Ladies and gentlemen, welcome to the Falabella Earnings Call. I'm Victor, your coordinator for today's session. Participants are currently in listen-only mode. Present with us are Alejandro González, CEO of Grupo Falabella; Juan Pablo Harrison, CFO of Grupo Falabella; Francisco Irarrázaval, CEO of Falabella Retail; Alejandro Arze, CEO of Home Improvement; Juan Manuel Matheu, CEO of Banco Falabella; Benoit de Grave; Chief of Strategy, Transformation, and Sustainability Officer of Grupo Falabella. First, Mr. Juan Pablo Harrison, CFO, will provide a summary of the consolidated results for the second quarter of 2025. Following his presentation, we'll open up 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, Victor. Good afternoon, everyone, and thank you for joining Falabella's Second Quarter 2025 Earnings Call. Before we discuss our results, please note that the management may make or refer to forward-looking statements during the presentation relating to our company, its results, operations, expenses, strategy, potential restructurings, and other similar matters. Such statements are based on assumptions and expectations of future events that are uncertain and contain risks. For further information on this, please refer to the disclaimer displayed on the screen. The numbers provided during the call will follow ISRS guidelines, which are stated in U.S. dollars and rounded to millions. As a result, minor differences may appear compared to the published financial statement. During the call, we will discuss the second quarter results as well as the performance of our five growth engines.
The CEOs of Falabella Retail, Sodimac, and Banco Falabella will also provide insights into their respective businesses. Let's start with slide four. Overall, we continue the positive trend in both our retail operations and shopping malls. Mallplaza sustains its sales growth in all three countries, driven by an improved rental mix, the consolidation of our presence in Peru, and the strengthening of our urban center strategy. At the same time, LOTUS increased its revenue around 5% in both Chile and Peru, benefiting from the positive calendar effect of Easter and a deepening of its strategy focused on delivering a strong perception of low prices and an enhanced assortment, with a particular emphasis on food. I would like to highlight the performance of our ecosystem's online channel, where GMV grew 19% year-over-year . Also, the sales from our sellers stand out, growing 36% during the quarter.
Let me now turn it over to Alejandro Arze, who will share some remarks on Sodimac's operations.
Sodimac delivered a strong second quarter despite ongoing challenges in the construction sector, achieving improvements in revenues and profitability. We increased the EBITDA margin from 4.9% in the second quarter last year to 5.5% during the second quarter this year. This performance is attributed to a specialized regional strategy, offering the right products and services at competitive prices through an integrated omnichannel platform. Our e-commerce continues to gain traction, growing 24% year-over-year during this period. We doubled our assortment, and specialist sellers have continued to grow in Chile and Peru. During last quarter, 3P GMV represented more than 8% of online GMV. E-commerce is an area where we see growth potential, especially on 3P products.
Today, we continue to face a challenging environment, but our objective is to accelerate sales growth through a specialist omnichannel experience, where our private labels play a differentiating role in our value proposition, and we continue to deepen our relationship with our professionals and retail customers. Now, I will leave you with Francisco Irarrázaval from Falabella Retail.
Thanks, Alejandro. Last quarter, our EBITDA margin took by more than 300 basis points, which was an increase of $38 million during the quarter. That made us very pleased, and we believe it reflects the progress of our strategy. We are also achieving 15% sales growth, with double-digit growth across all three countries, where Colombia stood out with a 19% increase in same-store sales. E-commerce continued to be a key growth driver, with online GMV growing 17% in the quarter. Our cyber events delivered outstanding results as well, with growth of 20% in Chile, 26% in Peru, and 10% in Colombia. In addition, our sellers keep gaining relevance, increasing their share by 3 percentage points, and we continue to improve the speed of delivery. During the quarter, we continue to bring the latest first on Falabella through exclusive collaborations with local influencers and trending launches in tech and beauty.
Our assortment keeps growing with the best brands, adding global names that customers love in all our core categories. We are enhancing specialist experience with more features such as Shop the Look and customized shopping journeys by category online, as well as curated spaces in stores with initiatives such as outdoors in the southern part of Chile and the consolidation of Active Woman launched in the second half of last year. Looking to the future, our strategic focus is clear: reinforce our leadership in our key categories, fully leverage the strength of our developed e-commerce platform, and continue integrating our ecosystem seamlessly from end to end. This clear strategic vision and disciplined execution give us the confidence to achieve sustainable and profitable growth in the long run, ensuring the latest is always first at Falabella. I will now leave you with Juan Manuel Matheu for some remarks regarding the banks.
