps to address the areas where we see opportunities for improvement. Our team has been working diligently to adapt and improve as we navigate these complexities and drive towards our goals. Before we proceed with our first quarter earnings, I'd like to provide a brief update on Nordstrom. The transaction is advancing as expected.
The immediate next step is the shareholder vote, which has been scheduled to take place on May 16. Please refer to the Nordstrom proxy statement filed with the SEC on April 10, which contains extensive detail regarding the transaction. Please note that we will not be commenting on this topic or discussing this matter during our call today. Now, let's move on to our first quarter results. In Q1, consolidated revenue reached MXN 45.5 billion, reflecting a 10.4% increase compared to the previous year. Retail revenue rose by 9.5%, while our financial services and real estate divisions experienced strong double-digit growth with increases of 16.8% and 14.3%, respectively, highlighting our overall business strength.
Focusing on the retail division, during this quarter, the commercial segment experienced a 9.5% growth, primarily driven by the success of our traditional end-of-season clearance campaign, complemented by an active calendar of sales activities aimed at reducing inventory levels. It is important to highlight that the quarterly results were influenced by unfavorable calendar effects. Specifically, 2024 is a leap year, and while Easter vacation occurred in March last year, it is taking place in April this year. Liverpool's same-store sales delivered a 7.9% increase, largely driven by our annual Gran Barata promotion. This year's event featured more aggressive discounts and a longer duration, proving particularly effective in driving sales and enhancing inventory levels. Throughout the quarter, sales performance remained balanced between hard lines and soft lines, supported by our strong commitment to customer service.
The key factor behind this growth was a 6.5% rise in customer traffic, along with a 1.4% increase in the average transaction value. Conversely, Suburbia's same-store sales grew 7.3%. The primary contributor to this performance was the average ticket, which experienced an increase of 6.8%. Our private-label product offerings, strategic partnerships with suppliers, and the introduction of new categories, including motorcycles, toys, white goods, and optics in several stores, have significantly enhanced customer preference while ensuring quality and competitive pricing. We are also committed to continuously improving our Suburbia brand image, both in-store and online, aiming to provide our customers with a seamless omnichannel experience that allows them to easily find the products they desire. Finally, consolidated inventory at the quarter end increased by 21%, influenced by the receipt of merchandise for the new season, high import costs, and foreign exchange rates.
It is important to understand our performance within the broader retail environment. As previously mentioned, the first quarter was impacted by negative calendar effects, which contributed to a general slowdown in the retail sector. However, our banners have once again outperformed the ANTAD benchmarks. For further reference, Total ANTAD reported same-store sales growth of just 0.3%. Department stores experienced same-store sales decrease of 0.2%, apparel and footwear categories reported negative comps of 0.7%, and general merchandise decreased by 0.4%. Our omnichannel strategy is yielding strong results, with total GMV growth of 15.8% year over year. Liverpool's digital share expanded to 28.7%, a 185 basis points increase, and Liverpool Pocket app monthly active users increased by 8.6%. Suburbia also achieved significant digital growth, with its digital share reaching 6.2% of sales, a 39 basis point increase, while Suburbia app monthly active users expanded by 22.7%.
Moving to marketplace and other online indicators, marketplace GMV for the quarter increased by 12.3%. We also expanded the platform's reach and selection, closing the quarter with 28% more SKUs and 29% more sellers. For our Liverpool banner, during the quarter, click-and-collect accounted for 41% of orders, while our Liverpool soft lines deliveries in less than two days increased to over 30%. Turning to financial services, revenue increased by 16.8% compared to the prior year. This growth was primarily driven by a healthy 13.2% expansion of our credit portfolio. Financial revenue growth is surpassing that of our retail segment due to a larger cardholder base, a higher percentage of sales made with our internal credit cards, increased purchases of us, and the introduction of new credit products. For perspective, our total cardholders grew by 7.3% to 7.9 million.
