Ladies and gentlemen, thank you for standing by, and I would like to welcome you to SMU's Q2 results conference call on the thirteenth of August twenty twenty-four. At this time, all participant lines are on listen-only mode. The format of the call today will be a presentation by the management team, followed by a question and answer session. Without further ado, I would now like to pass the line to Carolyn to introduce the call. 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 first half and second quarter of 2024. 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 remember that we may be making forward-looking statements today. As always, please take a look at the caution regarding forward-looking statements on slide 2 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 3.
Our plan for this year includes 19 store openings in Chile and 5 in Peru. We've opened 8 stores so far this year, 4 Unimarc, 1 Super 10, and 3 Maxi Ahorro. As you can see on the slide, at our most recent Unimarc opening in Pirque, we implemented our premium affordable value proposition, which caters to customers who are looking for a more sophisticated product assortment, but are also looking for savings. The premium affordable stores meet those needs with a very strong offering of fresh products, fruits and vegetables, bakery, deli, meat and fish, and a very attractive look and feel, but with affordable prices. The rest of the stores we have in our organic growth plan for this year are in various stages of permitting, design, and construction, and most are expected to open towards the end of the year.
In a few cases, we've had some administrative delays relating to permits, so there is a good chance that a few of the stores will end up opening in early 2025. The original plan was for those stores to open in the fourth quarter of this year, so it's not a significant change in terms of the financial impact we expect to have from those stores. Of course, it's important for us to continue to move forward with the new store openings, but it's also very important for the stores to perform well once they are open, and we're pleased to say that that is what has been happening. Last year, we opened 14 new stores, and on average, those stores have had sales above our plan.
In addition, half of the stores we opened last year already have sales per square meter in excess of the average for their respective format, which is significant because our base case when we evaluate opening a new store assumes that it will take three years for the store to reach maturity. These stores have had a very strong performance. On the next slide, another part of our omni-channel growth strategy is our e-commerce business, where we had strong results this quarter. Online sales through both our own platforms, unimarc.cl and alvi.cl, as well as strategic partnerships with Last Milers, grew 28% in the second quarter, reaching penetration levels of 4.7% of sales. During the quarter, we held our Cyber Day, which helped to drive sales and bring in new customers. On slide five, we move on to the customer experience pillar of our plan.
We're always looking to satisfy the needs of our customers, and throughout the first half of this year, we continued to see that economic conditions were putting pressure on their budgets. Consequently, customers seek to optimize by purchasing fewer quantities and substituting for cheaper products. On top of this generally weak consumption environment, which has been going on for some time, in April, the whole food retail industry was affected by the fact that Easter sales were transferred to March this year instead of April of last year. In an effort to reactivate sales, in May, we launched new promotions focused on basic products to which consumers are highly price sensitive. We've included some pictures on the slide. These campaigns are called Precio Oferta or Sale Price at Unimarc, Oferta or Sale at Mayorista 10 and Super 10, and Ahorro en Grande or Save Big at Alvi.
Customers reacted favorably to these promotions, and as a result, we once again saw growth in sales in the months of May and June, partially offsetting the impact of April in the quarter. On slide 6, private label growth is another key initiative within our customer experience strategy, and this is also another way we help customers optimize their budgets while still enjoying excellent quality products. We've launched over 100 new products this year so far in a range of different categories with pictures of some of the most recent launches on the slide, including fruits and vegetables, snacks, laundry detergent, and baby products. At the same time, we continue to expand the use of recyclable packaging in our private label products.
Our goal for 2025 is for 50% of the assortment to have certified recyclable packaging, and we've been making steady progress toward that goal, reaching the halfway level of 25% in the first half of this year. On slide 7, we have a new initiative as part of our Club Unimarc loyalty program. On July 1, we launched a new concept of membership levels for the club, making us the first food retailer in Chile to offer this type of program. Our customers benefit from exclusive promotions and discounts at Unimarc and also at partnering businesses, depending on their membership level. The levels are Club Member, Gold Member, and Platinum Member, and there is also a paid membership for the Diamond Membership with further associated benefits. The membership levels are associated with the customer's average spending levels over the last 3 months.
