Ladies and gentlemen, thank you for standing by, and I would like to welcome you to SMU's first quarter 2025 results conference call on the 14th of May 2025. At this time, all participant lines are on listen-only mode. The format of the call today will be presentation by the management and IR team, followed by a question-and-answer session. Without further ado, I would now like to pass the line to Ms. Carolyn McKenzie, Head of Investor Relations at SMU. Please go ahead, ma'am.
Great. 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 first 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 raise your hand, and we can unmute you. An audio recording of this call will be available on our website later today. Also, 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 omnichannel growth on slide three. Our plan for this period is to open 58 new stores, and to date, we have opened 35, including one in the first quarter in our Alvi cash and carry format. For the rest of this year, we have 15 store openings planned in Chile and eight in Peru, most of which should take place in the second half of the year. By format, for the remaining openings, we have eight in Unimarc, three in Alvi, four in Super10, and eight in Maxiahorro. We also have 25 store remodels planned. As we have seen in recent periods, in the first quarter, the new stores on average once again exceeded our expectations in terms of sales and EBITDA.
On slide four, we move on to the next pillar of our plan, which is customer experience. This year, we have continued to see savings as the main driver behind consumer behavior, which is why our promotional offering remains focused on basic products to which customers are highly price sensitive. At the same time, we've been leveraging our Club Unimarc program at the membership levels that we launched last year in order to encourage customers to do more of their shopping with us by offering them differentiated levels of savings according to their membership level. The idea is that the more you spend, the more you save. In a macroeconomic environment in which consumers are more willing to shop around to find savings, we want to make sure we're providing attractive prices and deeper savings for loyal customers.
We've continued to build our private label strategy as described on the next slide, improving coverage of categories and making sure our offering is available at all of our locations. At the same time, we continue to expand our network of suppliers, finding alternatives that contribute toward competitiveness and profitability. As of the first quarter of 2025, private label penetration remains solid at 13% of sales in Chile. On slide six, the next pillar of our plan is efficiency and productivity, where we remain focused on keeping operating expenses under control in the face of inflation and increases to the minimum wage. The technological tools and systems that we have implemented contribute 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 January and February of this year, which will allow us to generate savings on personnel expenses going forward. The plan cost approximately CLP 9 billion, which was charged to non-operating income in the first quarter, but the savings generated by the plan in the following months will offset the cost over the course of this year. 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.
A clear example of the impact of these efforts is that despite increasing our store count from 418 in the first quarter of 2024 to 431 in the same period of 2025, our average headcount actually decreased 0.4%. This shows that we have successfully expanded our footprint while maintaining a leaner and more efficient organizational structure. On slide seven, 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 such, 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 14 more stores. With these additions, we continue advancing towards 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 eight, one of our focus areas is caring for the environment, where we aim to reduce our impact through initiatives such as food waste reduction, measuring our carbon footprint, and more recently, managing our water footprint.
Our Lo Aguirre distribution center recently received certification from the Agency for Sustainability and Climate Change for measuring its water footprint. Beyond measuring the footprint, last year, we also implemented new technology in Lo Aguirre's cooling system, which led to a reduction of over 6,000 cubic meters in water extraction. On the next slide, we have our investment plan for the 2025-2029 period, which we announced in April of this year. The total CapEx for the five-year plan is approximately $600 million, which means that we expect to continue to invest at similar levels to what we have planned for 2025, $120 million per year.
Approximately 60% of this amount will go towards organic growth, including the opening of 115 new stores, 80 in Chile and 35 in Peru, and more than 200 store remodels and conversions. In addition, between 15% and 20% of CapEx will go towards efficiency and productivity initiatives, including technological tools that improve efficiency throughout our operations, including processes that take place in stores, the distribution network and back office. The remaining 20%-25% is maintenance CapEx, including the renewal of IT equipment as well as equipment used in stores and distribution centers. The plan will be financed using cash generated by operations without the need to increase debt.
Going on to the numbers on slide number 10, we have revenue, which declined 0.7% in the first quarter, mainly explained by the calendar effect, which generated a high comparison base for same-store sales as the first quarter of 2024 had one additional day due to the leap year, and there was a positive impact from Easter sales in March 2024. This effect was partially offset by the strong performance of the new stores we've opened, as I mentioned before. It is important to note that while revenue was down, our gross profit increased 0.4%, reflecting our commercial efficiency as our growth margin expanded 30 basis points, maintaining the recovery we achieved in the fourth quarter, as you can see in the graph below.
