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Edited Transcript of GSANBORB-1.MX earnings conference call or presentation 24-Apr-20 4:00pm GMT

Q1 2020 Grupo Sanborns SAB de CV Earnings Call

México, D.F. Apr 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Grupo Sanborns SAB de CV earnings conference call or presentation Friday, April 24, 2020 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Angelica Piña Garnica

Grupo Sanborns, S.A.B. de C.V. - Head of IR

* Mario Enrique Bermúdez Dávila

Grupo Sanborns, S.A.B. de C.V. - CFO

* Patrick Slim Domit

Grupo Sanborns, S.A.B. de C.V. - CEO & Director

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Conference Call Participants

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* Antonio Hernández Vélez Leija

Barclays Bank PLC, Research Division - Research Analyst

* Miguel Felipe Ulloa Suárez

BBVA Corporate and Investment Bank, Research Division - Team Leader & Chief Analyst

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Presentation

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Operator [1]

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Good morning, everyone. Welcome to the conference call to discuss the results of First Quarter 2020 of Grupo Sanborns. Before we begin, I would like to remind you that this call is being recorded. (Operator Instructions) This information discussed today can include forward-looking statements of the company's regarding the financial operation performance. Our projections are subject to risks and uncertainties, and the final results can be differently from the expectations due to external and internal factors. The conference will be held in Spanish with simultaneous translation into English and further, there will be a question -- Q&A session.

With us, hosting the conference, we have Mr. Mario Bermúdez, Chief Financial Officer for Grupo Sanborns; and Investor Relations, Angelica Piña.

I will now turn the call over to Ms. Angelica Piña. Please go ahead.

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Angelica Piña Garnica, Grupo Sanborns, S.A.B. de C.V. - Head of IR [2]

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Thank you very much. Good morning, everyone. From January to March 2020, the consolidated total sales of Grupo Sanborns decreased 1.4%, totaling MXN 11.3 billion. The consolidated same-store sales decreased 3.6% compared to the same-store sales of minus 2.2% in the first quarter 2019. Gross margin was 37.5% of sales since Sears improved its margin, but the margins of Sanborns, Promotora Musical and other formats were lower.

Operating income and EBITDA decreased 28.8% and 23.5%, with operating margins of 5.4% and 9.4%, respectively. Both results were explained by the lower gross profit. Although administrative promotion and advertising expenses as well as nonperforming loans and reserve decreased, offsetting higher wages and salaries. On expense, there was a cost of MXN 208 million compared to MXN 101 million compared to last year because during the present quarter, there was an exchange loss of MXN 95 million, of which MXN 62 million were due to the application of IFRS 16 for leasing contracts that are in dollars. Net income totaled MXN 304 million. The number of new card holders was 248,000 year-over-year. The loan portfolio had a slight variation of minus 0.9%, rolling MXN 11.7 billion, with a decrease in credit income of 1.4%. The percentage of nonperforming loans was 3.5%, improving compared to 4.2% the previous year.

Bank debt at the end of March 2020 was MXN 1 billion, and the amount of cash and short-term investments totaled MXN 1.0 billion, decreasing 38.6% compared to the end of December 2019, considering the payment to suppliers of year-end merchandise.

In the first quarter of the year, no stores were opened and the commercial space totaled 1.23 million square meters, which was very similar to previous year. 2 Sanborns were closed, 1 in Mexico City and the other 1 in Panama. CapEx for the first 3 months 2020 were MXN 20.75 million and the amount of was -- allocated to the optimization of spaces, and the remodeling and the expansion of the various formats and, well, the start of construction platforms for 2021 stores.

During the phase of the health emergency to the COVID-19 virus on April 3, Grupo Sanborns announced the temporary closure of Sears and Saks Fifth Avenue stores from March 31 to April 30. Now the Sanborns' 96 stores and 22 Sanborn's Cafe been gradually closed to date. The majority of iShop stores are open and the 25 bags continue to operate as they are self-service stores. Customers continue to be served digitally for both sales and credit card payments and additionally, card payments are received at banks' branches.

All the store renovations and construction projects were stopped indefinitely.

With this, I conclude my general comments and now we can proceed with the question-and-answer question session. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question comes from Mr. Miguel Ulloa from NNBA (sic) [BBVA].

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Miguel Felipe Ulloa Suárez, BBVA Corporate and Investment Bank, Research Division - Team Leader & Chief Analyst [2]

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The first one is related to the credit portfolio. Speaking about the provisions that we have had in the first quarter. And the second one is, more or less, how you have received this collection in April?