If they increase their spending at Unimarc, they can upgrade to a higher membership level and benefit from higher discounts. We believe that this will contribute to customer loyalty. Of course, this program is brand new, so we can't draw conclusions just yet. In the first month, over 300,000 customers upgraded to a higher membership level, and on average, those customers spent 15% more in July than in June. On slide 8, the next pillar of our plan is efficiency and productivity.
The initiatives that we've implemented in terms of new technology and new processes throughout our operations in order to drive productivity have been essential to keeping operating expenses under control in the face of inflation and increases to the minimum wage. In fact, thanks to these initiatives, our operating expenses grew only 3% in the second quarter when inflation was above 4% in the last twelve months. Our personnel expenses grew only 2.3% in the quarter, despite inflation adjustments on top of a minimum wage that on average was 7% higher than in the second quarter of 2023. In terms of productivity indicators, we can see that in the first half of this year, we managed to improve sales per full-time equivalent by 1.5% even in the face of lower revenue.
Total headcount is lower even as we are operating more stores. On slide 9, the efficiency and productivity pillar of our plan also includes energy efficiency initiatives. As we explained last quarter, we implemented an energy management system in 100% of the facilities operated by SMU, designed to optimize energy consumption and efficiency. This system is certified under ISO 50001. Another initiative relates to both our environmental impact and also the cost of electricity. Electricity from renewable sources accounts for about 15% of our electricity consumption in Chile. Having electricity from renewable sources is something that we have agreed upon with the electricity suppliers or stores that have high enough consumption levels that we can negotiate an unregulated rate.
This 15% of energy from renewable sources is a proxy for the percentage of our consumption at unregulated rates, which are lower than regulated rates. We are currently in a bidding process with electricity suppliers to contract additional facilities under unregulated rates. These additional facilities account for an additional 15% of energy consumption, so we would be doubling the coverage of lower unregulated rates and of renewable energy. We've also been working to increase the use of electric vehicles in our supply chain, incorporating three electric trucks into our fleet last year and a fourth one in the second quarter of this year. This helps us to move towards our goal of using electric vehicles for 10% of shipments from distribution centers to stores by 2025. Last year, we were at 2%, and in the first half of this year, we've doubled that number.
On slide 10, regarding the committed and sustainable organization pillar of our plan, we recently launched the latest version of our traditional Unidos campaign, through which we raise funds to help nonprofit organizations that have a positive impact on the community. We contribute 10% of the sales of Unidos gift cards for the duration of the campaign to two beneficiaries. Fundación Las Rosas, which provides shelter and dignified living conditions for senior citizens, and Club de Leones Cruz del Sur de Magallanes, which operates rehabilitation centers for people with disabilities in the Magallanes region of Chile. These activities are part of our diversity and inclusion model. Going on to the numbers on slide 11, we have revenue, which was 0.4% lower in the first half of this year compared to the first half of 2023, and 1.9% lower in the second quarter.
As I mentioned before when I talked about our new promotional activity, the low levels of consumption observed in recent periods, including the first quarter of this year, continued in the second quarter, as reflected by customer behavior. We continue to see customers optimizing their budgets by buying fewer quantities and down-trading. In the second quarter, we also had a significant impact from the Easter-related calendar effect in April, with those sales being transferred from April 2023 to March 2024, leading to a year-over-year decrease in the number of customers and transactions in that month for the first time since the second quarter of 2021. However, in the months of May and June, we once again saw growth in sales and the number of customers and transactions recovered.
The weak consumption environment affected same store sales, which fell 2.5% in the half and 4.1% in the quarter. The strong performance from new stores helped to offset this effect, as I mentioned at the beginning of the presentation. The new stores are outperforming their plan and in many cases maturing significantly faster than expected. As I also mentioned before, in May, we started to implement promotional activities focused on basic products to which customers are highly price sensitive, improving our competitive position by offering more attractive prices. As a result, sales in May and June improved and there was an impact on the sales mix, affecting gross margin in the quarter, where we had a decrease of 60 basis points.