Thank you, Francisco. We are very pleased with the bank's financial and operational performance this quarter. For the first time since the first quarter of 2023, we achieved long yields across all countries, marking another milestone. Portfolio quality remains solid, with NPL ratios at healthy levels and net income increased by more than 80% compared to the same period last year. Purchases made with our payment methods continue to gain traction, growing 19% year-over-year , reflecting the strength of our simple value proposition and superior benefits. In parallel, our loyalty program continues to expand and simplify usage. Puntos + Pesos is gaining momentum with increasing adoption and flexibility for customers to choose how and where to redeem their benefits.
In our insurance business, and consistent with the steps taken in Chile and Peru during 2024, [Foreign language] 2025 Seguros Falabella in Colombia signed a five-year strategic alliance with AXA COLPATRIA and Medline. This partnership aims to further strengthen our insurance offering in the local market, reinforcing our commitment to delivering relevant and competitive solutions to our customers. In terms of profitability, our bank in Chile posted an ROE above 20%, while Peru reached 15% and Colombia 8%. We remain focused on sustaining profitability in Chile and improving it at Peru and Colombia, with a clear emphasis on enhancing return on equity. As an example, in Chile, we executed a capital reduction of approximately $70 million during the quarter, ensuring adequate capital levels to support healthy growth while maintaining partial ratios above both market averages and our internal risk appetite.
These results clearly reflect the strengthening of our strategy, discipline, execution, and our ability to deliver sustainable value to shareholders in a dynamic market environment. I will now turn the call back to Juan Pablo.
Thank you, Juan Manuel. As we saw in the previous slides, as well as heard from our CEOs, we delivered strong results in all of our growth engines, with solid revenues growth and margin expansion. Sodimac increased its EBITDA margin from 4.9% to 5.5%. Falabella Retail rose from 4.7% to 7.8%. LOTUS drove its margins from 7.4% to 7.8%. Meanwhile, Mallplaza reached 80%, up from 76.1%. Finally, Banco Falabella jumped from 14.5% to 25.9%. These improvements are driven by better gross margins and operational efficiencies, especially in inventories management and in the profitability of the e-commerce channel on the retail side, and the growth of the consolidated loan book with healthy risk levels on the digital bank side. As shown in the graph, we have consistently improved our performance on a year-over-year basis since first quarter 2023, reaching a consolidated EBITDA margin of 14.9% on second quarter 2025.
The upward trajectory reflects the successful execution of our strategy, the resilience of our business model, and the strengths of our ecosystem. In line with these positive results, our operations continue to generate strong cash flow. Non-banking businesses saw a 49% year-over-year increase in cash, supported by EBITDA growth. We have strengthened our financial position. Net financial debt decreased to $2.4 billion, and our net debt-to-EBITDA ratio for the non-banking businesses increased to 1.9x . Meanwhile, our maturity profile remains well balanced. Now, I will leave you with Alejandro González, Grupo Falabella's CEO, for some closing remarks before we get into the Q&A portion of the call.
Thank you, Juan Pablo. Good morning, everyone, and thank you for joining us. I'm proud to share that our 2025 second quarter results reflect a solid and broad-based performance across the five growth engines of our ecosystem. We've seen positive momentum on multiple fronts, from retail and digital banking to real estate and digital platforms. Falabella Retail led revenue growth, supported by strong stock performance and a rise in e-commerce, as Francisco mentioned. Our digital bank continues to scale, surpassing 1.81 million active customers and showing healthy portfolio growth across all markets. This achievement is the result of a focused strategy, agile execution, and the commitment of our teams. I want to thank each and every one of them for their dedication and drive during this second quarter. Looking ahead, we see exciting opportunities to continue expanding our ecosystem.