During this period, we continued to offer competitive promotional activity that has provided our customers with significant savings on their food purchases. We expect to maintain these levels of gross margin in the coming quarters, and we will also have a favorable comparison base in Q2 and Q3. On the next slide 11, we have operating expenses, which grew 8.8% in the first quarter. Operating expenses as a percentage of revenue grew 210 basis points. We continue to see the impact of the higher minimum wage, which was up 11% in the quarter, and inflation on our operating expenses, essentially reflected in personnel expenses. Service expenses are also affected by the minimum wage and inflation increases because they include cleaning and security services. In addition, service expenses are affected by higher electricity rates.
These two accounts, personnel expenses and service expenses, explain practically the entire increase in operating expenses. However, as I mentioned before, our strategic initiatives focused on efficiency and productivity will continue to help mitigate the pressures on operating expenses. Moving on to slide 12, we have EBITDA, which decreased 19% compared to the first quarter of 2024. This decline is mainly explained by the lack of top line growth and the increase in operating expenses, as I explained on the previous slide. On the right side of the slide, we have net income, which was down 78% in the quarter. The decrease is primarily due to lower operating results.
In terms of non-operating income, the first quarter includes the impact of the organizational restructuring plan we carried out in January and February, partially offset by a gain on real estate sales as we sold two stores that we owned. We will continue to operate those stores with long-term rental contracts. There was also a positive impact from income tax due to lower pre-tax income and inflation adjustments to tax assets. On the next slide 13, we have the financial ratios. On the left, net financial liabilities to EBITDA, including store rentals, was 4.9 times in March, and when we adjust for store rentals, it was 4.0 times. This is higher than recent periods, primarily due to the lower EBITDA.
On the right, net interest coverage, as reported, was 4.2 times in March 2025, which reflects the decrease in EBITDA and also the higher interest expense because last year we issued bonds in preparation for maturities this year, which led to us having an overlap in debt and consequently an overlap in 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 the overlapping interest expense will no longer be an issue for the rest of the year. When we adjust EBITDA and interest expense for store rentals, interest coverage was 7.3 times in March. On slide 14, we have our bond covenants where we continue to have plenty of flexibility.
Net financial debt to equity is at 0.61 times, while below the 1.03 limit, and interest coverage is up 4.2 times, while over the 2.5 times requirement. On slide 15, at the top of the slide, we have a summary of our cash flow for the first quarter of 2025. We started the year off with a cash balance of CLP 155 billion, and in the quarter we generated operating cash of CLP 76 billion, and we also added bank debt of CLP 14 billion. The uses of cash for the period included the amortization of bank debt and bonds for CLP 24 billion, lease payments of CLP 17 billion, interest payments of CLP 15 billion, and CapEx of CLP 19 billion, leaving us with an ending balance of CLP 171 billion in March.
Which is an increase of CLP 16 billion over December and a surplus of over CLP 120 billion with respect to the minimum cash we like to have on hand. This cash surplus was a result of the refinancing strategy we carried out during 2024 in order to cover the bond maturities we had last year and in the first four months of 2025. As you can see in the amortization schedule at the bottom of the slide, which reflects the situation as of March 31st, in the second quarter, we had the last and largest of the bond maturities that we refinanced over the last year, which was the Serie AK, which we paid on April 30th. Going forward, for the rest of this year and all of 2026, we don't have any relevant debt maturities.
Beginning in 2027, the amortization schedule is very comfortable as we were able to space out the maturities of the bonds we issued last year. As a result, from a cash flow standpoint, we have plenty of flexibility to carry out our strategic growth initiatives.
Good morning. We have some questions in the chat.
Okay, great. Thanks. Yeah.
The first question is the financing of expansion plan or CapEx, if the company has a 75% dividend policy. The reason is that we have a depreciation amortization in the similar level of our total CapEx. Our total depreciation amortization is CLP 120 billion per year. With this cash reserve, we can finance the CapEx or our expansion plan independent of the dividend policy. Another question is-
Do we have a question from Alonso? We'll unmute you, Alonso.
Hi, can you hear me?
Yes.
Yes.