Regarding payment methods, Liverpool's share of sales using our internal payment options reached almost 49%, a 140 basis point improvement, while Suburbia's share was close to 32%, reflecting a 150 basis point increase. Revenue from our shopping centers increased by 14.3%. The growth was mainly driven by the full-year effect of the acquisition of the Tampico Altama shopping mall, as well as improved lease spreads and a 30 basis point rise in occupancy, now at 92.4%. Turning to profitability, our gross profit margin decreased by approximately 180 basis points year over year due to our robust calendar of commercial activities aimed to boost sales and to reduce overall inventory levels, unfavorable exchange rates, increasing tariffs and other import costs, as well as increased logistics expenses.
Operating expenses for the quarter increased by 11.1% as a result of the increase in minimum wage, impacting payroll and labor-intensive external services, as well as expenses associated with sales and new locations. Our Q1 results indicate a provision for bad debt of MXN 1.2 billion, representing a 28% increase year over year, mainly due to overall portfolio growth. This increase is slightly above our anticipated range, and similar to last quarter, it was completely offset by higher revenues in the financial services segment. NPLs ended the quarter at 3.7%, representing a 59 basis point increase. However, these levels remain below pre-pandemic figures, and they are consistent with our previously announced strategy of gradual and measured risk expansion supported by prudent risk management. Our coverage ratio at the end of the quarter stood at 10.1% of the gross loan portfolio, a 150 basis point increase year over year.
Furthermore, our bad debt reserve represents a robust three times the NPL balance. Quarterly EBITDA reached MXN 5.5 billion, a 7.3% decrease from the previous year, leading to an EBITDA margin of 12%, which is 240 basis points lower than last year's. Moving to net profit, we observed two further effects in our P&L: increased financial expenses resulting from the $1 billion bond offering made in January, coupled with exchange rate effects related to our substantial dollarized cash reserves. Accordingly, consolidated net profit after tax of MXN 2.3 billion reflects a year-over-year decrease of 19%. Turning to capital expenditures, our Q1 investment represents MXN 2.1 billion, reflecting a 30% decrease compared to last year. However, when excluding last year's acquisition of the Tampico Altama shopping mall, our CapEx increased over 20%. These investments are primarily directed towards strengthening our logistics infrastructure, renovating our existing store base, and opening new store locations.
Our cash flow from operations for the quarter stood at a MXN - 6.2 billion, primarily due to the timing of investments in working capital and operational expenditures. Despite these temporary cash flow adjustments, our financial position remains strong, with MXN 36.6 billion in cash on hand and a net debt-to-EBITDA ratio at just 0.2 times. In relation to shareholder returns, a dividend of MXN 2.95 pesos per share was announced during the ordinary stockholders' meeting held on March 18. This dividend will be distributed into installments. The first payment of MXN 1.77 pesos per share is set to be made on May 23, with a second payment of MXN 1.18 pesos per share scheduled for October 10th. In other news, I am excited to share that in the past few weeks, we launched operations at our brand new soft lines logistics center at Arco Norte, marking a significant milestone for our group.
This highly automated facility will significantly enhance operational efficiency and improve customer satisfaction. At the moment, we are focused on a gradual ramp-up, targeting full operational capacity before the peak season. As previously announced, while we continue to develop our soft lines capabilities, we will be facing a temporary overlap of costs from our existing distribution network. We expect these one-time expenses to be approximately MXN 1.2 billion, with around 60% expected to impact our full year 2025 EBITDA. In terms of our operational footprint, our Liverpool Tezontle location in Mexico City has reopened its doors on April 16 after a comprehensive renovation. Additionally, a day before that, we proudly inaugurated the first phase of Liverpool Rio Grande in Ciudad Juárez, transforming a former Suburbia location into a new Liverpool experience. We also increased our reach with six new Liverpool Express units, bringing the total number to 46.
