Ladies and gentlemen, welcome to the Falabella Earnings Call. I'm Gigi, your coordinator for today's session. Participants are currently in listen-only mode. Present with us are Alejandro González, CEO; Juan Pablo Harrison, CFO; Benoit De Grave, Chief Strategy and Transformation Officer; Alejandro Arze, CEO of Home Improvement. First, Mr. Juan Pablo Harrison, CFO, will provide a summary of the consolidated results for the third quarter of 2024. Following his presentation, we'll open the floor for questions. If you would like to participate in this part of the call, please press star followed by one-one at any time during the conference. Now we'll start the conference with Mr. Juan Pablo Harrison.
Thank you, Gigi. Good afternoon, everyone, and welcome to Falabella's third quarter earnings call. I would like to remind you that during this presentation, management may make forward-looking statements relating to our company's results, operational expenses, strategy, potential restructuring, and other matters alike. This will be characterized by the use of terms such as plan, intend, expect, anticipate, estimate, hope, and seek. Such statements are based on assumptions and expectations of future events that are uncertain and contain risks. Therefore, and for further information on this matter, I kindly refer you to the disclaimer on forward-looking statements that is displayed on the screen. Also, the numbers presented during the call will be according to IFRS rules, expressed in US dollars and rounded to millions. Therefore, certain small differences may arise with the published financial statements.
I will start the call by going over some key operational highlights of our physical digital ecosystem and capabilities. Let us begin reviewing from slide three onwards. During the quarter, our retailers in the region continued to show sequential improvement with superior local currency growth when compared to the figures presented in second quarter 2024. Across all formats and countries, notably, year-over-year consolidated revenue growth reached 7% for Home Improvement, 9% for Falabella Retail, and 12% for Tottus. Additionally, Plaza's revenue grew 11% year-over-year in Chile and 7% in Peru, with Colombia's revenues impacted by a non-recurrent effect. Now, looking at the GMV graph, the figures of the e-commerce channel, which include the first day of the Cyber Day event in Chile, demonstrated growth in both 1P and 3P channels, highlighting a 20% increase in the sales of Home Improvement and 21% growth among our more than 20,000 sellers.
This reflects the progress of our e-commerce strategy. On the financial services side, we continue to see a contraction in the consolidated loan book, while risk levels continue to improve at a regional level, reaching a consolidated NPL ratio of 3.6%, decreasing 62 basis points versus second quarter 2024. However, regarding the operation in Chile, it's worth highlighting the quarter-over-quarter growth of the portfolio, enabled by the good credit behavior of our clients, which has allowed us to gradually make our credit origination policies more flexible, as well as the 1.4% year-over-year increase in the net interest income, which was driven by reduced cost of funding. Lastly, purchases with our payment methods increased 14% year-over-year, showing progress in becoming the primary bank for our customers, while in Chile, we continue to consolidate ourselves as the leading bank in number of current accounts.
Consolidated revenues increased 6% year-over-year, in line with the previously stated top-line improvement of the retailers and a decrease in the banking revenue due to the lower level of loan book and lower interest rates. However, it's worth noting that the banks in Chile and Peru showed year-over-year expansion in the net interest income. Gross profit expansion of 20% year-over-year was mainly explained by Falabella Retail that grew 21% year-over-year, mostly attributed to Peru, which increased its contribution 40%, followed by Chile with a 14% increase due to better commercial proposition and inventory management. Banking businesses increased 23.3% year-over-year, mainly due to the operation in Chile that improved 28.2%, with a cost of risk that declined 53.8%, and to a lesser extent, to the operation in Colombia, where the cost of risk decreased 51.4% year-over-year in local currency.
Lastly, Home Improvement increased its gross profit 11.5% in Chile and 20.3% year-over-year in Peru, whereas Tottus Peru grew 22.5% and Mallplaza grew 10.4% year-over-year. We closed the quarter with SG&A containment reaching an SG&A over revenue ratio of 29.8% versus 30.7% in third quarter last year, and growing 2.8% compared with 2023, below inflation rates in our main market, reflecting the operational efficiency efforts implemented. Considering all these factors, we achieved an EBITDA growth of 1.8 times year-over-year, reaching $368 million. Finally, we closed the quarter with a net profit of $97 million, which compared to the $5 million lost in three quarter 2023, the highest performance of this quarter since 2021, and better numbers than the previous quarter. Our strategy of focusing on the customers and improving profitability has yielded results with EBITDA reaching a margin of 11.6%, the highest level since 2021.
Additionally, our operations continue to contribute to an improved cash position, ending the period with an amount of $1.5 billion, roughly, for the non-banking businesses, highlighting that out of the $1.5 billion, nearly $1.3 billion is invested in mutual funds and term deposits. This operational improvement, combined with a stronger cash position, has resulted in our leverage ratio declining to 3.7 times, reaching its lowest level since second quarter 2022, significantly below last year's peak and one point lower than second quarter this year. On another note, we maintain a balanced amortization profile with proportionally more debt arising from our real estate operations, in line with our financial strategy. Now, I would like to leave you with Alejandro González, CEO of Falabella.