E-commerce remains a key growth engine, and we are enhancing our digital capabilities to better serve our customers and sellers. Mallplaza's expansion plan is progressing well, with over 80,000 sq m being added across seven malls in Chile and Peru, and the launch of a new premium outlet format. In Peru, our supermarket business is gaining traction, and in Mexico, Sodimac is strengthening its presence. We also see great potential in leveraging AI to deepen customer relationships and personalize experiences across channels. At the same time, we remain focused on improving profitability in a challenging environment. We're making disciplined investment decisions and managing costs with rigor, ensuring that every initiative contributes to long-term value creation. Our EBITDA margin improvement and net income growth are clear signs that our strategy is working, but we know that there is more to do.
We're confident in the path ahead, and ours is grounded in two key factors. First, our offering continues to be preferred by more customers every day, as reflected in rising satisfaction metrics and our expanding market share. Second, we're increasingly aware of the relevancy and scale of the synergies among our five businesses, which complement each other to deliver a compelling and differentiated experience to our more than 36 million customers. Thank you. Now we'll open to questions and answers.
Thank you, 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 touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press star, one, one again. That's star, one, one to ask a question. Please stand by for our first question. Our first question will come from the line of Melissa Byun from Bank of America. The line is open.
Thanks, Victor. Hi, everyone. I just wanted to explore two topics. First, on the bank, how sustainable are the current levels of profitability in Chile? Are there structural reasons why NPLs should remain below historical levels, either related to the market or your underwriting or collection abilities? On SG&A, do you see additional opportunities to reduce expenses or improve productivity? How are you thinking about personnel costs and potential offsets going into 2026 when you see a further reduction in working hours in Chile? Thank you.
Thank you, Melissa, for your questions. The short answer would be yes, but the profitability in Chile, we believe it's sustainable. We believe that the improvement in NPLs that you mentioned are sustainable. Although we think that with an increased growth of our portfolio, they could rise. We believe that during the last, I would say, year and a half, we actually were not growing as we expected. Now our growth in interest income and fee income will more than compensate an increase in NPLs. Regarding SG&A, we also believe that we have it really very much in control. Actually, during the last months, we have increased our spending in marketing, increased our spending in loyalty, expenditures that we also believe that could be moderated in the future.
Another line that we are also increasing in the last months is the salary of our developers to further strengthen our digital transformation. Summing it up, we think that results are strong, results are sustainable, and we will keep with the same levels of profitability going forward.
Hi, Melissa. Juan Pablo is here. Just a further explanation, from a corporate or group level for the SG&A evolution. As we have mentioned, we remain focused on maintaining discipline in our expenses. From a consolidated point of view, we expect our expenses growth will remain in line with inflation across all of our markets. While some business units such as Falabella Retail, Sodimac, and LOTUS may have high expenses during the second half of the year mostly due to an increase in sales volume, this is going to be offset by tighter expenses management in another area. Juan Manuel already mentioned in our e-commerce operations, we are taking advantage from greater maturity and scale, allowing us to be more efficient and contribute the e-commerce operation to improve our operational leverage.
Regarding the bank, Juan Manuel already mentioned, we have combined this discipline within the e-commerce with the cost discipline in the bank operations, supporting an overall expense stability across the group.
Thank you.
Thank you. One moment for our next question. Our next question will come from the line of Irma Sgarz from Goldman Sachs. The line is open.
Yes. Hi. Thank you for the opportunity to ask my question. I just wanted to follow up on the growth. You commented a little bit on the online channel, which I feel has really sort of found its stride now. Could you just explore a little bit more the key drivers that you believe have been responsible for this better growth across both 1P and 3P, between traffic, conversions, and ticket? You also mentioned obviously sellers continuing to ramp up in terms of their sales on your platform. I would love to get a little bit more of your view of what you really feel has come together in a major way to drive this growth. Any commentary around the profitability of the online channel would be really appreciated. Now I'll jump back into the queue. Thank you.
Thank you, Irma, for your question. This is Alejandro. E-commerce is a key growth driver for Grupo Falabella strategy , you know that, and allows us to deliver a comprehensive and omnichannel experience. We're seeing the potential of our platform. More customers and sellers are choosing our platform every day. We've improved delivery speed and reliability, and in the last quarter, total GMV grew by almost 20%, with GMV from sellers increasing by 36%. I'll let Francisco give you more flavor on the business.
