Ladies and gentlemen, thank you for standing by. I'd like to welcome you to SMU's Second Quarter Results Conference Call on the 13th of August, 2025. At this time, all participant lines are in listen only mode. The format of the call today will be a presentation by the management, followed by a question and answer session.
Without further ado, I'd now like to pass the line to Ms. Carolyn McKenzie, Head of Investor Relations at SMU. Please go ahead, ma'am.
Thank you. Thank you all for joining us today. I'm 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 second quarter of 2025. After that, Arturo will be happy to take any questions at the end of the call. You can send 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. Please note that we may be making forward-looking statements today. As always, please remember to take a look at the caution regarding forward-looking statements on slide number two of our presentation. As usual, we'll start with recent highlights from our three-year strategic plan for 2023 to 2025, with its four key pillars, starting with omni-channel growth on slide three.
Our plan for this period is to open 58 new stores, and to date, we have opened 40, including six this year. One in the first quarter in our Alvi cash and carry format, and five so far in the third quarter. Three in our Unimarc supermarket format and two in our Maxi Ahorro soft discount format in Peru. We have been really pleased with the performance of our new stores, which on average have been outperforming our sales expectations and have had strong operating performance in terms of sales per square meter, sales per full-time equivalent, and EBITDA margin, with around half of the stores already performing at or above the average for their respective formats, even though they have been operating for less than three years, which is the timeframe we consider for a store to reach 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. As you can see on the maps on the slide, the new stores we've opened in Chile are located throughout the country, and the new stores in Peru are located in the northern part of the country. On the right-hand side of the slide, we've also included a breakdown of the new store openings by location for the five-year organic growth plan we announced in April of this year.
We will be opening a total of 115 stores, including 80 in Chile, with nine stores in the north, 49 in the central zone, and 22 in the south. The 35 stores in Peru will be concentrated in the north. On the next slide, continuing with our omni-channel growth initiatives, we have a new announcement regarding our Mayorista 10 format. We have been in the process of converting the Mayorista 10 stores to our Super 10 banner. Our 2023 to 2025 plan originally included a total of 14 conversions, and we expected to finish converting the rest of the stores during the next three-year period. However, we have decided to accelerate these conversions, completing all 52 remaining stores this year.
In addition, by using our real estate development model, we have identified some Mayorista 10 locations that we think will be a better fit for Alvi rather than Super 10. These new stores will add scale to both of the formats. As a result of this decision, we will end up with a more streamlined operation with three clearly defined value propositions that are well-positioned to compete effectively and contribute to growth. On slide five, we move on to the next pillar of our plan, which is customer experience. Promotional activity is a key part of the customer experience, especially in the current macroeconomic and competitive landscape, where savings have been the main driver behind consumer behavior. Promotions have always been a central part of our value proposition, and we regularly make adjustments to our promotions in line with changing customer needs.
In addition, we are 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 order to meet different customer needs and preferences, we have a layered promotional offering with different types of campaigns. As we had discussed on previous calls, in the second quarter of last year, we made changes to the structure of our promotions, extending the duration of the campaigns, which helps customers to become more familiar with the concept and gives them more access to the promotions. These lengthier promotions are especially focused on basic products to which customers are highly price sensitive, and we have different versions for each format. We have also continued to offer shorter high-impact promotions on specific product categories such as beer or meat.
We've included some examples on this slide. In addition to our promotions, we also aim to offer savings to customers through our private label products on slide number six. Our private label strategy has been focused on expanding coverage, both by adding new products and also by making sure that the products are available at more stores. In addition, we are working to drive profitability and competitiveness. The trader that we acquired at the end of last year has been instrumental in these initiatives, helping to improve sourcing with less intermediation and better purchasing conditions. We've continued to add new products such as a line of teas from Sri Lanka, as shown on the slide. We've also been optimizing price positioning to ensure attractive conditions for our customers.
Our private label development strategy is delivering results as evidenced by the sales penetration, which reached 13.6% in the second quarter, up from 13% in 2024. On slide seven, the next pillar of our plan is efficiency and productivity. These initiatives are central to our disciplined approach to operating expenses, providing us with tools and strategies to help offset pressures from rising labor costs and higher electricity rates, contributing to productivity throughout our operations. In stores, we have self-checkouts and self-service scales, digital shelf management technologies to improve product availability, and the digital treasury system that helps eliminate manual cash management processes. In the supply chain, we have voice picking and automated demand planning using artificial intelligence.
