Almacenes Éxito S A : 2Q22 Call Transcript Grupo Exito

2Q22 Grupo Exito Results Conference call

Operator (María Fernanda Moreno): Welcome to Grupo Éxito's second quarter 2022 results conference call. Please note that this conference is being recorded. At this time, all participants have been placed on mute to prevent any background noise and I am pleased to present our CEO, Mr Carlos Mario Giraldo and our CFO Mr Ruy Souza.

Please move now to slide #3 to see the agenda. We will cover Grupo Exito´s financial and operating highlights performance by country and consolidated financial results for the second quarter 2022 for operations in Colombia, Uruguay and Argentina.

We will conclude with the Q&S session, in which all participants can raise their hands to ask questions or or send them through the chat available at the bottom of the screen. In any case, please indicate your full name and company's name.

Thank you for your attention. I will now turn the call over to Mr Carlos Mario Giraldo.

Carlos Mario Giraldo, good morning to all of you and welcome to this call of our Q2 results of 2022.

If we move to slide #4, I will highlight a very strong result coming from an expansion of top line as we had not seen in many, many years, also with volume expansion in the three countries in which we operate and with a very solid performance in all the geographies. We see consolidated sales growing by a same store sales number of 27.9%.

That innovation in formats continue to gain share within the sales of the company, especially in Colombia where they now have a share between 35 and 36% of total sales.

The omnichannel sales in the three countries reached a share of 9.9% with a 12.4% share in Colombia, where it has been more developed. A recurrent EBITDA growing by 30 points, 7% when we adjust it by excluding property sales in both periods and growing by 21% without this adjustment with a margin of 7.9%.

This EBTIDA we saw is the result of a top line expansion, of the very good recurrent real estate result, and of course of strict expense control where we continue to comply with a principle that we set ourselves and it is that the expense growth be below the growth of sales. Our net income grew by 22.7%. And I would make a synthesis. If we look at the result for the complete first semester, our sales grew by 25%, this means that we are adding this semester 1/4 of the size of the company to Grupo Exito, and that is adding in sales against our baseline, $420 million, which is a very important number to look at.

If we go to slide #5, We are very consistent in our ESG contribution, our sustainability contribution. From all the pillars you see there, I would highlight four elements, one is the contribution to nutrition of children between zero and five years. 36,000 children were benefited during the period, and we continue with the goal of achieving as a country, working with government, zero malnutrition, zero chronicle, malnutrition by 2030.

Our program of Trees, of planting trees and redemption of trees by our customers directly in the cashiers or online has arrived now, in a couple months, to 300 thousand trees, which is a a part of a plan that we have in one year to arrive to 1,000,000 trees in alliance with Celsia which is operating the program to assure that these trees go to very important forests and rivers sites in our country.

We reduced our carbon footprint against the same period of last year by 16% when we account for scope one and scope 2.

And we also contributed to Valle del Cauca, the region where we are starting to operate La 14 stores by a registry of 53 of the suppliers that were left behind by the non-operation of La 14. This is saving more than 2,000 jobs and one of our purposes has been to protect the production, which is the great importance for this small and medium size suppliers located in the region of Valle del Cauca and taking many of them to the national distribution.

If we go to slide #6, here we speak about the results of sales in Colombia, a record growth in Colombia, 29.9% growth in same store sales and for the first half 27.2% growth. Here it is important to note that in this quarter we had a non-VAT Day promotion which is very important in sales, and it accounts for six points of the total growth of the period. That is, if we discount these six points, the total growth in Colombia for the period would also be a very important 24% same store sales growth.

This is confirmed by the fact that we had a volume expansion of 7%, which shows that we are clearly outpacing the impact of inflation in food. Omnichannel sales grew also by 26.7%.

If we go to slide #7, here we will see our expansion, growth by banners and by segments of our sales in Colombia. All formats, all brands had a positive performance. The main highlights are Éxito brand, with same store sales growth of 34.8%. It was imposed by the WOW conversions.

By the impact also of the unbeatable price products in basic consumer goods, which are very important for the consumer today, when there's a big concern for inflation in food.

And also, by the contribution of the non-VAT Day, especially in high ticket items.