Yeah. Thanks, Alejandro. Thank you very much for your question. As you may know, in Falabella, the e-commerce is like a top priority for Falabella Retail, where we aim to be a benchmark across five key categories. We have been focusing on attracting top brands and the latest trends, supported by a unique new specialist platform, and continuing improvements in navigation, such as Shop the Look alongside AI-forward content and marketing strategies. These efforts are delivering results. Visits and conversion rates have each grown by around 5%, while the average ticket remains stable from last year to this year.
In terms of profitability in Chile, close to 70% of our EBITDA improvement of the quarter is explained by the progress made in the online channel through an improvement in gross margin due to our specialist value proposition and the higher weight on the garment side, greater operating leverage, sorry, because of the increase in the volume and the sale, and higher revenue from both product sales and value-added services such as Falabella Media, fulfillment services, and logistics growth.
I am, this is Alejandro Arze from Sodimac. In Chile and Peru, sales grew more than 30% in the first half of 2025, versus the same period last year, driven by the launch of our own website. This growth was supported by a 15% increase in site visits, higher conversion rates thanks to improved user experience, and 6% return rate in average ticket due to a better product assortment. As a result, we have been able to better dilute the fixed cost and improve the channel profitability to tighter logistic control.
All super helpful. Thank you.
Thank you. One moment for our next question. Our next question comes from the line of Felipe Ballevona from Santander. The line is open.
Hi, everyone. Thank you for taking my question, and congrats on the results. You have been able to maintain your expenses increasing rapidly at inflation for two quarters in a row. For how long do you think you will be able to keep carrying this out with revenue increasing at current levels of high single digits? My second question is regarding AI, I believe it was Alejandro who mentioned it in the presentation. Can you give us more color on what AI initiatives you're currently carrying out? By how much do you think you would be able to increase your current productivity with this technology? Thank you again for taking my questions.
Hi, Felipe. Juan Pablo is here. As I mentioned in the first question, we are 100% focused today and remain our expenses at a very efficient level. We are not seeing any changes in this trend during the short or mid-term. It is something that we are 100% focused on today, and we will plan to keep this way during the next months.
That's a very good color. Thank you.
I'm sorry on the AI question that you have. Let me share with you some insights, and then I'll let the different businesses elaborate on that. As I said, we're very excited about the opportunities that AI is unlocking for Falabella. It is allowing us to understand our customers more deeply than ever before, anticipate their needs in some cases, and simplify their lives at every touchpoint. This technology is not just about automation. It's about making every interaction more relevant, seamless, and customer-friendly. At Falabella, we are fully committed to leveraging AI to deepen our omnichannel value proposition. Today, we're working on several AI-driven initiatives across all of our business units and countries with a clear goal of delivering a simpler, more personalized, and more convenient experience for our customers, whether they shop online, in-store, or interact with our digital banking app.
As I said before, I'm going to leave it with Francisco and then Juan Manuel and Alejandro to further develop on the uses that we're having in different business lines.
Thank you, Alejandro. Hi, Felipe. Thanks for your question. Let me give you some real-world examples. Let's say you're browsing a web page right now. The likelihood of you seeing an image or an advertisement in the web page that was generated by AI, I think it's over one-third. Let's say that one-third of the images that we have in the catalogs were generated by AI. Let's say you buy something from our web page and you have to contact our customer service later on. The likelihood of you being attended by a generative AI chat is more than half again. Let's say you're browsing in social media, Instagram, the likelihood of you watching an advertising asset that was generated by an AI-powered tool, I think it's 100% today. Most of the segmentation, most of the optimization, most of the generation of the images that are being done with AI.
Those are some examples I came up with. Maybe Juan Manuel can give you some more.
Yes. In terms of Banco Falabella, we have been integrating GenAI for customer service automation. During this semester, we have significant improvements, particularly in our chatbot. We have also been incorporating GenAI in our digital functionalities development. We believe that we will be able to accelerate our digital transformation solutions that we offer to our customers. Regarding AI, not GenAI, we have been using AI for more than five years now in predicting risks, also in predicting frauds, and also in personalizing our digital channels offered to our customers.