These initiatives allowed us to implement an organizational restructuring plan in the first quarter of this year, which helped generate savings on personnel expenses during the second quarter. The plan cost approximately CLP 9 billion, which was charged to non-operating income in the first quarter. The savings generated by the plan over the course of the year will offset this cost. Therefore, the net impact for the full year will be zero, and there will be further annual savings of around CLP 9 billion after this year. The operating figures on the slide help to illustrate the impact of these initiatives. For example, despite increasing our store count from 420 in the second quarter of 2024 to 431 in the same period of 2025, our average headcount decreased 1.4%.
This shows that we have successfully expanded our footprint while maintaining a leaner and more efficient organizational structure. Another indicator that we use to measure productivity is sales per full-time equivalent, which increased 0.6% year-over-year. On slide eight, our plan also includes energy efficiency initiatives with an impact on both the environment and on our operating expenses, which is important as electricity rates in Chile have increased significantly. As we have explained in the past, one of our initiatives is to increase the number of facilities that contract unregulated electricity rates, which are lower than regulated rates, and under our contracts, also must come from renewable energy sources.
In 2024, 15% of our energy consumption in Chile was contracted at unregulated rates, and so far in 2025, we have added 27 more stores, 14 in the first half of the year and an additional 13 this month. With these additions, we continue advancing toward our goal of having over 50% of our total energy consumption under unregulated rates by 2027, increasing savings and tripling the share of renewable energy in our operations. With respect to the committed and sustainable organization pillar of our plan on slide nine, one of our focus areas is creating shared value, where we have initiatives that aim to support small regional suppliers, as well as initiatives focused on promoting diversity and inclusion. Regarding this second point, our inclusion programs consider both the company and the community.
In addition to our internal programs, we work with different partners in order to expand our impact. We recently launched our annual Unidos or Together campaign, where we sell gift cards that can be used at our stores, and 10% of the proceeds are donated to two nonprofit organizations. One that provides rehabilitation services to people with disabilities, and another that supports vulnerable senior citizens. Going on to the numbers on slide 10, we have revenue and gross profit for the second quarter and first half. Our revenue was down 1.9% in the second quarter compared to the same period of 2024, and 1.3% in the first half.
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. In the second quarter of last year, we had revenue of CLP 691 billion at a gross margin of 30.1%, which yielded us a gross profit of CLP 208 billion. In the second quarter of this year, we had revenue of CLP 678 billion, about CLP 13 billion less than last year, but at a gross margin of 32.4%, yielding a gross profit of CLP 220 billion, which is CLP 11.4 billion or 5.5% more than last year.
In the year to June, we have the same trend, lower revenue, but with an expansion of 130 basis points in gross margin, resulting in an increase of 2.8% in the gross profit. The strategy behind these results is essentially based on two focus areas. For our supermarket segment, we optimized promotional activity, continuing with the layered promotional structure that I described before and offering 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. The results in terms of profitability speak for themselves when we look at the complete set of numbers.
Finally, as I mentioned before, we've seen strong sales performance from our new store openings, exceeding expectations and offsetting 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 11, we have operating expenses, which grew only 4.8% in the second quarter, only slightly above inflation, despite pressures from minimum wage increases. The average minimum wage for the second quarter was 13.7% higher than in the second quarter of last year and higher electricity rates. Our electricity expenses increased almost 28% in the second quarter. The good news is that the increase is actually less than we had originally forecasted, as our efficiency initiatives have helped us to partially offset the higher rates.
Despite the higher minimum wage and other impacts on labor costs, our personnel expenses only increased 4.5% year-over-year, which is largely the result of our strategic efficiency and productivity initiatives, as I mentioned before, including the organizational restructuring plan we implemented at the beginning of the year. The graph on the right illustrates the impact of these two accounts. Personnel expenses and service expenses explain essentially the entire increase in operating expenses in the quarter, and the same is true for the accumulated period.
Moving on to slide 12, we have EBITDA, which increased 8% in the second quarter compared to last year, reflecting our focus on profitability. This improvement was supported by a sustained recovery in gross margin, contributing to the CLP 11.4 billion increase in gross profit that I mentioned before, as well as very low expansion in operating expenses. We also saw an expansion of 70 basis points in the EBITDA margin for the quarter, reaching 7.5% compared to 6.8% in the same period of last year. For the first half of 2025, EBITDA was down 8% compared to the same period in 2024, explained by the first quarter results, where we had a decrease of 19%.