Finally, we also increased our reach with the opening of a new Suburbia store in Tultitlán within the Mexico City area. We are also excited to share some awards and distinctions we have earned for our achievements. First, the World Retail Forum has selected Liverpool as the recipient of the 2025 Innovation Leadership Award, recognizing our efforts to make shopping an everyday joy through various aspects such as human touch, technology, store design, and brand storytelling, among other criteria. We are also pleased to highlight our recognition at 16 in the Employers for Youth 2024 ranking and as one of the best companies for professional women under 35, underscoring our commitment to fostering positive and equitable work environments. Finally, for the second consecutive year, we were included in the LinkedIn Top Companies Mexico ranking, securing the 19th position among the best companies for professional advancement in the country.
As we look ahead, we remain committed to the strategic initiatives that underpin our diversified portfolio and compelling value proposition, ensuring we continue to resonate with our customers in different environments. We believe these efforts will position us for robust growth and success in the future. Thank you all for joining us today. As always, we appreciate your participation in this call and look forward to sharing our progress in the future. Now, let's turn to your questions.
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're 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. Our first question comes from the line of Andrew Ruben. Please state your company name and ask your question.
Hi, Andrew Ruben from Morgan Stanley. Thanks very much for the question. We see the outperformance versus ANTAD in the quarter, but also the retail gross margin contraction. I'm curious if you could discuss more on the gross margin dynamic and any sort of sales versus margin trade-off. The related question would be inventory continuing to grow in excess of sales growth. It's been a few quarters of that trend now, so just trying to understand how you're thinking about the inventory position and any implications for discounting promotions, etc. Thanks very much.
Thank you, Andrew. We're excited about the top line performance.
Obviously, when comparing with the ANTAD benchmarks, our 10% growth is significantly above overall market performance. As you pointed out, it's a trade-off between sales and margin. We were more aggressive this year in our Gran Barata promotion, precisely to have better rotation in inventory. Even though we achieved significant results in sales, we had to be more aggressive and during a longer period in order to achieve those results. We're not expecting to continue with that level of promotions in the upcoming quarter. We expect to have margin pressure, but not as high as we have seen during the first quarter. Regarding inventory, even though overall inventory is around an increase of around 20%, we are expecting to have significant reductions during the second quarter.
We have to separate the overall inventory levels that remained high during the first quarter with the obsolete inventory. So let me speak by banner. In the case of Liverpool, we expect that by the end of the second quarter, inventory in units is growing consistently with sales increase. The overall value of the inventory may be higher because of higher import costs, but in units, we're expected to be relatively comparable to sales growth. In the case of Suburbia, it may take a bit longer. We expect to reach that position in the middle of the third quarter. What's interesting is that even though overall inventory is high, the obsolete inventory is within our expectations. So we're not expecting to have significant promotions in order to reach those levels of inventory.
Very helpful, color. Thank you.
Our next question comes from the line of Thiago Jahufer. Please state your company name and ask your question.
Hello. Hello, everyone. Thiago Jahufer here from Citi. Thank you very much for taking my question. The first one, I would like to maybe discuss a bit more of the previous question. I understand it's a very interesting theme here, so just wanting to pick a bit more of your brain. So this spread, this outperformance versus ANTAD, just wondering how we could see that going on towards 2025, the next three quarters, and at the same time, what you're expecting for the overall Mexican market in terms of consumption, right? The second question, if I may here, just regarding tariffs, the scenario with the US and global trade, just wondering how you guys are seeing this eventually impact Liverpool since you have international dynamics going on. Thank you very much.
Thank you, Thiago. Let me talk a bit of what we have seen during the first three weeks in April. In both Liverpool and Suburbia, we are seeing a two-digit sales growth. We're happy about those results. The thing with the overall April figures is that they will not be completely comparable with our previous year because our Venta Nocturna event, which, as you know, is really big for us, last year it took place during April, and this year it will be taking place during May. Even though up until yesterday, we're seeing a two-digit growth, maybe the overall comparison versus the previous year will not be at the end of April, but more likely at the end of the Venta Nocturna event in the first week of May. What I can share is that until yesterday, a two-digit increase in both Suburbia and Liverpool.