In Carulla, we had our same store sales growth of 21.4%, coming mainly by the Carulla Fresh Market innovation, but also by the last Mile Turbo project that we have in exclusive alliance with Rappi. It is important to say that today the Omnichannel share of Carulla is the highest within the group, and it accounts for 17.7% of the total sale of Carulla.

In the low-cost segment, we have to highlight the increase again in sales in this quarter of cash and carry same store sales growth of 30% and now cash and carry accounts for 5.3% share of total group sales in Colombia.

If we go to slide #8, I would like you to look very carefully at this slide even after the conference, because it shows how the company has, year after year, developed brands and innovation in formats which assure us a profitable growth for the next years.

Starting with Exito, the Exito wow innovation for the hypermarket. Now is placed in 20 stores, which are obviously the 20 most important stores of the brand by size and by sales.

They account for 30% of the total sales of the EXITO brand. That growth is of those stores that were open more than two years ago in the accumulated period which has been 30 percentage points above the rest of the brand.

The expansion plan that we have for innovation and transformation into the WOW is of 31 full size stores that is big size hypermarkets and 99 economic or mid size stores and that takes us to a total of 130 stores that we think we will perform into WOW in the following five years.

We also add, we will take some of the stores that were the first generation of WOW into a second generation of WOW that we called Wow, 5.0. That's the internal code. And next year, we will take two of our most important stores, the two big sellers and best in margin in the country in Bogota, to this second horizon, second stage of innovation, to take a full high level of experience to our customers. Exito Wow stores as a whole as a ROI of 52%.

Carulla Fresh Market today we have converted into Fresh Market 22 stores, which account for 46% of the total sales of the brand. That growth of those stores opened more than two years ago in the accumulated period is 13 percentage points more than the average of the brand. That potential that we have for Fresh Market between full size and middle sized is 58 stores.

Finally, I would refer to Surtimayorista or cash and carry. Today we have 42 stores. They now account to 5.3% of the group sales. These stores that were converted have a multiple of sales of

2.2 times what they sold under a previous brand. We have a potential, especially through new openings between 70 and 80 cash and carries to be opened in the next five years. Clearly is going to be the brand that we are going to privilege in expansion because it has a huge potential in middle size cities of Colombia where we are not present.

And it has the highest sale per square meter in the complete organization and a very low cost, I would say probably the lowest cost of any retailer in Colombia is in one of its brands, which is below 10%, which is very similar to what we can see in the cash and carry proposition in Brazil. The ROI for Surtimayorista is 21%.

Moving to slide number 9, our second quarter omnichannel sales, were very strong, they grew by 27% and the orders grew by 46%. That is, we have a lower size ticket, but a higher frequency in our omnichannel and this is very interesting because as a whole we arrived to three-point one million orders. Most of them come from last mile dispatches, but also the other deliveries done directly by the company. That share of Omnichannel in the quarter was 12.4%. When we compared this against the base before the pandemia, it compares against 4.7% share in 2019. That sharing food is 10.4% and in non-food is 16.4%.

If we go to slide number 10, We see the results for the first half of the omnichannel strategy. Sales growing by 17% orders by 36%. A total of 5.7 million orders. If this trend continues by the end of the year, we will be arriving at more than 11 million orders, which gives us a very important share in the market of omnichannality.

Specially in food and consumer goods where clearly Exito has today a very important leading share.

Click and collect which is key for us because it is good for customers and it is good for Exito because of its profitability, it is now 26% of the total omnichannel sales.

What's up sales, the strategy now arrives to 18% share and it comes to a total 400 thousand and 13,000 orders and marketplace is now 23% of the total non food omnichannel sales.

Going to slide number 11, I want to make emphasis on the monetization of traffic and assets, which is a consistent unique identification strategy of Exito in the last years. I would refer to two of the businesses. One is the credit business Tuya arriving to 2.6 million cards leading the market in Colombia in number of plastics with a total loan portfolio of 4.4 billion Colombian pesos and growing by 48%.

The key levers for the future we see is, first, the Exito pay. The name is Tuya Pay, but it's being changed in the following weeks to Exito pay to profit from the Exito brand recognition. And now it's arriving to near to 900,000 cards. Excuse me, digital wallet units and we believe that in the following three years, it can arrive as much as 3 million digital wallets.