On slide 13, we have net income, which was up 126.2% in the quarter. In the graph on the right, you can see that we had a significant non-operating gain, and that was essentially due to the sale of purchase options for stores that were previously operating under financial leases. We continue to operate those stores under new long-term rental contracts that we signed with the buyer, so there is no impact on operations, but this is a more optimal financial strategy.
I will go into more detail on this in a couple more slides. These transactions also give rise to a higher income tax expense. The net effect in the quarter was CLP 9.8 billion, and in the first half it was CLP 12.9 billion. There will also be an impact in the third quarter, as we announced last month. For the first half of 2025, net income decreased by 25.5%, again reflecting performance in the first quarter. On the next slide, we have the financial ratios. On the left, net financial liabilities to EBITDA, including store rentals, was 4.8x in June.
When we adjust for store rentals, it was 3.8x . Slightly lower than March, but still higher than recent periods, primarily due to the lower EBITDA. On the right, net interest coverage, as reported, was 4.1x in June 2025, which reflects the decrease in annualized EBITDA and higher annualized net financial expenses. When we adjust EBITDA and interest expense for store rentals, interest coverage was 6.9x in June. Here, the higher 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 30th, we paid a bond maturity of $3 million, or around CLP 120 billion, which means that the overlapping interest expense will no longer be an issue for the rest of the year. In fact, interest expense for the second quarter was lower than last year. On slide 15, we have our bond covenants, where we continue to have plenty of flexibility. Net financial debt to equity is at 0.59x , well below the 1.03x limit. As I explained on the previous slide, interest coverage is at 4.1x , well over the 2.5x requirement.
As promised, on slide 16, we have more information about the different effects of the sales of purchase options that we have carried out this year on our P&L, balance sheet and cash flow, as well as an explanation of the rationale behind these transactions. As I think most of you know, our operating model is that we rent almost all of our stores, as our focus is on the food retail business and not the real estate business. These stores operate under long-term rental contracts that are accounted for as other financial liabilities, obligations for rights of use in accordance with IFRS 16. We did have a small group of stores as well as our Lo Aguirre distribution center that were financed through lease contracts with insurance companies. These are accounted for as other financial liabilities, obligations for rights of use with purchase options in our financial statements.
These facilities provide us with an opportunity to optimize our financial position by ceding the leases, selling the respective purchase options, and signing long-term rental contracts with the buyer to ensure operating continuity. Under the financial lease, the assets are pledged as collateral, and after paying off a significant amount of the original debt, we were left with a very low loan-to-value ratio averaging 30%. By selling the purchase agreements, we are able to make more efficient use of these assets. The long-term rental contracts have a cap rate of U.S. +6.5%, whereas our food retail investment projects have an estimated IRR of approximately U.S. +20% on average. Consequently, we are replacing a real estate investment of U.S. +6.5% with investments in our core business with a potential return of approximately U.S. +20%.
These transactions provide free cash flow to invest in growth and do not have a significant impact on net financial liabilities to EBITDA. On the slide, we have the numbers. We sold two stores that we owned in the first quarter, seven leased stores in the second quarter, and six stores, one owned, five leased, and the distribution center in the third quarter. The total cash from these transactions is CLP 94 billion, and they give rise to net income after tax of CLP 44 billion. We pay 75% of that amount as dividends for our dividend policy, and we are left with cash of CLP 61 billion from these operations. The dividends are paid in the quarter following the quarter when the transaction was carried out, and the cash may be received during the same quarter or afterward.
We still have five stores operating under the financial lease structure, so we could eventually sell the purchase options for these stores as well if we receive a sufficiently attractive offer. Finally, on slide 17, at the top of the slide, we have a summary of our cash flow for the first half 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 126 billion, plus CLP 25 billion in proceeds from the sale of purchase options received so far. As I mentioned before, we will be receiving a further CLP 68 billion in the third quarter from the sale of the distribution center and six stores in the third quarter, as well as the remaining account receivable from the second quarter sales.
The main use of cash for the period was net debt amortization of CLP 126 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 18 months. We have now returned to more normal cash levels as our refinancing needs for the next 18 months are extremely limited, as you can see in the maturity profile on the bottom of the slide. We have bank debt, but that tends to be revolving, and we only have CLP 16 billion in bond maturities for the remainder of this year and all of 2026.
