Ladies and gentlemen, thank you for standing by, and I would like to welcome you to SMU's third quarter results conference call on the 12th of November, 2025. At this time, all participant lines are in listen-only mode. The format of the call today will be presentation by the management team, followed by a question and answer session. Without further ado, I would now like to pass the line to Ms. Carolyn McKenzie, the Head of Investor Relations at SMU. Please go ahead, ma'am.
Great, thank you so much. Thank you all for joining us today. I am here with our CFO, Arturo Silva. As usual, we have some slides describing some of our business highlights as well as financial results for the third quarter of 2025. After that, Arturo will be happy to take any questions at the end of the call. You can send your questions by chat, or you can raise your hand and we can unmute you. An audio recording of this call will be available on our website later today. Also, please remember, as usual, that we will be making forward-looking statements today. A s always, please remember to take a look at the caution regarding forward-looking statements on slide number two of our presentation.
Before we get started with the recent highlights, I'd like to mention that we will be launching our strategic plan for 2026 to 2028 during the first week of December, and we will be holding a conference call on Friday, December 5th at 9:00 A.M. Eastern, 11:00 A.M. Santiago time. We hope that you will all join us. We'll be sending details closer to the date. For now, we will give you an update on the current plan, starting with omnichannel growth on slide three. Our plan for this period is to open 58 new stores, and to date, we have opened 44, including 10 this year. One in the first quarter in our Alvi Cash & C arry format.
Eight in the second quarter, including five in our Unimarc supermarket format, one in our Super10 soft discount format, and two in our Mayorsa soft discount format in Peru. We also opened another Alvi at the end of October. As you can see on the map on the slide, five of the eight openings in Chile have been in the central part of the country, which is where we have the lowest market share, and both of the openings in Peru are located in the north. For the rest of the year, we expect to open between five and 10 stores in Chile. Construction on all of these stores is complete or will be complete by the end of this month, but we are waiting on municipal permits. In Peru, we have four openings scheduled between now and the end of the year.
We continue to see strong performance from our new stores. We're beating our sales plan, and a significant number of stores have sales per square metre and sales per full-time equivalent above the average for their respective formats, even though they haven't yet been operating for three years, which is the time that we estimate a store needs to reach sales maturity. In a dynamic market context, where both we and our competitors are expanding our store footprint, there is naturally going to be an impact on the sales for our existing stores or same-store sales as our stores are affected by new competitors or even by the cannibalization of our own sales. However, the revenue contribution from new stores has more than offset the sales lost to new stores, according to our estimates. On the next slide, continuing with our omnichannel growth initiatives.
Last quarter, we announced our decision to accelerate the conversions of our 52 Mayorista 10 stores, completing the process this year. This decision allows us to streamline our operations, ending up with three clearly defined value propositions that are well-positioned to compete effectively and contribute to growth. The change of banner gives more scale and coverage to our Alvi and Super10 formats, providing them with increased purchasing power and access to a wider customer base. As an update, on November 1st, we converted 15 Mayorista 10 stores into Alvi stores, which, when we also consider the new store that we opened in the Santiago Metro region in October, means that between September and today, Alvi's footprint grew from 37 to 53 stores, and we still have plenty more openings in our pipeline.
On the slide, you can see pictures of our overnight conversion operation, with new signs going up and team members being welcomed to their new format. Similarly, on slide number five, Super10 has grown from 16 stores at the end of 2024 to 46 stores today. Given the new scale, we are now better able to communicate the value proposition to customers because we have the critical mass to do so. At the end of October, we launched a new campaign with the tagline, "Super10, Super Cheap," reinforcing the soft discount value proposition to customers. On slide six, we move on to the next pillar of our plan, which is customer experience. Promotional activity is a key part of our value propositions in order to deliver savings to our customers.
As we have explained in previous quarters, between 2024 and 2025, we've made adjustments to our promotional strategy, extending the duration of campaigns, helping customers to become more familiar with the concept and giving them more access to the promotions. We also continue to run short, high-impact promotions where we expect to see the maximum impact. We're able to leverage our multi-format strategy by designing promotions that cover the same product categories across formats while remaining true to the marketing and pricing strategies that are specific to each format. In addition to our promotions, we also aim to offer savings to customers through our private label products on slide seven. In addition to satisfying customer needs with an attractive assortment at convenient prices, growing our private label coverage contributes to profitability and competitiveness.
