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Edited Transcript of GSANBORB-1.MX earnings conference call or presentation 25-Oct-19 4:00pm GMT

Q3 2019 Grupo Sanborns SAB de CV Earnings Call

México, D.F. Oct 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Grupo Sanborns SAB de CV earnings conference call or presentation Friday, October 25, 2019 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

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Conference Call Participants

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* Miguel Felipe Ulloa Suárez

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

* Nicole M. Zaragoza

GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, everyone. Welcome to the telephone call -- conference of Grupo Sanborns to discuss the results of the third quarter 2019.

Before we start, I'd like to remind you that this call is being recorded. (Operator Instructions) The information to be discussed include forward-looking statements regarding the financial companies and operating performance. All projections are subject to risks and uncertainties and the actual results may differ materially from current expectations due to external, internal factors.

Please consider that this conference will be held in Spanish with simultaneous translation into English. And later, we will have a QA session.

With us today, we will have Mr. Patrick Slim, General Director of Grupo Sanborns; Mr. Mario Bermúdez, Chief Financial Officer of Grupo Sanborns; and Investor Relations, Angelica Piña. Now I'll turn the call over to Ms. Angelica Piña. Please, the floor is yours.

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

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Good morning. From July to September 2019, the consolidated total sales of Grupo Sanborns increased 1.5%, totaling MXN 1.98 billion. The consolidated same-store sales remained stable with a slight decrease of 0.7% during the quarter. Sears and Sanborns decreased 3.5% and 1.2%, respectively, while Promotora Musical grew 4.9%.

Gross margin remained 39.5% of sales. Sears, Sanborns and other formats mainly DAX improved the gross margin by a mix of items with greater added value.

The operating income decreased 7.5% with an operating margin of 7.5% EBITDA, decreased 4.6% with a margin of 12%. Both results are explained by an increase in operating expenses due to increase in wages and salaries of comparable and noncomparable stores. Improvement in IT platforms and higher energy rates.

Financial expense was MXN 129 million higher than the one presented in the same period previous year due to the favorable position in the exchange rate in 2018. Net income totaled MXN 556 million. The number of new cardholders was 229,000 a year -- again, a year. The loan portfolio totaled MXN 11.5 billion with an increasing credit income of 4.3%.

The percentage of nonperforming loans was 4.1% improving compared to 5.0% previous year. There was no bank debt in the end of September 2019. And the amount of cash and short-term investment totaled MXN 1.185 billion, decreasing 52.4% compared to the end of December 2018, including other investments in the Australian company such as 33.7%.

And the Mexican company, Miniso BF holding reported in July 2019 as well as the payment to suppliers, the opening of stores and the payment of dividends.

As far as new stores, during the third quarter of the year, 4 iShop stores were opened, which add up to the end 11 stores already inaugurated during the year. At the end of September, we closed 1.2 million square meters of commercial space. The estimated CapEx for 2019 was MXN 873 million and allocated through to the optimization of spaces and remodeling expansion of various format, such as the Sears distribution center and the Sanborns chocolate factory both in Mexico City, and the opening of iShop store. The CapEx, the investments also include logistics and distribution system for both physical stores and e-commerce. So with this, I conclude my general comments. Now we can proceed to the question-and-answer session. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from Mr. Miguel Ulloa from 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 question is regarding the departments for Sears and Sanborns for the fourth quarter. I would hope to keep it at this level or be a little bit more aggressive in the offer and the financial partner to be able to revitalize the pipeline. That is my question.

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Mario Enrique Bermúdez Dávila, Grupo Sanborns, S.A.B. de C.V. - CFO [3]

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Mario Bermúdez. In the stores, at the Grupo Sanborns level, either Sears format, Sanborns or Promotora Musical, we hope to have better results in sales. We consider we should be over the inflation. We believe that in the last quarter, we'll be supported by the federal government that is promoting more investments, more digits. And on the part of the contribution, that will help us with a minimum at a level of inflation.

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Miguel Felipe Ulloa Suárez, BBVA Corporate and Investment Bank, Research Division - Team Leader & Chief Analyst [4]

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Please, the expectation for next year, if possible.

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Mario Enrique Bermúdez Dávila, Grupo Sanborns, S.A.B. de C.V. - CFO [5]

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The expectation, we hope, real close, above the inflation. The idea is that we have that real increase for growth.

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Operator [6]

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(Operator Instructions) We have a follow-up question from Mr. Miguel Ulloa from BBVA.

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Miguel Felipe Ulloa Suárez, BBVA Corporate and Investment Bank, Research Division - Team Leader & Chief Analyst [7]

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Regarding the margins, considering that the operation expenditures are increasing more than the top line with this growth, we would keep this operations or we will have a shrink in margins for the next year?

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Mario Enrique Bermúdez Dávila, Grupo Sanborns, S.A.B. de C.V. - CFO [8]

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The margin, I think we are going to keep the margin. If you see in the first and third quarter of the year, we have kept the margin levels, and we consider that we need to keep the margin.

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Operator [9]

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At the moment, we don't have any more questions. So we will continue with the questions in English. Please take into account that there could be a brief delay for the answer of your question due to the translation. So at the moment, we have a question from Nicole Zaragoza from Bursátil Group -- Mexican Bursátil Group.

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Nicole M. Zaragoza, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [10]

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I was wondering if you could tell us about your e-commerce business. Some figures regarding your year-over-year growth maybe? Or how much you've reached in penetration?

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Mario Enrique Bermúdez Dávila, Grupo Sanborns, S.A.B. de C.V. - CFO [11]

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Regarding e-commerce, we have increased over 40% in the e-commerce. And penetration, we are 2, 3 percentage points compared to Grupo Sanborns.

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Operator [12]

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(Operator Instructions) So at the moment, there is no more questions. So I'll give the floor to Angelica Piña, so that she addresses closing words.

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

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Thank you very much for connecting in the call. We are available for any additional question by e-mail. Have a very good weekend. Thank you very much.

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Operator [14]

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Thank you for taking part in the conference. You can disconnect. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]