In fact, cash 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 65 billion. In addition to the debt payments, we also had lease payments of CLP 34 billion, interest payments of CLP 32 billion, dividends of CLP 15 billion, and CapEx of CLP 38 billion. As a result, from a cash flow standpoint, we have plenty of flexibility to carry out our strategic growth initiatives. That's it for our presentation.
Thank you very much for listening, and if there are any questions, our group will be happy to take them now.
Thank you very much. We'll now move to the Q&A part of the call. If you'd like to ask a question, please press star two on your phone. That is star two on your phone. If you're dialed in by the web, you can type your question in the box provided or request to ask a voice question. We'll wait a few moments for the questions to come in. Kindly note that we'll take the voice questions first, and then we'll move to the text questions. Okay. Our first question is from Martin Caldentey from BTG. Your line is now open. Please go ahead.
Thank you. Can you hear me?
Yes, we can hear you.
Okay. Thanks for taking my question. I have two. First, what returns have you seen from the SG&A optimization plans implemented earlier this year? Have these resulted in meaningful cost savings? Second, in July, were you able to observe a recovery in sales? [audio distortion]
Hi, Martin. Indeed, we implemented the restructuring plan, as Carol mentioned, in the first quarter of this year. We just reduced our personnel costs with a significant impact in the second quarter. For this reason, we have only 5% increase or 6% increase in our expenses, in spite of the high increase in minimum salary wages and also the increase in our electricity costs. Also in the electricity costs, we implemented a regulated rate in a lot of stores with the idea to achieve new reduced costs in electricity price.
With these two measures and other cost reduction was possible to reduce the impact in the structuring expenses. We're expecting for the next quarter a similar situation with a very important discipline in our expenses with the idea to keep the level of expenses over sales.
Thank you.
Our next question is from--
Sorry, is it possible to close the microphone?
No, it's. Thank you.
It was Martin's line. Yes. It's been closed now.
Great. Thank you.
Our next question is from Alonso Aramburu from BTG. Your line is now open. Please go ahead.
Yes. Hi. Good morning. Thank you for the call. I mean, just following up on the previous question, I think he also asked about sales performance to start 3Q. If you can comment on that. I was curious also about the performance of the cash and carry of Super 10, which seems particularly weak in 2Q. Maybe if you can give us some color. The press release mentioned some units that you took out from the stores. If you can maybe provide some color as to what's happening there and what kind of recovery do you expect in terms of sales in those formats. Thank you.
In fact, in 2022, we suffer our decision in Alvi and also in the rest of the format, especially in the Super 10 in Alvi, because Unimarc increased 0.3% the sales. We suffered more in Super 10 in Alvi because we decide to improve our profitability in our sales in those cases. Because in 2024, we sell back-to-back sales in Alvi with very low profitability. For this reason, the comparable base in 2024 is higher, including these sales that was not included in 2025.
Also in Super 10, we have volume sales that we eliminate in 2025, improving our profitability. For this reason, we improve the gross margin and also the contribution and EBITDA in Q2. The idea is we will suffer this situation also in Q3 in Alvi and Mayorista 10. In Alvi, eliminating this effect in the store, we have a very good performance in the self-service customers, not institutional or back-to-back sales.
We also have in Super 10 and Mayorista 10 the effect of the conversions, because when we convert stores, we suffer with the implementation of this conversion, reducing the sales in the first two or three months. After this period, the conversion effect is positive. We are expecting to improve for this concept in the next quarter as well. The profitability will be better in 2Q23. The idea is to improve the EBITDA in comparison with the previous year, the EBITDA margin as well, and also gross margin and with the same expense discipline, to improve the EBITDA in Q3 and also in Q4.
With the correction in the comparable base for this decision, in terms of the sales, will be more in 2026. We will suffer this effect in 2025 because it's part of the cost of the decision, not very important growth in the top line, improving the profitability. Other important issue is that in Unimarc, for example, and also in the other format, the performance of the new stores has been very good. Better in sales and also in EBITDA margin, offsetting the impact of this volume sales decision and also the decision that Carol commented as well, to reduce our depth of the promotions in Unimarc.
Because the impact in our gross margin was very important in 2024. Now we have the same promotion, the same product with the same strategy, but not so deep with additional discount financing for the company affecting our gross margin performance. This year, that is the main reason that we are improving also our gross margin and our EBITDA margin as well. The idea is to keep this strategy in the next quarter, but the new opening store are offsetting this negative impact. For this reason, Unimarc is growing in 2Q and also in the first half this year.