Our private label penetration stands at 13% of sales, showing that customers are consistently choosing these products. The trader that we acquired at the end of last year has helped us to improve sourcing with less intermediation and better purchasing conditions for categories including rice, flour, sugar, canned goods, and frozen vegetables, just to name a few. Loyalty programs are another part of the customer experience pillar of our strategy on slide number eight. With respect to our Alvi cash and carry format, a recent highlight was our third annual Alvi Members Expo event in the beginning of October, where over 9,000 small business owners in attendance were able to meet with representatives from major brands that supply the traditional trades, discovering new products and opportunities to help them increase the profitability of their businesses.
Club Alvi has over 100,000 members that have made purchases in the last three months, and a key part of our strategy is to help our club members develop their businesses so we can grow together. On slide nine, the next pillar of our plan is efficiency and productivity. In the face of rising labor costs and higher electricity rates, our efficiency initiatives have contributed to productivity gains throughout our operations. In fact, in the third quarter, our operating expenses fell in real terms. Implementing self-checkouts, self-service scales, digital shelf management technologies, and a digital treasury system in our stores, as well as other technologies in the supply chain and back office, we have been able to improve efficiency, carrying out an organizational restructuring plan in the first quarter of this year, which helped generate savings on personnel expenses in the following periods.
On the slide, you can see that although we have increased the number of stores as part of our organic growth plan, our average headcount is down 1.4% year-over-year. We have also been working to offset the higher electricity rates, migrating qualifying stores to lower unregulated electricity rates, while simultaneously increasing the share of energy from renewable sources in our total consumption. As illustrated on slide 10, we are working towards having 50% of energy consumption under unregulated rates by 2027 from around 15% in 2024, which also means tripling the share of renewable energy in our operations.
With respect to the committed and sustainable organization pillar of our plan on slide 11, one of our focus areas is diversity and inclusion, where we recently received the Impulsa Award awarded by PwC Chile, the newspaper La Tercera, and the nonprofit ChileMujeres, recognizing companies with the best gender equality indicators in their respective industries. SMU was recognized within the retail industry. 65% of our employees are women, and 36% of our leadership positions are held by women. Going on to the numbers on slide 12, we have revenue and gross profit for the first nine months and third quarter. Our revenue was down 2.9% in the first nine months compared to the same period of 2024, and 6.1% in the third quarter.
However, the lower revenue was essentially the result of a strategic decision to focus on profitability, and the effects of that decision are clearly reflected when we look at the gross margin and the gross profit. This is a continuation of the same effects that we explained for the second quarter, but we had a higher comparison base in the third quarter of last year. The decrease in revenue and the recovery in gross margin are both more significant than we saw in the second quarter. In the third quarter of last year, we had revenue of CLP 735 billion at a gross margin of 29.6%, which yielded us a gross profit of CLP 217 billion.
In the third quarter of this year, we had revenue of CLP 690 billion, about CLP 45 billion less than last year, but at a gross margin of 32.3%, yielding a gross profit of CLP 223 billion, which is CLP 5 billion or 2.3% more than last year. In the year to September, we have the same trend, lower revenue, but with an expansion of 170 basis points in gross margin, resulting in an increase of 2.7% in the gross profit. As we explained last quarter, the strategy behind these results is essentially based on two focus areas. For our supermarket segment, we optimize promotional activity, continuing to offer significant savings on products that are highly relevant for customers, but fine-tuning the selection of products and improving commercial efficiency.
For our B2B segment, we made the decision to eliminate certain low margin volume sales. Therefore, the 2024 base includes sales that we are intentionally leaving out in 2025, but the results in terms of profitability speak for themselves. Finally, as I mentioned before, we've seen strong sales performance from our new store openings, exceeding expectations and helping to offset the impact on same-store sales that we are seeing as a natural consequence of both our own and our competitors' organic growth initiatives. On the next slide 13, we have operating expenses, which grew only 3.5% in the third quarter while inflation was above 4%. In other words, expenses fell in real terms despite pressures on labor costs and higher electricity rates. The main increases are illustrated in the graph on the right-hand side of the slide.
Service expenses increased almost 11% year-over-year, reflecting mainly the higher electricity rates as well as higher costs for security and cleaning services, which are strongly affected by the higher minimum wage. Personnel expenses were affected by the minimum wage, which was 5.8% higher than in the same quarter of last year, as well as higher Social Security payments resulting from the pension reform. Despite these pressures, the increase in personnel expenses was only 3.6% year-over-year, largely as a result of our strategic efficiency and productivity initiatives that I mentioned before, including the organizational restructuring plan implemented at the beginning of the year.