Yes. Yes. So a couple of questions. First, if you can comment please on performance after the quarter, given that you have a potentially easier comps and a positive calendar effect, have you seen an improvement in top-line growth? Second, you mentioned the openings for the rest of the year. Do you have any outlook on how many stores you may be closing also? Maybe finally, if I can ask about Peru, do you think you can get the sufficient scale this year to make it more profitable? If you can comment also on what trends you're seeing there. Thank you.
Okay. Hi, Alonso. About the performance in Q2 and the future, we have sales growth in April and in the first 13 or 14 days of May, improving with respect to the first quarter. The gross margin has had a good performance remaining at the level experienced in Q4 2024, as we anticipated. In Q2 and the rest of 2025, we expect to keep to maintain this level of gross margin, which will level our gross margin. We will have a significant improvement compared with the previous year because in 2024, in Q2 and Q3, we had margin drops that we later corrected in Q4 2024.
Regarding expenses, we hope to improve with the positive effect of the restructuring plan, as Carolyn said, carried out in Q1 2025. That we see that with 13 additional stores, we have a lower headcount in spite of this increase of stores. Regarding our electricity expenses, we incorporated 14 additional stores with non-regulated rates, improving our cost of electricity in our store. Considering all these elements, we're expecting to improve our results in Q4, Q3, and the rest of the year. About opening, we opened one store in Q1.
The idea is to accomplish the expansion plan for this year with 16 stores in Chile and 8 stores in Peru. We are not considering a special plan of closing. Of course, we are analyzing permanently the performance of our store, but we don't have today one specific decision about that. In Peru, the scale in Peru, of course, today, the scale is not sufficient, especially in the northern part where we want to develop our soft discount business.
For this reason, we're opening eight stores this year and 35 in the next five years, with the idea to have close to 50 stores in the northern part with a specialized distribution center there, improving our logistic costs, competing with better cost there operational model. Also we are developing the private label because the penetration in Peru of private label is not the same in Chile. In Chile is 13%, but there is 1% or less. The idea is to reflect our development of private label in Chile, also in Peru.
We are working in this synergies and with the idea to have more competitiveness there, not only for the number of the store, also in the commercial point of view.
Perfect. Thank you, Arturo.
I have another question for Eduardo Ramírez. What is our forecast for the next quarter in terms of same-store sales? We are expecting improvement, in fact, in April and also in the first days of May, the revenues are improving. The idea is to recover in the se-
Cash and carry segment. In fact, we are improving in Alvi and also in the soft discount segment. Notice the growth is not so significant because, with the idea to improve our commercial efficiency, we reduce some business in the volume business in this segment, in cash and carry, with very low profitability. Because the focus today is on the profitability and the commercial efficiency, we eliminate some business, the volume business with very low margin. For this reason it is more difficult, considering the comparable base to grow Q1. The idea is to incorporate more volume business with good profitability. We implement some changes in this area.
The idea is to recover part of this segment, but always considering the profitability. The gross margin is in fact at an optimal level for us. It's absolutely possible to keep this level of gross margin in the next quarter. We can improve a little bit because, as we said in the end of last year, we acquired a new company, the trading company. We are working to increase our sourcing in the world and also in Chile. We're expecting to obtain good savings in purchases, not only for our private label, also for the national brands.
In fact, in the second half of this year, the idea is to capture part of this efficiencies, commercial efficiencies. With this company, the idea is to purchase 150 billion pesos with savings of 3%-5%, which in revenue CLP 5 billion-CLP 7 billion pesos per year. That is a very important initiative to improve the gross margin or increase our competitiveness to increase our sales in the future. In terms of leverage, the idea is not to increase our indebtedness. We don't have any refinancing, important refinancing in the rest of 2025 and also 2026. The expansion plan is to finance with the EBITDA or.
As explained before, the depreciation and amortization. Therefore, the idea is not to increase indebtedness and the leverage should be in the same level. In terms of the EBITDA or net debt to EBITDA, probably will depend on the EBITDA performance. The idea is to improve our EBITDA, therefore it should be better than the previous quarter in the next quarter. When will we reach the 9% EBITDA? It depends on the growth. The idea is in this year to recover 8.5%, and in the next year to reach 9% as long-term target for the company.
The calendar effect, the leap year effect, is 1% or 2% of growth in revenues. That is the effect of the leap year. Another question.
It looks like we've covered all of the questions.
Yes.
If you have a question you didn't get to ask, feel free to get in touch with us. We'll be happy to help you out. Thanks everybody so much for joining us today. We hope you have a great day, and we hope you join us next quarter.
Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you and bye.