We are talking about the next quarters. There's a lot of volatility right now, so it is hard to make a projection in the upcoming quarters, but we will continue to focus on our in-store execution and in our digital market execution in order to have the proper level of inventory, the proper collections, and to provide the customers a good experience. We're hopeful to continue a strong top line growth in the upcoming quarters. Now, regarding tariffs, it is hard to say. There is so much going on that at the moment, we are waiting to see what happens with the overall tariffs. But let me try to provide an answer on three fronts. First, on the supply chain.
Given that we have very small imports directly from the US, we are seeing a very small risk of having issues with the overall supply chain due to tariffs. Now, in terms of cost, textiles coming from China into Mexico, they already had a tariff increase back in December. So by now, we're seeing the full effect of those tariffs increase. Going forward, the Mexican government has been very cautious to take reactions on the overall US tariffs environment. So at the moment, we're not seeing any additional tariffs from Asian countries. So we're waiting to see what may be the Mexican government reaction. But at the moment, other than being cautious with the supply chain and to try to manage the overall import cost increase coming from Chinese goods, we'll have to wait to see what the overall tariffs increase from the Mexican side.
This is great. Thank you very much.
Our next question comes from the line of Robert E. Ford. Please state your company name and ask your question. Please unmute yourself to ask your question.
Thank you so much. Good morning, everybody. This is Bob from Bank of America Merrill. Gonzalo, can you talk a little bit about the health of the consumer and your expectations for just the credit card portfolio this year? When it comes to the marketplace, all this inventory, new sellers, assortments that have been added, how much of that inventory is within Liverpool Fulfillment? How is fulfillment evolving, and how important is Liverpool Fulfillment to really driving conversion? The last question I had was just the plans for BYD, given kind of the controversial pressure that exists to maybe reduce some of the car importation from China.
Thank you, Robert. Let me talk about the credit portfolio first. As we look at our NPLs, we reported a 3.7% NPL rate. I think there are two ways to see it. On the one hand, we're very comfortable with the 3.7%. As we have announced previously, we have the intention to increase our overall NPLs to pre-pandemic levels. For perspective, on the first quarter of 2019, we reported NPLs above 5%. The 3.7% is completely aligned with our expectation. On the other hand, we want to be very cautious about overall NPLs increase because what we have seen is that the Mexican market as a whole has issued a lot of credit, particularly in the fintech sector.
If you look at, I think INEGI has just reported that in the last three years, the number of the percentage of people with a bank credit card has increased from around 11% of the population to close to 16%. There's a lot of additional credit in the overall Mexican market. That puts more stress on the customers, and in turn, that provides some warnings on our early credit management indicators. We want to be very careful because as we move, we're pushing credit down to an overall customer base that has more access to credit, then the overall credit scores become more difficult to manage. Having said that, we still have the intention of continuing increasing our NPLs up to the pre-pandemic levels, but we're doing it in a very careful fashion. Now, talking about the marketplace, the marketplace is very important for us.
We see the marketplace as an integration between the physical world and the online experience. What we want to make sure is that there is consistency between both. Providing strong services to the sellers is a priority for us. As we move forward with our Arco Norte facility that we provide higher logistics capabilities, we expect us to be able to provide more logistics services to the vendors. Regarding the overall increase in the marketplace, we see it as a combination on the growth of the marketplace on a 3P level and how our business is performing on the 1P. For reference, our Liverpool online sales for the quarter grew almost 30%. That's because we're managing a combination of items that are sold in the marketplace and through the stores to have a proper balance between what is sold in each channel.