In Sodimac, we have deployed AI for personalized product recommendations, customer segmentations, and marketing campaigns. We're also using AI in our planning process, demand forecasting, and inventory optimization. Another area where we're leveraging AI is in the chatbots we use to interact with customers, not only for customer services, but also to support sales across our digital channels.
Thank you. One moment for our next question. Our next question comes from the line of Nicholas LoRe from JP Morgan. Your line is open.
Hi. Good afternoon, everyone. Thank you for the time. Thank you for taking my question. I had two. The first one is on Chile specifically, if you could comment just broadly on how are you seeing your inventory levels across the different businesses in retail? How are you seeing the industry in terms of inventory? That would be super helpful. Also, my second question is on Peru. We saw a very nice performance on all business lines over there. Particularly, same-store sales was quite strong in some banners. Just if you could give some color on what you're seeing on the ground, if you think this is sustainable, that would be super helpful. Thank you.
Thanks for the question. This is Francisco. I'll take the inventory level question, and then maybe with Juan Manuel, we can give you some color on the Peru operation. We believe that our inventory level today is just about right in the sense that the forecast of sales that we have in the future for both Peru, Chile, sorry, for three countries: Peru, Chile, and Colombia is about the number we want it to be. We're very confident that this shortening of the buying process and all the efficiencies that we have been working on have been giving us good results. In terms of Peru, this quarter consumption remains strong with our retailers growing 8% year-over-year in local currency. However, growth in June was partially offset by a high comparison base from June 2024.
As you might remember, there were pension funds withdrawals last year, and that tendency we see is going to continue during July. Despite this, Falabella Retail delivers some solid results supported by our successful loyalty specialist strategy and strong e-commerce performance.
You can ask on our digital banking side in Peru. We achieved our first increase in the loan portfolio since the third quarter of 2023, ensuring quality growth. At the same time, we continue to improve our cost of risk, and we believe that will keep on improving.
In the case of home improvement operations in Peru, although the country growth slowed in the second quarter compared to the first quarter, we were able to grow 9.4% in local currency, strongly driven by growth in stores and e-commerce. In stores, this was mainly due to the transformation from Maestro to Sodimac, and in e-commerce, due to the strengthening of the 3P offering. What remains significantly to address in Peru is sales to construction companies in a construction market that has yet to recover.
Perfect. Thank you very much, guys.
Thank you. As a reminder, that's star one one for questions, star one one. Our next question comes from the line of Alexandre Namioka from Morgan Stanley. Your line is open.
Hi, everyone. Thanks for taking the question. The majority of mine have been already answered, but just one follow-up from the previous one, and perhaps expanding to could give us a rundown on the macro outlook you are expecting for the back half and also for 2026 across your geographies. I think for Peru was quite clear, but if you also expand to the minor geographies, including Brazil and Mexico, that would be very helpful. Thank you.
Yeah. In terms of Brazil and Mexico, in the case of Brazil, we're still very, we're seeing it with a lot of caution. In Brazil, the economic environment has been much more challenging than expected. We've seen a falling of 15%, which significantly impacts investment, especially in construction. Given that, we have been implementing an efficiency plan aimed to improve profitability and adapt to this economic environment. We're also doing some testing of assortment adjustment in some pilot stores. Those pilots are delivering positive results. We are expecting to replicate those across the rest of the operation. We remain focused on executing our plan to improve profitability on our operations in Brazil, despite we still have seen the economic trends with a lot of caution, as I mentioned.
In the case of Mexico, we also are facing a more restrictive economic environment, mainly impacted by the volatility and uncertainty caused by tariff negotiations with the U.S. This has led the country to grow only by 1.5% in the last quarter, and the construction GDP is estimated to have declined by 1.2% in the second quarter. Despite that, we were able to achieve an 8.8% growth in local currency in the last quarter. We think that the economic trends are still to be seen, how are they going to evolve? We need to see how the negotiation of tariffs with the U.S. is going to end. We are still planning to keep growing in Mexico with our operations.
Yeah. Alexandre , this is Alejandro. In regards to the main countries in our portfolio, which are Chile, Peru, and Colombia, I would say that what we're expecting for the second half is relatively in line to what we've seen this far. In line with Falabella's performance, you need to put into the equation the fact that the comps that we're going to be having, especially third and fourth quarter, are going to be higher because we started a strong recovery last year in the second half. That said, we're not expecting either a big growth in the economic performance or a big reduction in that.