Finally, rent expenses increased 13.8% year-over-year, mainly due to an accounting effect under IFRS 16, where a higher number of stores classified as operating leases instead of financial leases. On the other hand, we had significant savings in accounts such as insurance expenses, which were 20% lower while maintaining the same level of policy coverage and external services, which decreased 17%. Moving on to slide 14, we have EBITDA, which decreased 1.6% in the third quarter. Although we did have an expansion in gross profit and minimal growth in operating expenses, we need the operating leverage that comes with top line growth in order to increase EBITDA. However, we did achieve an expansion of 30 basis points in the EBITDA margin for the quarter, reaching 7.3%.
On slide 15, we have net income, which was up 337% in the quarter. The main effect in the quarter was a non-operating gain on the sale of assets and purchase options, specifically five leased stores, one owned store, and one distribution center. We had also sold two owned stores in the first quarter and the purchase options for seven leased stores in the second quarter. We continue to operate those assets under new long-term retail rental contracts that we signed with the buyers so there is no impact on operations, but this is a more optimal financial strategy. We explained this effect in detail last quarter, and we've left a slide at the very end of the presentation with all of these numbers, so feel free to refer to that. These transactions also give rise to a higher income tax expense.
The net effect in the quarter was CLP 31.1 billion, and in the first nine months it was CLP 44.1 billion. On the next slide, we have the financial ratios. On the left, net financial liabilities to EBITDA, including the store rentals, was 5.1x in September, and we adjust for store rentals, it was 3.3x . On the right, net interest coverage as reported was 4.0x in September 2025, which reflects the decrease in annualized EBITDA and the higher annualized net financial expenses. When we adjust EBITDA and interest expense for store rentals, interest coverage was 6.5x in September. The higher net interest expense reflects the fact that last year we issued bonds in preparation for maturities this year, which led to us having an overlap in debt and consequently interest expense.
This happened during both 2024 and the first quarter of 2025. On April 30, we paid a bond maturity of $3 million, or around CLP 120 billion, which means that we no longer have the overlapping interest expense. In fact, the interest expense for the third quarter of this year was lower than the third quarter of last year. We also don't have the excess cash that we were building up, which was generating interest income. These indicators are also temporarily affected by our organic growth plan. This is because when we open a new store and we sign a new rental contract, that contract is recognized as an obligation for right of use under financial liabilities, and we have to recognize the full amount of that liability.
We also have the full amount of the CapEx that we need to build the store on our cash flow. The store doesn't contribute its full EBITDA until it reaches maturity, generally around its third year of operation. This affects the net financial liabilities to EBITDA ratio and the net interest coverage ratio. The impact on the adjusted ratios is less because those ratios don't include the rights of use or the respective interest expense. On slide 17, we have our bond covenants where we continue to have plenty of flexibility. Net financial debt to equity is at 0.49x , well below the 1.03x limit. As I explained on the previous slide, interest coverage is at 4.0x , well over the 2.5x requirement.
On slide 18, at the top of the slide, we have a summary of our cash flow for the first nine months of 2025. We started the year off with a cash balance of CLP 155 billion, and in the period we generated operating cash of CLP 177 billion plus CLP 83 billion in net proceeds from the sales of assets and purchase options mentioned before. If you look at our cash flow statement, you will see a cash inflow of CLP 118 billion from these sales, but there was also an outflow of CLP 35 billion from the prepayment of the lease that we had on the distribution center. Hence, the net amount of CLP 83 billion.
The main use of cash for the period was net debt amortizations of CLP 148 billion, mainly relating to the Series T and AK bonds that matured in March and April of this year, and that we paid using proceeds from the bonds we issued last year. We had been maintaining a significant cash surplus over the last several quarters as we had CLP 230 billion in bond maturities over the last two years. We have now returned to a more normal cash levels as our refinancing needs through 2026 are extremely limited, as you can see in the maturity profile below. We have bank debt that tends to be revolving and only CLP 16 billion in bond maturities for the remainder of this year and all of 2026.
In addition to the debt payments, we also had lease payments in addition to the distribution center prepayment of CLP 46 billion, interest payments of CLP 47 billion, dividends of CLP 26 billion, and CapEx of CLP 68 billion. We have a cash balance that is still a bit higher than normal. We think of CLP 40 billion-CLP 50 billion as standard, and we ended the period with CLP 80 billion, and we still have an account receivable of CLP 11 billion for some of the purchase options that we sold in the third quarter. As a result, from a cash flow standpoint, we have plenty of flexibility to carry out our strategic growth initiatives. That is it for our presentation. Thank you very much for listening.