We certainly expect the marketplace to continue to increase in the near future and to provide a more comprehensive purchase buying experience for all of the customers. Now, moving to the third question about BYD, we're happy with the performance of the business. It's a relatively small business for us. On the top line, it has some effect. At the bottom line level, it's a very small contribution. But we're overall happy with the performance of the business, and we're waiting to see what happens. If there are some tariffs imposed by the Mexican government to the Chinese imports of cars, at the moment, it hasn't happened. We are monitoring the situation very closely in order to adapt as we move forward.
That's helpful. Just with respect to the follow-up or following up on the marketplace, can you give us a sense of maybe the timing, the scale of Arco Norte in terms of the market fulfillment capacity and capability?
We are doing a very slow ramp-up given that it's a very large operation that is not only a new location, but there is new technology associated with that. We expect to have a very slow ramp-up. For the past weeks, we only have had a few of the vendors delivering to there in order to prove and to test all of the circuits and all of the systems and all the new technology to make sure that whatever is coming into the warehouse also gets out of the warehouse. Our focus is to build that capacity up to the level we need to support the peak season.
Once we get to that point, as we continue to grow that capacity, we intend to use it to offer more logistics services to the vendors, but that will be probably at the beginning of next year.
Very helpful. Thank you so much.
Thank you.
Our next question comes from the line of Rahip. Please state your company name and ask your question.
Hi. Thanks so much for the space. I'm in for Ben from Barclays. So in respect to Nordstrom, we just wanted to know if there's a clause in the contract to review the deal based on how the world's changed since the time of the deal, any backup clause or any adjustments allowed, and have a follow-up after that. Thanks so much.
Thank you. As I said at the beginning of the call, we will not be commenting on the Nordstrom transaction today.
Okay. No problem at all. And just maybe how you're thinking about US market going forward or in Mexico, how you see any white space in the regions you play. I know it's kind of tight, but if there's any different perspective on different white spaces in Mexico. Thanks so much.
Do you mean white spaces for international brands?
Maybe just maybe new regions you can move into in Mexico. Is there any update on strategy internally, new growth opportunities, anything of that sort? Yep. Thanks so much.
Thank you. We have a very active search on white spaces. What we expect for this year is that we will open three new Suburbias. In the case of Liverpool, we just reopened one and we converted our two acquirers' Suburbia location into a Liverpool.
We have a geographic model to determine the white spaces, and we want to make sure we are as close we have high proximity to the customers as possible. Given that we see our stores not only as an inventory hub, but an experiences hub where customers can go, can interact with the clothing, they can get services, but we also see them as fulfillment centers. We see the geographic expansion not only to attract new customers, but also from a logistics standpoint to be closer to the customer in order to fulfill orders from the stores more rapidly. We certainly have more appetite to expand our geographic footprint not only with Suburbia, but also with Liverpool. We have done this with the Liverpool Express format that is a smaller format, more focused on services, and that provides even closer proximity to the Liverpool customers.
The short answer is yes. We see that there are some white spaces, and we see opportunities to grow on our physical footprint. Now, talking about the US market, it's a very challenging environment. I guess we will have to see what happens to the tariffs in order to have a clearer picture on what could be our expectation on the US market. Maybe we can take that question once we have a clear picture on what is going to happen.
Great. Thanks so much.
Our next question comes from the line of Héctor Maya. Please state your company name and ask your question.
Hi, Héctor Maya Scotiabank. Thank you very much for taking my questions. Could you please share if anything has changed on your conservative approach and provisions and the loan portfolio for this year with the dynamic that you have seen far? Also, if you are seeing any signs of challenges in a particular category that you were not expecting, and if so, if this could complicate a bit your inventory optimization strategy this year. Thank you.
Thank you, Héctor. Talking about the overall credit portfolio, I think the answer is no. We are not changing our conservative approach to our portfolio. As you saw in our indicators, the overall reserves continue to be at a relatively high level. We have a 10% coverage ratio, and our reserves amount to three times the NPL balance. We believe we are continuing to be a very conservative player in the overall credit market. As we move forward to absorbing higher risk, we intend to continue to have that conservative approach and to be able to conserve the level of credit coverage that we have today.