To help explain some of the drivers behind revenue, on slide 12, we've provided a closer look at data on the number of customers and transactions, as well as average ticket and average monthly spend per customer. On the left, we have a comparison of the % change in number of transactions in red and average ticket in gray year-over-year, starting just before the pandemic in January 2020. Pandemic restrictions caused the number of transactions to fall sharply, while the average ticket basically doubled. These two figures began to converge back towards historical levels in 2021. In 2022, when inflation levels started to go up and customers looked to optimize their spending, the average ticket started to fall with the number of transactions going up.
The number of transactions was consistently growing year-over-year throughout this period until April of this year, but then it recovered in May and June. On the other hand, the average ticket has been lower year-over-year and showed a recovery for the first time in June. On the right, we have the number of customers and the average monthly spend per customer, also shown as a % variation year-over-year, with customers in red and spending in gray. Here again, we had consistent growth in the number of customers up until April of this year, with the number recovering in May and June. The average monthly spend per customer had been down year-over-year since early 2023, but in May and June of this year, we also saw an increase in those figures.
On the next slide 13, we have operating expenses, which grew 4.7% in the first half and only 3% in the second quarter. Inflation for the last twelve months was 4.2%, which means that in the second quarter we had a reduction in operating expenses in real terms. Despite the fact that most of our expenses are affected by inflation, and we also have a significant impact from the higher minimum wage on both our personnel expenses and on service expenses, where cleaning and security services are affected. As I mentioned earlier in the presentation, our efficiency and productivity initiatives have been highly effective at helping to mitigate pressure on operating expenses. In fact, our personnel expenses grew less than inflation, 3.8% in the half and 2.3% on the quarter.
The biggest increase to operating expenses in both the half and the quarter came from service expenses due to higher rates on electricity, security and cleaning services. Operating expenses as a percentage of revenue grew 110 basis points in both the half and the quarter due to the lower revenues. Moving on to slide 14. Our EBITDA and EBITDA margin were affected by the lower revenue and the resulting lower operating leverage, despite the fact that we kept operating expenses under control. EBITDA fell 10.4% in the first half and 21.3% in the second quarter, and our EBITDA margin was 8.1% in the first half, 90 basis points lower than last year and 6.8% in the second quarter, 170 basis points lower than the second quarter of 2023.
The second quarter is historically the weakest quarter in terms of revenue and EBITDA due to seasonality as we don't have any of the positive effects that benefit the other quarters. Summer vacation with customers traveling to regions where we have higher market share helps us in the first quarter. National holidays in the third quarter and Christmas and New Year's in the fourth quarter. That seasonality is reflected in the graph we have added below with the quarterly EBITDA margin, and this applies even in years with favorable economic conditions. This quarter's EBITDA margin is exceptionally low, and that is a product of the consumption environment which reduces our operating leverage. On the next slide we have net income, which was down 36% in the half and 64% in the quarter.
We've broken down the effects between operating income, non-operating income and taxes, and as you can see, the lower net income is essentially the result of the lower operating income. On slide 16, we have our profitability indicators. Our dividend yield was 6.8%, similar to 2023 and lower than 2021 and 2022, partly due to the lower net income and resulting lower dividends, and partly due to the strong share price performance. The return on equity was 9.1% in the 12 months to June, slightly lower than in 2023 because of lower net income. On the next slide we have financial ratios including as reported figures and figures that are adjusted for store rental expenses.
On the left, net financial liabilities to EBITDA, including store rentals, was 4x in June, and when we adjust for store rentals it was 2.9x. This is slightly higher than recent periods, primarily due to the lower EBITDA. On the right, net interest coverage as reported was 5.2x in June, also slightly below December because of the decrease in EBITDA. When we adjust EBITDA and interest expense for store rentals, interest coverage was 11.7x in June. On slide 18 we have our bond covenants where we continue to have plenty of flexibility. Net financial debt to equity is at 0.58x, well below the 1.03 limit, and interest coverage is 5.2x, more than double the 2.5x requirement.