Before we go to questions, I'll just mention once again that on December 5th, we'll be hosting a conference call to launch our strategic plan for 2026-2028. Now, if there are any questions, Arturo will be happy to take them.
Thank you very much for the presentation. We'll now be moving to the Q&A part of the call. If you have any questions and are dialed in via the telephone, please press star two. That's star two for any questions. If you have any voice or text questions, you may also ask them using the web portal. We'll give a moment or so for any questions to come through. Thank you. Our first question comes from Mr. Alonso Arámburu from BTG. Please go ahead, sir, your line is open.
Yes. Hi, good morning, and thank you for the call. Yeah, I wanted to just get some color on the, on the revenue trends, maybe after the quarter. I believe comparable figures get easier in the fourth quarter because of the change in the promotional strategy last year. If you can give us some color on that would be very helpful. Thank you.
Good morning, Alonso. In Q4, in October and the first days of November, we have had an improvement of sales in comparison with Q3. We're expecting for the full quarter of Q4 flat sales in 2025, improving with respect to the previous quarter. We think that it's absolutely possible to keep our gross margin in Q4 in the level of Q1 for the full year of 2025, 32.5%, something like this. We are expecting to approach an 8% EBITDA margin for the full year. To reach this number, we need to improve our EBITDA margin in Q4, and we think that is absolutely possible.
We continue to maintain the strong expense discipline in that. We implemented our restructuring plan in the first quarter of this year, but in the rest of the year, we are implementing other measures in terms of expense and electricity and services and other accounts, as Carolyn mentioned previously. This means that, with additional stores, in fact, it will reduce; with more stores, will reduce our headcount this year. Our expenses or personnel expenses increased only 3.6% lower than inflation for full-year inflation.
The idea is to with this measure and better behavior in terms of sales to reach these numbers in Q4.
Great. Thank you, Arturo.
Okay, thank you very much. Just once again, a reminder, any additional questions star two. You may also ask a voice or a text question if you have dialed in by the web. Okay, it looks like there are no further questions. It looks like the call was very comprehensive. I'll pass the line back to the management team, for any concluding remarks.
Great. Thanks so much for joining us everybody. Feel free to get in touch if you have any additional questions, and we hope to have you with us on other ones. We do have one question. Sorry, these are text questions. Let's see. So there's a question about the reduction in insurance expenses. Is that an impact only in the third quarter? Or has an effect on the full third quarter or partially? And is that all 100% down.
Our savings every month, we renew our insurance policies in May and June. We will have savings until December 2026 because our renewal considers 18 months in the new contract.
Great. We have another question about how should we think of SMU's leverage for the 2026 to 2028 period as it has increased during 2023 to 2025. Are there more stores or other assets that you could consider to sell and lease back in the rest of 2025 or 2026? Could you give us a sense of the annual lease expense of the distribution center?
First question about the leverage. We're expecting to improve our leverage because our indebtedness is the same as the last years. Our leverage suffers a little bit from the EBITDA reduction. We expect to improve our EBITDA in the next years, 2026 until 2028. In consequence, we're expecting to improve our leverage index considering the financial lease because our leverage, considering only financial debt, is better today. We have 3.3x, and in the previous quarter was 3.7x. Considering the lease contract, we're expecting to improve this ratio as well with our improvement in EBITDA.
Second question about the new or other possible sales of assets. Will depend on the possible offer. We have five additional stores, owned stores, and in the similar situation of the other 16 that we sold in this year. Will depend on the opportunity. We don't have a hurry. Could be in the end of this year or during 2026, depend on this. But only we have five additional stores in this condition. This is not so big. Yes, in terms of additional leasing expense or the distribution center, of course. Because we will have a new contract because we sold this distribution center.
Not affecting the EBITDA because it will be a finance lease because it's a long-term contract affecting a little bit the interest rate or interest expenses. Excuse me.
Then there's one more. Sorry, I hadn't seen the second part of the question. If we can clarify the sales growth, if that was for the fourth quarter that we're seeing, if that's quarter-over-quarter or year-over-year.
Year is flat, but better than the previous quarter.
I think that's all the questions now. I don't see any more. Mike, are you seeing any more questions?
I'm actually seeing no further questions at this point.
Excellent. All right. I will finally say please feel free to join us on December 5th for our 2026- 2028 launch. Feel free to get in touch in the meantime if you have any other questions. Have a wonderful day.
Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you and goodbye.