Now, talking about the categories, we have not seen a particular category that has been lagging behind others. Actually, I think it is the other way around. What we have seen is that the overall hardlines' performance has been slightly above our expectation, and that has helped to reduce the overall inventory because the value of hardlines tends to be higher than softlines. But now, I think that we will continue to have a strong promotion activity. We are looking forward to a very strong Venta Nocturna event. As I said, I think we will have a closer comparison of our yearly performance once we go through the Venta Nocturna event.
Thank you very much. Any details on the potential savings that we could see with Arco Norte coming fully online and when the overlap of ramp-up expenses ends? We'd really appreciate it. Thank you.
We're not expecting to reach significant savings on the logistics front this year because of the overlap of cost between our current network and the new one. If you measure it on a total year basis, we expect to have one-time expenses in the range of MXN 1.2 billion. The bulk of those will be during the second and third quarter. On a yearly basis, we're not anticipating any savings. However, for the fourth quarter, as we normalize operations, we expect the overall logistics cost to start to normalize as well.
Perfect. Thank you very much, Grace. Thank you very much.
Thank you, Héctor.
Our next question comes from the line of Irma Sgarz. Please state your company name and ask your question.
Yes, hi. It's Irma Sgarz from Goldman Sachs. Thank you very much. I think most of my questions have been answered, but I did want to follow up just on payable days. I know there's obviously an effort to reduce inventories, and that may be impacting sort of the mathematics around the payable days. But I was also curious if anything in supplier terms had changed considering potentially adjustments in your purchasing strategies and also in terms of category mix, if there was any impact that we should consider. Ultimately, the question here is whether payable days will ultimately normalize. Then just to follow up on Suburbia, I noted that you talked about inventories being expected to start growing in unit terms again in lockstep with sales from the mid-third quarter onward, so a little bit later than for the Liverpool format.
I was curious whether that was just a function of the starting point of where current inventory levels are or also baking in some expectation of a slowdown in Suburbia just given the type of demographic that it caters to. Thank you.
Thank you very much. Let me start with the payables. Let me start by saying that we are not changing our accounts payable policy. We have a corporate policy that we believe is fair for the vendor and us, and we are not reviewing that nor changing that. We have not done so, and we are not expected to do so in the following months. The thing with the overall value of the accounts payable is a matter of timing. As we are working to normalize inventory, we have to take a look at forward orders.
In some cases, there are opportunities to push those orders even forward in the future. There's a bit of a timing issue between paying some of the bills that are related to the end of the year as we are dealing with the new inventory for the upcoming season. We see it as a temporary thing, and we expect it to normalize for next quarter. As I said, we're not changing our accounts payable policy. That's very clear. Thank you. Talking about Suburbia, it's a combination of effects. On the one hand, the overall inventory level was slightly higher than Liverpool. We had the expectation of being able to have the openings of our 2025 stores earlier in the year.
Even though we just opened our new store in the Mexico City area, we had the expectation to open another two stores earlier in the year. We have some additional inventory related to store openings that have to be pushed to other stores. That's why, in the case of Suburbia, we have a bit more pressure on the overall inventory position. But what's interesting is that we're not talking about winter clothing. The level of obsolete inventory in Suburbia is very manageable. It's slightly above our expectation. We are not expecting to have an inventory issue in the next quarters. It's just a matter of timing and the overall level of inventory, and that's why we expected it to normalize by the middle of the third quarter.
That's very clear. Thank you.
Thank you. That concludes our question and answer session.
I would now like to hand the call back over to Gonzalo Gallegos for some closing remarks.
Well, thank you all for your time and questions. Have a good day.
That concludes today's call. You may now disconnect.