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Edited Transcript of GSANBORB-1.MX earnings conference call or presentation 26-Jul-19 4:00pm GMT

Q2 2019 Grupo Sanborns SAB de CV Earnings Call

México, D.F. Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Grupo Sanborns SAB de CV earnings conference call or presentation Friday, July 26, 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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* Antonio Hernández Vélez Leija

Barclays Bank PLC, 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 call -- conference call of Grupo Sanborns to discuss about results of the second quarter of 2019.

Before we begin, I would like to remind you that this call is being recorded. (Operator Instructions) The discussed information today might include expectations of the company regarding the financial performance and operational performance. Everything is subjected to uncertainty and the final results could be materially different from the current expectations due to external or internal factors.

Please consider that the conference will be held in Spanish with translation, simultaneous translation into English. And later, there will be a moment -- session -- Q&A session. Today, we will have Mr. Mario Bermúdez, Chief Financial Officer of Grupo Sanborns; and Investor Relations, Angelica Piña.

Now I will 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. Good morning, everyone. From April to June 2019, the consolidated sales of Grupo Sanborns increased 1.5%, totaling MXN 12.05 billion.

The consolidated same-store sales were -- minus 0.1% during the quarter, while by format were minus 2.6% in Sears; 1.3% in Sanborns; and minus 1.8% in Promotora Musical.

The gross margin increased 10 basis points to 39% of the sales by format of group. And the gross margin of Sanborns and Sears stood out with 120 and 20 basis points respectively, due to a mix of sales with greater share in fashion and restaurant. The gross margin of Promotora Musical and other formats fell by 200 and 110 points, respectively.

The operating income decreased 10.1% with an operating margin of 8.6%. EBITDA decreased 5.7% with a margin of 13.2%. Both results are explained by an increase of operating expenses in all formats due to higher electricity rates, increase in wages and salaries and the cost of opening and recruiting personnel in the new stores.

Financial expenses were lower than those of the same period of previous year. This is explained by the favorable position and the exchange rate this quarter, compared to the foreign exchange loss and the effects derived from the IFRS 16 in the second quarter 2019.

The number of new -- the net income remained very similar in the second quarter, totaling MXN 623 million. The number of new cardholders was 207,000 this year against the previous year. The loan portfolio totaled MXN 11.6 billion with an increase in credit income of 5.7%. The percentage of nonperforming loans was 4.3%, improving compared to 4.9% the previous year.

There was no bank debt at the end of June 2019. And the amount of cash and short-term investment totaled MXN 1.2 billion, decreasing 50.4% compared to the end of December 2018, considering the payment of suppliers, the opening of stores during the period, and the payment of dividends.

As for our new stores, during the second quarter of the year, 2 iShop stores were opened, which add up to the 9 stores already inaugurated during the year. At the end of the June, we closed with 1.2 million square meters commercial space.

The estimated CapEx for 2019 was MXN 1.5 million (sic) [MXN 1.5 billion] and will be allocated to the efficiency of spaces, and the remodeling and expansion of various formats, such as the Sears stores in Oaxaca, and the Sanborns chocolate factory in Mexico City. Capital investments will also include improvement in logistics and distribution systems for both physical stores and e-commerce.

Finally, on July 15, 2019, investing public was informed of the purchase of 33.27% of the share of Mexican company Miniso BF Holding, S. de R.L. de C.V. which has an important investment plan in the next 3 years in Mexico and Latin America. In Mexico, its expansion will generate around 1,670 direct jobs.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from Antonio Hernández, Barclays.

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Antonio Hernández Vélez Leija, Barclays Bank PLC, Research Division - Research Analyst [2]

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The question -- can you repeat the breakdown, and the expectation you have for the second half of the year on Sears and the format that we can have on improvement?

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

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In the case of Sears, we have minus 2.6%. In the case of Sanborns, minus 1.3%. Promotora Musical, we have minus 2.8%. Regarding the second quarter, we're optimistic. We hope to have a growth -- better growth than the second quarter of the month. We hope that the acquisition in Mexico will help get better growth in the different formats of Grupo Sanborns.

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Antonio Hernández Vélez Leija, Barclays Bank PLC, Research Division - Research Analyst [4]

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Is there any format where you expect greater improvement?

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

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We consider that in the 3 main formats we will have a possible growth, either Sears, Sanborns and Promotora Musical. And also with the opening of classes that is an important engine in the national economy.

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Operator [6]

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(Operator Instructions) We have other question. [Jennifer Romero]?

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Unidentified Analyst, [7]

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Could you provide me with more numbers regarding the acquisition, a multiple of the price of purchase? Also, a little more on your plan or strategy to enter in Sears? If you hope to see a growth in a short-term in the stores?

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

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The investment in the Mexican company of Miniso was based on the work we have developed for the latest 2 years. It was an important growth in these 2 years. The projections are basically for the future.

So we would appreciate that for the moment, this call, the 19th of July that is what we can speak about, we hope an important growth in the operations of Miniso Mexico, either in Mexico and Latin America as well and Colombia, Chile, Peru, Panama, basically.

In the case of Sears, we hope also to continue growing with the Sears format that helps us grow and keep the added value in Sears. We are working together with our sales areas and operation areas jointly with our credit part that we would join in activities to lead us to the growth. We have spoken about that. We are optimistic that we achieve that in the second quarter of the year.

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Operator [9]

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So there's no more questions. So I will go back to Angelica Piña so that she addresses some words for closing.

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Angelica Piña Garnica, Grupo Sanborns, S.A.B. de C.V. - Head of IR [10]

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Thank you very much for connecting to this conference. Any additional question, we are at your service. Have a very good weekend.

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