Thank you very much for joining our call today. This quarter at Falabella, our focus on strengthening connections with our customers translated directly into improved operational metrics and robust financial performance. Without a doubt, we have been through a journey of complex decisions, but as a team, we've remained focused on two clear goals: delivering the best experience to our more than 35 million customers and restoring our profitability. Today, as we begin to see the result of our efforts, we remain keenly aware that this is just the beginning. Each of our five business lines holds significant untapped potential with exciting growth opportunities ahead. This journey will require focus, dedication, and hard work, but we are energized by the road that lies ahead of us. We just closed a quarter in which all five of our growth drivers improved their financial performance.
Our retail operations grew at a faster pace compared to the previous quarter, though still below historical and potential levels. Most importantly, we achieved strong sales growth while also improving our margin levels due to better inventory management, something we're pleased with. Our banks continue their positive trajectory, improving risk levels, and we've seen growth in the portfolio in Chile compared to the previous quarter. Finally, Plaza closed the quarter with the lowest vacancy rates in the last five years, reflecting a higher level of interest in our urban shopping centers and positioning us as a partner for the best brands in the region.
As a result of the improvement in profitability, we've reached an EBITDA margin of 11.6% this quarter, as Juan Pablo mentioned, and combined with our ability to generate cash flow, our leverage ratio decreased to 3.7 times, below 4 times for the first time since 2022, continuing the positive trend we've discussed in previous quarters. After four quarters of positive financial performance, we can say as a company that we are entering a new phase. Seeing our recovery consolidated, we're now focusing on the sustainable and selective growth of the group. We have a clear strategy leveraging the strength of our brands, our omnichannel capabilities, and the strong ecosystem we have built. This will enable us to strengthen our leadership in the industry and create value for both our customers and shareholders. I would like to conclude by expressing my sincere gratitude to the entire Falabella Group team.
Without a doubt, the results we've achieved reflect the hard work and commitment of our teams across the various countries where we operate. Together, we're well-positioned for the challenges and take the opportunities that lie ahead. Now, we would like to open the line to any questions you may have.
Ladies and gentlemen, we are ready to open the lines up for your questions. If you wish to ask a question, please press star followed by one-one on your touchtone telephone. If your question has been answered or you wish to withdraw your question, press star followed by one-one. Again, press star one-one to ask a question. Please stand by for your first question. Your first question comes from the line of Andrew Ruben from Morgan Stanley.
Hi. Thanks very much for the question and for the color so far. Perhaps if I could dig in on the sales trends for a couple of your formats in Chile. First, for Home Improvement, we saw a good bit of a sequential pickup in the quarter. I think you mentioned home goods. Just curious to understand a bit more of the trends for B2B versus B2C. And then for Falabella Retail, also, it's been a high comp at the same time you've been closing stores. So just trying to get a better sense of what's been driving the comp in Falabella Retail, including as you close stores, how much share do you see recaptured? Color on both those segments would be very helpful. Thank you.
Hi, Andrew. This is Alejandro Arze. During the quarter, all our three customer segments showed sales growth with better performance in terms of numbers of transactions among the core customers and the business-to-consumer customers. In terms of product categories, outdoor furniture, housewares, and cleaning performed particularly well. Additionally, e-commerce maintained its positive growth trajectory, increasing 30% compared with the third quarter of last year. Another important fact is today, over 40% of our sales are occurring through our app or the specialty seller website that we relaunched. Looking ahead, we expect to continue improving both in margin levels and sales levels. Regarding a little bit more in your question of the B2B, we anticipate that the construction sector will begin to recover more meaningfully in the second half of next year.
Thank you. Thank you, Andrew, for your question. This is Alejandro. I'll take the Falabella Retail question about the same store sales. As you mentioned, during this quarter, we were able to increase the same store sales. And the main reason behind this, I would say, is in certain categories, we were able to, especially at Falabella, we were able to focus on fast fashion, as we've been sharing with you in the last quarters, especially having this new model, having the latest fits in Falabella. And also, that was translated into margin improvement. And with this, we were able to overcome the closing of stores that you mentioned. Also, I'd like to emphasize that we're taking more of a specialist approach in the different categories that we have, especially apparel, which is the most relevant in terms of performance during this, specifically during this quarter.
Great. Thank you both for the color.
Thank you. One moment for our next question. Our next question comes from the line of Héctor Maya from Scotiabank.