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Angelica Piña Garnica, Grupo Sanborns, S.A.B. de C.V. - Head of IR [3]

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The provision of the portfolio are covered 1.3% compared to [table]. The collection at a global level is almost 69%. The expectation of the -- for the closing of the quarter, it is difficult to say because the conditions are varying. We hope to count on the payment, but it is difficult.

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Operator [4]

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Next question from [Mr. Federico Alexi from Palco].

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Unidentified Analyst, [5]

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I'd like to ask if you can speak about the dynamics of March and April that almost everything is closed in Mexico -- in the city of Mexico. And if you can foresee how long Sanborns can be opened or when we can start opening according to the conversations you have had with the government.

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Mario Enrique Bermúdez Dávila, Grupo Sanborns, S.A.B. de C.V. - CFO [6]

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[Federico], Mario Bermúdez here. The expectation we have basically is subject to the expectation provided by the health authority. So, so far, we have 30th of April, and it could go to the 30th of May. That is the expectation we are subject to what is established by the health authorities, and we are pending on the activities of telecommunications, the essential activities in Sanborns and from Sears is totally closed. Our iShop format is practically -- most of them are open and the sites, our Saks format is closed, DAX in the border, north border, California to the South. Practically, we are open with 100%, with 30%, 40% in sales because it is a sales service. So we are selling products related to essential activities. That will be it. We hope -- we are waiting for the health authorities for the openings. What we can tell you is that we have all the personnel ready to open overnight. The stores, we are providing with continued maintenance to our format, providing sanitation, printing, and we are ready to start activities overnight. That will be basically it, Federico .

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Operator [7]

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So at the moment, we don't have any more questions in Spanish. We will continue with the questions in English. Please take into account that there might be a delay for the answer due to the translation. We have a question from Mr. Antonio Hernández.

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Antonio Hernández Vélez Leija, Barclays Bank PLC, Research Division - Research Analyst [8]

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My question is regarding -- actually, 2 questions. The first one on same-store sales per format, if you could give us the breakdown. And then my follow-up would be, how have sales mix shifted throughout this last couple of weeks -- or, well, the last couple of weeks of the first quarter and then -- that's it.

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Unidentified Company Representative, [9]

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The breakdown of the first quarter 2020 are consolidated in minus 3.6%; Sears, minus 6.6%; Promotora Musical, 6.2%. This was because we started January and February with positive sales, supported by termination sales in the beginning of the year. We had positive sales in the 3 formats. Really, the impact was a 2 -- last week due to the fact that people were preparing for this recommendation to be at home. We had a high-technology sales in all formats due to the remote office -- home office. And in the rest, it was the impact of March, the fall of -- wear shoes and wear on the other lines.

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Antonio Hernández Vélez Leija, Barclays Bank PLC, Research Division - Research Analyst [10]

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Okay. And can you give also more light on your e-commerce platform, how is it performing throughout this last couple of weeks that the stores are closed, and as you mentioned, with people working from home? Can you give us more light on that e-commerce side?

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Unidentified Company Representative, [11]

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As we mentioned, we continue serving through the sales points of sanborns.com and the other 2 e-commerce platforms. We have important growth in different portals. We have Sears Portal, Sanborns [e-shop]. We have an increase of 450% total -- important growth in all the portals that we have in Grupo Sanborns. It's the main activity through which we are proceeding with the sales of different formats, but it is important to emphasize. And in the case of Sears and Sanborns, it's 387% above the previous year.

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Operator [12]

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At the moment, there is no more question. So I'm going to go back to Angelica Piña, so she addresses closing words. Angelica?

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Angelica Piña Garnica, Grupo Sanborns, S.A.B. de C.V. - Head of IR [13]

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Would you like to take advantage of the presence of Patrick?

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Patrick Slim Domit, Grupo Sanborns, S.A.B. de C.V. - CEO & Director [14]

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There was a conversation of the nationalization of stores. It was approximately a week ago. There is a possibility to start opening gradually geographically. It depends on all the factors, but that is what we have so far. And also add, we have places for the possibility of shipment that we didn't have available and stop working with Walmart. Now the biggest part is food stores and liquor stores or beverages.

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Angelica Piña Garnica, Grupo Sanborns, S.A.B. de C.V. - Head of IR [15]

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Well, if there is no more additional question, this will be the end of the conference. So we appreciate for your connection, and we will continue collecting your questions on the email. Thank you very much. And have a very good weekend.

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Operator [16]

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Thank you for participating in the conference, we can disconnect now.