This also sustains why we are so, I would say, proud in the performance that we've been able to have because this has been done, especially the numbers that we presented in Chile, Peru, and Colombia, in an environment in which the economy is not booming. The way we see this is basically we've been able to get market share due to the good performance, the commercial proposal that we've been able to put, the digital capabilities that we've been able to put in line in the digital bank, in the e-commerce. Our aim for the second half of the year is to leverage on those more than just count on some big economic growth that we can have.
This is great and super helpful. Thank you.
Thank you. One moment for our next question. Our next question comes from the line of Alonso Aramburu from BTG Pactual . Your line is open.
Yes. Hi. Good morning, and thank you for the call. A couple of questions on my end. First, let me follow up on the previous comment regarding your outlook, maybe looking into 2026. You had given guidance less than a year ago of margins between 12.5% and 13.5%. You're clearly above that. I was wondering if you can potentially update some of those expectations. Second, I was curious about your growth plans in Peru with Precio Uno and if you can comment on the different performance between Precio Uno and LOTUS in Peru. Finally, when you think about the bank on a consolidated basis, what do you think is a sustainable level of ROE when you look at the three countries altogether? Thank you.
Juan Pablo is here. Thank you for your question. Regarding how we think that we see the margin trajectory going forward, we are viewing the second half trend as very positive. It's going to be driven by a strong operational performance across also our five business units and geographies. The execution that we have made has been consistent and encouraging, reinforcing our confidence that this trajectory is going to keep the same trend in the future. We are very pleased with the progress that we have shown until now, and we do not expect that this trend is going to show some significant change in the future in the short or medium term. As we have mentioned, we remain focused on sustaining our improvement in a still pretty challenging environment.
In terms of the profitability of the bank, we have recently posted 20% ROE in Chile, 15% in Peru, and 8% in Colombia. In Chile, we believe that our ROE could slightly increase, but our great challenge here is to make our business bigger. In Peru, where we had a 15% ROE, we believe that that ROE will keep on improving as risk keeps on improving and operational leverage increases. In Colombia, where we had an 8% ROE, we believe that it will also improve as operational leverage improves.
Hi. Benoit here. I'm going to take your question regarding Precio Uno and LOTUS in Peru. Just to tell you that we are pleased with the trajectory of both businesses. For example, Precio Uno in particular is doing very well, growing 8% in transactions and 10% in overall sales.
All right. Thank you. One moment for our next question. Our next question comes from the line of Nicolas Riva from Bank of America. Your line is open.
Hi, Alejandro, Juan Pablo, and team. Thanks for the chance for questions. Just one question from me. Alejandro, Juan Pablo, I asked you about this in recent quarters as well. Given the continued improvement in results and now with net leverage below 3 x in the non-banking business, I wanted to ask if you can shed any light in your discussions with the rating agencies and the possibility of regaining the investment grade ratings from S&P and Fitch given the BB+ rating with stable outlook and the fact that leverage metrics continue to improve. Thanks.
Thank you, Nicolas. Juan Pablo is here. As we have mentioned before, we continue to engage actively with the rating agencies. We are having meetings almost every month with them, sharing with them our progress and the results of the implementation of our strategy. As you mentioned, our current leverage has decreased significantly. Today it's 1.9 x, and it has shown a continuous improvement during the last five quarters. Besides that, we have been able to repay since April last year, close to $1 billion in debt. Regarding the agencies and their decision, you know they remain sovereign in their decisions, and they usually avoid setting explicit timelines about their decisions. They are closely monitoring today our credit metrics and the concrete actions that we are taking and the acknowledging of the progress that we have made in restoring the profitability in the group.
We remain fully focused on doing everything within our control to support a strong credit profile and hopefully recover our investment credit status.
Thanks very much, Juan Pablo.
Thank you. We will now turn the call over to Raimundo Monge for any closing remarks.
Thank you all for joining us today to Falabella's Second Quarter 2025 Earnings Call and for your questions. We are very pleased with our results in this quarter, where we saw a strong growth across our five growth engines. Our investor relations team remains available to address any further questions you may have. Thank you and have a great day.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.