Hi. Congrats on the results, and thank you for taking the questions. I was wondering, for the banking business, if you could share with us how much more room do you see you could have on the side of lower customer rates? And if you could expand on the details of initiatives that you have been implementing to achieve the sequential improvement in the loan portfolio in Chile versus the second quarter that we saw.. Thank you.
Héctor, this is Raimundo. For the fourth quarter of 2024, we anticipate sequential growth in the loan portfolio in Chile, driven by recent improvement in risk metrics, as you were mentioning, that have allowed us to enhance our offering in consumer loans and cash and bank, as well as the seasonal uplift in credit card purchases during the holiday season, a trend that should also benefit our portfolio in Colombia, Peru, and Mexico as well. And if we look to the 2025, we forecast to continue the portfolio expansion, particularly in Chile, where we see that the risk metrics are performing better, and the cost of risk is quite in line with historical levels.
Thank you. Thank you very much. And also, if I may have a follow-up this time on the online segment, we were seeing the positive performance that you've had in the category, particularly in 1P, your own products. So I just wanted to make a double click there to see the strategies that you've been implementing to get this performance in your own products compared to the third-party products because previously, the own products have been trailing the third-party products. So I just wanted to double click on that.
All right. Hi, Héctor. This is Benoit de Grave speaking. So regarding our strategy in e-commerce, we've commented in the last quarter that we've adjusted our value proposition to be differentiated by format, with Falabella being the most generalist format that seeks to specialize in four categories: apparel, beauty, deco, and electro, while Sodimac and Tottus are more specialized in their specialist categories. So we have developed a very attractive value proposition for both consumers and sellers, leaving us well-positioned, in particular the ability to leverage our omnichannel capabilities with our stores' footprint and the logistics network that we have. Secondly, on the digital banking, for both sellers and customers, our unique capabilities in terms of fraud management, financing, and so on, and then leveraging also our loyalty program, right?
Regarding the differentiation and the 1P and 3P offering, as you mentioned, 1P has been recovering, and we had a strong cyber event in September. We just closed also a strong cyber event in Peru at the beginning of November. And 3P is gaining traction. Today, 3P represented we have a curated 3P offering that represents 26% of e-commerce sales in the third quarter and 25% year-to-date, growing 14% up-to-date. So the 3P offering in the specialist categories that I mentioned before and in the long tail is gaining traction and being complementary to our 1P offering.
Thank you very much. Very nice color. Thank you.
Thank you. One moment for our next question. Our next question comes from the line of Gustavo Fratini from Bank of America.
Hi guys. Good morning. Thanks for taking my question. Two questions on Peru, actually. In the retail business, we saw a very strong performance, and you mentioned higher liquidity given the pension fund withdrawal, right? How sustainable is that going forward? And how are you being cautious in terms of not having a similar situation to what you had in Chile when you had a higher liquidity, right? And the second one is regarding your banking operations in Chile, we saw a big decline in profitability there, and I think the main driver was higher provisions. What exactly happened there? Thank you.
Hi, Gustavo. This is Alejandro. I'll take the first part of your question about the retail business in Peru, and then Raimundo will take the one about the bank business in Chile. To start with, let me share with you that we are seeing very favorable underlying trends in Peru in terms of consumption, continuing with the sequential upward trend that we've seen in the previous quarter. There has been, I don't know if you're aware, some pension fund withdrawals, which, by the way, there has been, in terms of scale, a lot smaller to the ones that we had in Chile. And that, in fact, it does help to explain part of the increase in revenue from our retailers in general. However, we think more relevant than that is the fact that we did have a winter season that was normal.
At some point, it was expected not to be like that in terms of temperature, unlike what we had in 2023. The macro environment also has contributed to the improvements that we saw during the third quarter. Now, to your question about what happened in 2022, the inventory levels that we had in Chile, that was probably a mix of, I would say, some very negative macro environment and some commercial bets that we made. We certainly upgraded that not only in Chile, also in the rest of the countries. The inventory management that you're witnessing in every single business in every single region in which we operate is different. It's more tight. It's short in several business lines, like in Falabella Retail. It's also been the most relevant part, the most relevant reason why we have been able to increase the margin.
So in very simple terms, we're also seeing trends that are relatively positive. We also see this trend to this far move into what we've seen so far into the fourth quarter. And let me share with you that, for example, we did have a cyber event at the beginning of November, and that was very successful with a higher average ticket than the event that we had in the previous year. So it's also, I would say, in terms of compared to the levels to the previous year, a positive signal in terms of demand.
This is Raimundo, Gustavo. Just to be clear, you were asking about the bank in Peru or in Chile, that we couldn't hear you well?
The bank in Peru.
Okay, Peru, so in Peru, what we are seeing, as you might saw, that we are seeing a decline in the NPLs in the quarter. We reached 4% of NPLs, which is mainly explained by improvement in the risk metrics through the whole loan book, and in terms of cost of risk, the cost of risk metrics incorporates the information of the last 12 months, so we have been seeing improvements in the last two months, given all these inflows of the pension funds in Peru, so we are seeing better performance in terms of cost of risk for the case of Peru from the fourth quarter as well.