On slide 19, at the top of the slide, we have a summary of our cash flow for the first half of this year. We started the year off with a very strong cash balance of CLP 105 billion, significantly higher than the minimum we'd like to have on hand, which is in the neighborhood of CLP 45 billion-CLP 50 billion. In January, we received CLP 52 billion from the insurance claim for the social crisis in Chile back in 2019. In our cash flow statement, this payment is reflected under operating cash, but on the graph we've separated it. Normal operating cash for the period was CLP 76 billion.
On top of that, we also issued local bonds in March, the Series AR bond for $1 million or CLP 37 billion, and in April the Series AQ bond for $1.5 million or CLP 56 billion. The use of this cash for the period included the amortization of bank debt and bonds for CLP 48 billion, lease payments of CLP 30 billion, interest payments of CLP 29 billion, CapEx of CLP 45 billion, and dividend payments of CLP 42 billion, leaving us with an ending balance of CLP 129 billion in June. In July, we carried out another bond plan placement, the Series AS bond, this time for $2 million or CLP 75 billion, and we added that to the end of the graph to show a pro forma ending balance of CLP 204 billion.
The purpose of these three bond placements is to refinance financial liabilities and to flatten out our maturity profile, which is what we're showing on the graph below. The three new bond placements maturing in 2029, 2030 and 2034 are shaded in pink in the graph, and they total CLP 169 billion, which positions us very well for the maturities that we have in the second half of this year and in 2025. That's it for our presentation. Thanks so much for listening, and if there are any questions, Arturo will be happy to take them now.
Thank you very much for the presentation. We'll now be moving to the Q&A part of the call. If you have a question and dialed in via the telephone, please press star two. That's star two. If you're dialed in via the web, you may also ask a voice or a text question. Thank you very much. The first question will be from Mr. Alonso Aramburu from BTG Pactual. Please go ahead, sir. Your line is open.
Yes. Hi, good morning. Two questions on my end. First, if you can comment on whether you've seen the continuation of trends, especially on average ticket, from June into July? Second, given the increased promotional activity you're doing, do you think it's still reasonable to think about 9% EBITDA margins in the second half of the year? Thank you.
Hello. First question about the trends of average ticket. In June, we improved our average ticket first time in a lot of time since December 2022. In July the situation is similar. We're expecting the similar behavior in the third quarter and also in Q4. Because our focus in the basic product and sensible product and sensible price product will have good results with our customer as was in June. Therefore, in terms of the EBITDA margin. Our long term goal is at 9%.
Of course, it will be very difficult to reach this number for the full year because the impact of Q2 was very important. We're expecting to improve our sales in the second half of this year with the idea to reach a number in the level of 8.5%. Our long-term goal is 9% because in the future, because it's very difficult to reach this number with flat growth in sales, because the expenses are growing every year for the inflation. We did a very important adjustment in expenses.
In fact, our expenses decreased in real terms, but anyway, increasing in nominal terms and therefore with no growth in sales, it's very difficult to reach the 9%. We are very, very confident that in the next quarter, the growth of sales come back and it will be possible to reach this number again in the future periods.
Thank you, Arturo.
Thank you very much. Our next question comes from Mr. Joel Lederman from LarrainVial. Please go ahead, Sir. Your line is open.
Hi guys. Can you hear me?
Yes, please go ahead.
Thank you very much. Thank you for the call. Just quick follow-up on the last question. Just to understand better the promotional activities. Can you maybe give more color regarding the competitive environment in Chile and how you are seeing trends in the third quarter to maybe understand better how the market is evolving through 2024. My second question is related to expenses. Maybe if you can give more color regarding the 11% increase in services, how much of that portion is related to electric rates? Thank you very much.
Okay. In the first question about the competitiveness, it will be similar in the Q3 and almost in Q4. The competition is hard in the full year, but especially in the second quarter because the impact of April was very negative for the industry. All competitors are improving or trying to improve the competitive position. In Q3, our situation is better in terms of sales, but the competition is similar. The competition we scheduled is similar. The impact on our gross margin in the third quarter, we will have impact also in the third quarter as well.