And the second in interesting strategy of TUYA is banking as a service. It started with a competitor which is Alkosto, where Tuya manages its credit card. It's private credit card and now it is being done with Viva air, with Transmilenio, public transportation system in Bogota and recently we are starting with Claro, the main telco in Colombia.

In Puntos Colombia, at the right side, you know this is a very interesting high potential business in alliance with Bancolombia putting together that database of customers of both companies.

They clearly, I would say the most important and complete and and reliable database of customers in Colombia.

Colombia is little by little turning into the second currency of Colombia because every time more, people can trade points into many, many products and services in many alternatives for our customers in Colombia. Today we have 5.9 million active customers increasing by 19%. Active customers mean customers that are frequently using Puntos Colombia and customers that have given the authorization of Habeas data so that their data can be responsibly used and really, we are growing the ecosystem of issuance and we redemption of Puntos Colombia and today it has two partners, Bancolombia and Exito and it has 135 allied companies. That is, companies that issue and or redeem points within the system and offer services as a gas stations or donations or all kinds of non-food in retail, and only to speak about some of the services that are offered today, Puntos Colombia has arrived to single the EBITDA margin.

I would hand now the floor to Ruy and then I will come back at the end with some conclusions.

Ruy: Thank you Carlos, Mario. Thank you everyone for for being here with us. As you know, since last quarter, we have been disclosing this, this important business unit for the group, which is the real estate business unit, I'd like to mention and go on the performance of the first half.

And on the recent achievements, as you know the whole business unit is composed by a property sales and development activities plus commercial galleries within the hypermarket stores and the 18 assets, shopping malls that we are operating under the Viva Malls Vehicle. So, when we see that the whole business, you need to know that we have 765,000 square meters of GLA. It has been increasing when we compare to the last quarters. This is something that is important because we are reactivating the projects, the pipeline for the upcoming quarters and years. The occupancy rate is 93.1%, improving 120 basis points from last year and the revenues from rentals and administrative fees presented also a huge increase at 37% for the quarter and 35% for the first half when we see the Viva Malls perimeter, we think that the real estate business unit is composed by 18 shopping malls as I mentioned, 568 thousand square metres of GLA and and for the first half it accounted for almost 40% of the company consolidated other revenues and a little bit more than 12% of their recurring EBITDA at consolidated level as well.

When we see the performance for the first half, we see that revenues grew by more than 25% and the currently EBITDA reached almost 88 thousand million Colombian pesos growing by almost 29%. It has been accretive for the company on the last couple of years we have as I mentioned a project to be implemented on the upcoming quarters and semesters.

Slide #13: Moving now to Colombia, to review the performance in terms of financial indicators, it is important to highlight the solid top line growth above 26% for the quarter. And the recurrent EBITDA grew 17% but a strong 29% when we adjust for the for the real estate development activity, we had a sale of property last year and this is something that we didn't have this quarter.

But this is resuming as I mentioned because of the of the pipeline of projects and when we compare this quarter the results adjusted for this activity, the EBITDA growth was 29%, very positive.

In terms of of sales, Carlos Mario mentioned that the main contributors were the performance of the innovative formats that are representing now 35% 2 percentage points more in terms of penetration, when we compared to the first quarter and obviously the performance of the Omnichannel activity and also volume gains of 7% for the for the second quarter of this year intervals.

In terms of gross margin, as you can see, we have a reduction in terms of rate of almost 130 bps, this can be explained by main 3 factors: the sale of property that we had last year and we didn't have this year which accounts for 35 basis points of the 50 deviation.

We have a billion coming from the contribution of Tuya of around 60 basis points. This is related to the temporary effect of provisions increase due to the long portfolio increase. This does not have imply a risk determination, it is mainly a volume effect and we had within the retail perimeter a reduction of around 30 basis points of gross margin. That was more than compensated by operational leverage in terms of expenses. And when we see internally the retail P&L actually the EBITDA margin increased when you compare to the second quarter of 2021.

For the first half, we see that Net Revenue grew 22.5%, the EBITDA grew 12.9% to COP$ 551 thousand million. When we split the contribution of the EBITDA evolution by business, we see that the retail segment contributed with the positive increase of COP$101 K million.