Perfect. Thank you.
Thank you. One moment for our next question. Our next question comes from the line of Nicolás Riva from Bank of America.
Thank you very much, Alejandro and Raimundo, for the chance to ask questions. I have three questions. The first one, I want to confirm on the Plaza transaction that in the third quarter, you already included the equity raise at Plaza, which I think was about $325 million. That was included in your consolidated cash position in the third quarter. Second question, I remember that Plaza also raised debt to pay for the acquisition of Falabella Peru. I think they raised the equivalent of about $140 million. I want to ask if we are going to see that increase in consolidated leverage when you report fourth quarter, about $140 million. And then my third and final question is, you have the maturity of about $200 million on the 2025s in January. If the plan is to use the cash position to pay for that? Thanks.
Hello. Good morning, Nicolás . This is Juan Pablo Harrison here. First of all, regarding the question about the capital increase in Plaza, it's already recognized in the financial statements as of the third quarter. Okay? So it's in the cash today, this amount, at the consolidated level. Okay?
Right.
Second, regarding the debt that Plaza issued during, I would say, the second quarter, at the consolidated level, today, in the leverage, it doesn't have any impact. It's an amount; it's an increase in the debt, but it's also an increase in the cash today. And after the transaction, it's not going to have any impact in a consolidated statement because it's money from one pocket to the other. What was the last one? Sorry, the maturity, no?
Right. Correct. The maturity is about $200 million in January.
Yeah. In 2025, we have a maturity, as you mentioned, in January for $145 million, considering the effect of hedges. This is related with the international bond of 2025. But during the next year, besides this maturity, we have another $500 million maturity, mostly because of debt in Peru and Plaza. And we are planning to use the cash that we have today to pay all these maturities.
Understood. Thanks very much, Juan Pablo.
Okay.
Thank you. Again, to ask a question, please press star one one. Our next question comes from the line of Alonso Aramburú from BTG Pactual.
Yes. Hi. And thank you for the call. Alejandro, I think you mentioned that you're entering a new phase of selective growth. I was wondering if you can give us any color on where do you see the selective growth in terms of formats or countries, where do you see it? And my second question, if you can provide some color, I think you mentioned that Peru had a good performance in October, November. Can you give us some color as to what trends we're seeing in Chile? Thank you.
Thank you, Alonso, for your question. This is not to avoid the question that you're making, but we're in the middle of the process of planning here. But let me share with you the mood that we have at this moment here at Falabella is totally different to when we had a year ago. A year ago, we were planning, and the investment plan we announced for 2024 at the end was in the range of $500 million. What we're seeing for next year is a different attitude in the most relevant business opportunities that we see. Focus for next year, Sodimac in Mexico is one of the aims. I don't have numbers yet. We are in the process of going over there, but teams are coming with a lot of new energy, in a way of saying, in terms of growth.
Also, we see Tottus in Peru as a business that should have opportunities, Sodimac also in Peru, Sodimac in Colombia. I would say, in terms of regional focus, it should be more in the Pacific area of the business lines that we have at Falabella. And also doing what we need to consolidate the digital capabilities that we had in the digital banking business and also in the e-commerce and marketplace that we have. That should be the approach. And as you know, we're getting into year end. So eventually, once we finish this planning process, we always do the public announcement. But as I said before, new approach without, by the way, without jeopardizing the financial strength that we've been able to recover during these three quarters in this year. And in terms okay, you mentioned what are we seeing in terms of trends.
I would say something similar in line to what we've seen during the third quarter in Chile. I think that even though, as a whole, consumer demand has not been so strong, if you see the activity signal for September was not very positive, but some of the lines and some of the categories that we have, we've been able to have a very positive performance, and that's part of the thing that's driving the numbers of Falabella, together with a better inventory management, so the margins are sustained on this tight inventory, especially this fast fashion approach to reducing the buying cycle, especially in apparel in the department store, so we're seeing a good trend in apparel. We're seeing a good trend in beauty.
As I said before, at least so far, we don't see any signal to avoid having a Christmas and a year-end season in line to what we've seen thus far in the first three quarters in this year in Chile.
Great. Thank you for the colorr.
Thank you. Sir, we will now turn to Raimundo Monge for closing remarks.
Thank you, Gigi. We would like to thank everyone for joining us on Falabella third quarter 2024 earnings call. Before we conclude, we would like to invite you to our investor day, which will take place in Santiago on December 11th, with the option to participate remotely. We kindly ask to register at falabelladay.com. As always, our Investor Relations will be available to address any follow-up questions you may have. Thank you and have a nice day.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.