The idea is to improve our market position adjusting the pricing and also with the negotiation with the supplier, with the idea to receive support of them to finance our promotional activities. In terms of the expenses, the pressure in terms of the minimum salary and also electricity expenses and security will be present in the next month and also in 2025, of course, especially for the electricity impact. The total impact of the electricity will increase in 2025 in the service account because we will have a 40% increase in average in our in this specific item. Therefore this.
This impact will be received for the full industry and probably will just pass or pass through part of or 100% of this additional cost in the margin, and probably will be the behavior of the food industry with the idea to keep our EBITDA margin in the future. That will be the impact in our opinion.
If I may, just to clarify something there. Before you mentioned that you guys want to reach the 9% EBITDA margin guidance during 2025, but you also mentioned that you will perceive higher pressures from the electric tariff during 2025 also. Which are the main things that you guys are preparing to mitigate those effects during next year?
We have a project with the idea to reduce the consumption quantity and also increase our number of stores with the unregulated rates, negotiating as free rate for the free customer. The part of this additional cost will be passed through in the gross margin. It's part of the probably because the full industry will suffer the impact.
Thank you very much, Arturo.
Okay, thank you very much. Our next question comes from Miss Carolina Ratto from Itaú. Please go ahead, ma'am. Your line is open.
Hi. Thank you. I would like to know a little bit more about, you know, sales dynamics between categories, because we have seen the same-store sales, for instance, in other competitors are performing better, even everyone is actually facing a very competitive challenges scenario. I just would like to understand if you think that is related to, you know, non-food categories penetration that may be higher for other players. Or do you think that the promotional activity in your case for, you know, with the sensitive prices will push, you know, same store sales downwards as well in terms of the, you know, aggressiveness of that. I just want to give a little color on category performance as well.
Hi, Carolina. Our strategy is to increase the weight of private label products in our assortment or in our promotional activities. Also, in terms of the non-food, we don't have space to increase a lot our assortment in non-food because the size of our store does not allow to increase significantly this assortment in non-food. Of course, our competitors are improving the gross margin because the gross margin in those categories have been better than 2023. In our case, we need to improve our gross margin also and compete also in food. It's our focus in our assortment.
For this reason, we will maintain the promotional activities in basic product and lower value product that have a good performance sales. That will be our strategy to improve our sales and also reduce expenses and also obtain the financing from the suppliers. Also, with our pricing strategy, measuring the elasticity of this promotion because we have technological tools that allow us to measure the effect of each promotions, and that will be our strategy in the next month to compete in this very hard competition.
A follow-up on this. When do you think that same store sales will basically match the inflation again? It would be like first half of next year? What are the drivers for that to happen?
Excuse me. Would you repeat, please, because the
The line was kind of fuzzy, Carolina. Or maybe you could send it by chat.
I'm sorry. I'm with my phone. You can hear me? My question or?
That, that's better.
That's better. My question was basically when do you expect, you know, same store sales to match food inflation again?
Okay. The food inflation now in July was a very special situation because it was lower than general inflation. That is good news, especially for the current scenario, because the chance or the pressure of prices in the average ticket is lower and the chance to improve our quantity in the average ticket that was our problem in the last four months, and for the industry as well, is higher. Therefore, the chance to improve our average ticket is higher because general inflation is not good news in terms of our expenses because it's higher than food inflation.
In the current situation, with the idea to improve sales and improve average ticket, to keep in the level of food inflation four months in the level of 4.5% or 5%, should be convenient in our opinion for us.
Okay. Thank you.
Okay. Thank you very much. We will take a couple of text questions now. This is from Pedro Waehrens from Custom Capital. Hi, how do you see your dividend paying ability in this scenario where operating conditions don't improve meaningfully going forward?
Look, until now, we are not seeing a need to change our dividend policy, because our operational result allow to finance our strategic plan and also our amortization of debt. Until now, it's not saying any change, but the company permanently are analyzing this situation, and if the company needs any change, will be done in the future.
Okay, thank you very much.
Uh.
The next question comes from Mr.
Please go ahead.