Okay. Thank you, Arturo. Just to follow up. In the case of Unimarc specifically, is there a change of trend there in 3Q too, or to start 3Q, or Unimarc is also performing similarly to 2Q with flattish sales?
No, similar to two in Q3. Yes.
Okay. Thank you very much.
Great. We can move on to the text questions now. We have a question from Macarena Gutiérrez from Credicorp Capital. This quarter's margin was the highest ever. I understand this is due to a commercial shift, but at what levels are you now seeing structural growth and EBITDA margin with the new strategy?
Yeah. As I explained before, this strategy does not change our long-term target in terms of the EBITDA margin. The idea is to reach or to surpass the 8% EBITDA margin this year because our sacrifice in terms of the sales with the idea to improve our profitability doesn't allow to dilute more fixed costs. The idea in the next year with a lower comparable base to increase our sales with our disciplined expenses to dilute also fixed costs in the next period with the idea to improve slowly the EBITDA margin to reach in the long term the 9% of our long-term target.
The gross margin, the level that we have today, the idea is to keep in the same level, in the next period, not only this year, also in the next year.
We have a question from Carolina Jaramillo from Principal Financial Group. She says, "I would like to know about the same-store sales evolution. I remember that the last two quarters were negative.
Yeah. Our opening plan is very aggressive in this strategic plan and also in the next strategic plan. Our competitors are opening stores. Therefore, we will suffer in our same-store sales with this competitor plan. The idea is to offset with our strategic plan or our opening plan to offset this effect. In fact, we have a positive effect considering our additional sales for our new stores and considering cannibalization and considering the opening of our competitors. Because our performance has been good. But it's a very important issue to consider because when the competitors open a new store, affect our same-store sales immediately.
Our same-store sales improve in, for the reason of our new opening in the next 12 months, not immediately. Therefore, it's very important to consider the full income, full revenues, because consider that our expansion plan is very aggressive, and our competitor as well. Finally, we suffer in same-store sales, but we have a positive effect with our new openings. I think it's better to see the numbers, considering both elements.
Great. The last question that we have here that we received so far is from Joel Lederman from Itaú. He says, "There have been many sales of land and stores using the sale and leaseback format. I wanted to know if you can provide more color, how much space remains available to continue doing this?
As Carolyn mentioned, we've had very limited owned stores, only 20 stores. Actually, we have five owned stores after the sale of the stores in the previous month. We have only these five stores in this condition. It will depend on the offer for these five stores, but our strategic long-term strategy is to rent the facilities. The idea is to keep this strategy in the future. What will be our decision for this five stores will depend on the offer, but it's not urgent for us to sell these five additional stores.
Joel Lederman has another question that is: Can you give some color on the competitive environment? How do you see Mass entering the hard discount segments in Chile, and the impact on SMU?
Mass opened or converted four stores, Alvi , with the same strategy that we saw in Peru because we compete with them there. It's a hard discount with focus on pantry products and very low stores. We think that with our Super10 format we can compete correctly with them. In addition, as Carolyn mentioned it before, we accelerate the conversion of the Mayorista 10 and Super10 . It's a more pure soft discount than in the years, with the idea to compete also with them in better condition. It's part of our preparation for this new entrant.
We think that we will compete correctly with them because the Chilean customer also demands the perishable product in store and the soft discount includes the perishable product and the hard discount does not consider this type of product. Also we can compete with them through Alvi have a 30% of the final customer with very convenient prices as well. It's another format that we compete with Mass. Also it's possible the arrival of PriceSmart that is like a Costco. The size announced because we don't have stores of PriceSmart, but it's a big store, 4,000 sq m.
It's a different competitor. It's more ABC1 segment or modern shoppers could be. We have Alvi to compete with in this segment. But it's not so important still because they open one or two stores per country. It's not so relevant than Mass that is more aggressive competitor because they have discount stores to open a lot of stores in very short term. In this aspect we are in our opinion we have a good format to compete with them.
Thank you very much. We'd just like to give a reminder that if you'd like to ask a question, it's star two on your phone, and if you're dialed in by the web, you can send a text question or request to ask a voice question. We'll give it a few more moments. Okay, looks like we have no further questions. I will now hand it back to the SMU team for the closing remarks.
Great. Thanks so much. Thanks everybody for joining us today. Please feel free to get in touch if you have any questions about the presentation. Have a great day.
That concludes the call for today. Thank you and have a nice day.