The competitive environment is hard. It's not only in the first quarter and second quarter will be the same situation in the third quarter and Q4. For the same reason, we will keep our promotional activities with emphasis in the basic product and the price-sensitive products, with the idea to offer the best option for our customers that are finding good prices to select the supermarket group.
Okay, thank you very much. We have a question also from Ignacio Llanos for Ignacio Llanos. In five years' time, how will SMU look like compared with today?
As I mentioned before that, the idea is to keep our long-term goal that is 9% EBITDA margin, and to continue with the execution of our strategic plan, our organic growth, opening stores. We will open 43 stores in this strategic plan. The idea is to keep, after this plan, 14 or 15 stores per year, with the idea to multiply more times this EBITDA margin, with the idea to improve the net income and EBITDA. That's our outlook for the next five years and more. The organic growth, with a good EBITDA margin, with discipline in expenses and gross margin, to keep this EBITDA margin.
Okay, thank you very much. Star two for any additional questions. We have a follow-up question from Mr. Joel Lederman. Please go ahead, sir. Your line is open.
Hi, thank you very much. Just a quick follow-on question on Carolina's ones. It seems that Unimarc suffers a little bit more during the quarter, and you also mentioned that in part is because you don't, you guys don't have non-food items. You also mentioned before that probably the promotional activity is going to continue going forward because of the competitive environment that we are seeing in the market. Maybe my question is that taking into consideration that Unimarc is maybe suffering a little bit more, maybe you will be more aggressive in the reconversion part of some stores to cash and carry, or that is something that you are not expecting.
Also, if you believe that same store sales, taking into consideration holiday season and that you have more of your stores concentrated in regions, maybe will be better in the third quarter and fourth quarter, taking all of the above into consideration. Thank you very much.
Okay. Our opening performance, as Carolyn mentioned, has been very, very good. The performance is in the first year in the level of the sales per square meter than the rest of the stores. For the maturity is in one year. It's very, very good performance, not only in Unimarc stores and also in the Super 10 and Alvi. Therefore, very, very happy or very confident that the next opening will have a similar performance because our model to select the locations to open store is working very well. That is very, very important.
Therefore, we are confident that the contribution of the new store in the total performance of the company will be very important in the next years and the next months. That's a very principal main issue. With our assortment competing in food with the same size in the 1,000 sq m size that this model of this prototype is working very well in the new stores. We have an opening plan, not only in the metropolitan region, also we have a good performance in different places, in small towns, in big cities, in different locations. Our model is working correctly to select the locations.
That is very important. Another question is about the effect of the food. Of course, the effect of the food in the industry in terms of gross margin, because our competitors have this, have better numbers in this portion of assortment because they suffered last year in gross margin for this reason because they sell a lot of inventories in 2023 with low margin. In this year they are obtaining the regular margin. Therefore, of course, they have this offset in comparison with the food, where the promotional activity was very aggressive in the last month.
Of course, we don't have this chance because our focus is in food in store with 1,000 square meter. We have weaker focus in this segment. Therefore, we are not thinking to change our strategy. Another important issue is that in our organic growth, we are considering more relative growth in Super 10 and Alvi in comparison with Unimarc. Therefore, we will have in the next year more portion of low cost sales or low cost segment in the next year in comparison with Unimarc. Therefore, that's because we are betting that this format, our Super 10 and Alvi are very, very good format for the customer that are finding good prices.
Therefore, the scenario for this type of segment or format will be good also in not only in 2024 or in the current economic scenario. I think that the customer will find good prices also in the next period, even with even better economic conditions. Therefore, our relative weight of these sales on the format because our organic growth considering opening in Alvi and Super 10 will be higher in the next years, and also is our bet for the future.
Thank you very much. Thank you very much, Arturo Silva.
Okay, thank you very much. Just once again, star two for any additional questions. We'll give a moment or so for any final questions to come in. Okay, it looks like we have no further questions at this point. I'll pass the line back to Carolyn and the management team for the concluding remarks.
Great. Thanks very much. Thanks for joining us.
Thank you.
We hope to have you with us next quarter. Have a great day.
Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you and goodbye.