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Edited Transcript of LIVEPOLC-1.MX earnings conference call or presentation 26-Feb-20 3:00pm GMT

Q4 2019 El Puerto De Liverpool SAB De CV Earnings Call

México, D.F. Mar 17, 2020 (Thomson StreetEvents) -- Edited Transcript of El Puerto de Liverpool SAB de CV earnings conference call or presentation Wednesday, February 26, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Enrique Güijosa

El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer

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Conference Call Participants

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* Andrew R. Ruben

Morgan Stanley, Research Division - Research Associate

* Antonio Gonzalez Anaya

Crédit Suisse AG, Research Division - Senior Analyst of Latin American Equity Research

* Benjamin M. Theurer

Barclays Bank PLC, Research Division - Head of the Mexico Equity Research & Director

* Irma Sgarz

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Luis Rodrigo Willard Alonso

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

* Ulises Argote Bolio

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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Welcome to El Puerto Liverpool's Conference Call. With us are Mr. Enrique Guijosa, CFO, for Puerto Liverpool; Mr. Jose Antonio Diego, Treasury and IR Director; and Mr. Enrique Grinan, Investor Relations Officer. Our speakers will present the results for the fourth quarter 2019 and annual results.

(Operator Instructions)

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in El Puerto de Liverpool's most recent annual report. At this time, I'll turn the conference over to Mr. Enrique Guijosa. Please go ahead.

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [2]

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Yes. Thank you. Good morning to all. And welcome to Liverpool's Q4 2019 conference call. As usual, I will go through a quick recap of our key achievements and financial results during the fourth quarter of 2019, and we will then leave the floor open for Q&A.

It is important to mention that, as we have been doing during this year, and to try to make the comparisons easier, I will comment on our 2019 financial results on an apples-to-apples basis versus 2018. But differently, I will use 2019 figures without the effects of both IFRS 9 and 16. At the end of my remarks, I will take you through the most important effects of these new accounting rules for bad debt, provisions and leases.

Although many of the macroeconomic indicators that are the key drivers of consumption clearly show relatively healthy figures, such as inflation, real wage increases, remittances and exchange rate, consumers are behaving in a cautious way, perhaps wary of future economic conditions.

The economic slowdown that we started to perceive in our top line figures as of Q3 continued during Q4, albeit, with a more moderate effect, particularly in the case of Liverpool, where we observed a better performance of same-store sales, although still below our original expectations.

Surprisingly, in general terms, hard goods performed slightly better than softlines. Growth rates for apparel and footwear were lackluster for Liverpool, and frankly, well below our expectations for Suburbia. In the case of Liverpool, same-store sales grew 4.4% during the fourth quarter, and growth was well balanced as traffic increased 1.9% and average ticket grew 2.2%. For the full year, same-store sales rose 4.3%. This period is the lowest since 2009, when as you all know, the Mexican economy endured the effects of both the global financial crisis and the H1N1 virus. Hardlines, sports and cosmetics outperformed the average, while children and consumer electronics were less robust. By geographic region, the central zone and the metro area of Mexico City posted softer figures than the rest of the country.

In the case of Suburbia, the same-store sales reading for Q4 was negative 6.6%. For the full year, the decline was 2.7%. Besides the general economic slowdown, we faced several additional negative effects in these business units. Number one, the disruptions in the flow of merchandise from our suppliers to our distribution center and then from our DC to our stores since the implementation of our new IT backbone platform under the SAP S/4HANA technology back in July continued well into the fourth quarter. Number two, delays and changes in distribution of government's social programs, which are now being paid via debit card, which has led users to spend this income in the informal sector. And number three, slow consumption dynamics in the metro area of Mexico City, where we have a high concentration of Suburbia stores.

For perspective, the same-store sales for entire department stores in the fourth quarter increased 5.1%, and for the apparel and shoes categories, the entire reading for Q4 was only 0.7%.

During 2019, we finished the conversion of all Fabricas de Francia stores. Out of 41 stores that we've had under this banner at the start of the year, we transformed 24 stores into Liverpool, 14 were converted into Suburbia and 3 stores were closed. All the conversions were executed according to our plans. Sales for the stores that were converted into Liverpool increased 15% during 2019, while EBITDA rose 24%. The Suburbia transformations allowed us to swing from a negative to a positive EBITDA contribution from these stores.

We made further progress in our aggressive Suburbia store opening plan, having opened 11 new stores. We closed the year with 157 Suburbia stores, reflecting both new store openings and the above-mentioned conversion of close to 30% of Fabricas de Francia locations. This compares with the 122 stores that Suburbia had at the time of acquisition from Walmart back in April 2017. For perspective, we have added 200,000 square meters of retail space for this banner since the acquisition. This represents a 44% increase. In the case of Liverpool, we opened 2 new stores in the fourth quarter to bring the total to 123 stores and 1.7 million square meters of retail space by the end of the year. Total Q4 retail revenues grew 5.4% and retail gross margin was 32.5%, 14 basis points below last year, basically due to higher logistic expenses. It is important to highlight that despite the sluggish sales environment, our commercial teams were able to navigate through a promotion heavy environment protecting our gross margins. For perspective, Suburbia retail gross margin in Q4 was a healthy 35.6%.

Moving on to Omnichannel. As you know, digital transformation represents one of our key strategic initiatives. Digital sales grew 34% during the quarter, excluding the negative effect in our promotional calendar due to the transformation of the Fabricas de Francia banner. For the full year, digital sales accounted for 9.3% of total retail revenues. And online traffic rose 46% year-on-year. One of our most relevant assets in becoming a true Omnichannel player are our stores.

We firmly believe that 2019 was the record year in terms of collaboration amongst our physical and digital channels, as we took advantage of the initiatives that we have been implementing in the past several years. These are to mention only a few: number one, real time inventory; number two, assigning digital sales to each store based on the total [calls] where the merchandise is delivered; number three, the rollout of the fulfillment app, which was developed under the agile methodology to all our sales associates; number four, establishing performance incentives for our sales associates to fulfill our digital orders; number five, improved replenishment algorithms; and number six, improved visibility of the status of online orders across our supply chain.

Again, these are only a small number of the changes that we have made to improve the way we serve our customers. Our store network plays a critical role in our supply chain for digital sales as they serve as distribution centers in close proximity to our customers.

During Q4, 93% of digital orders were fulfilled directly by stores. In terms of our last mile delivery, we reduced our delivery times by 30%, while 95% of our orders were delivered on time. We are now using WhatsApp to contact our clients to confirm the date and time for our deliveries. This has allowed us to increase the productivity of our contact center by more than 100% and more importantly, improved customer satisfaction.

Click & Collect continues to be the preferred delivery method for our customers as it accounts for almost 50% of total online orders. Liverpool Pocket, our customer app, keeps gaining ground. Downloads increased 80% year-on-year, and it is now our preferred online vehicle. One of our most important digital projects in 2019 was the implementation of our responsive, progressive, state-of-the-art technology called PWA that enable us to improve download times, achieve autonomy in changes of the user experience on our sites and standardize the William Sonoma websites.

Regarding our financial services business unit, our revenues rose around 4.3% in Q4 and 13.3% for the full year. Total customer portfolio expanded by 5.5% year-on-year. We finished the year with 5.5 million cardholders.

For Suburbia, we closed the year with almost 690,000 cardholders, credit portfolio of MXN 1.3 billion, and our market share during 2019, taking into account all the Suburbia and the Liverpool credit cards was 21.2% of retail sales. Risk management continues to be a key priority, focusing on the full credit cycle, origination, usage and collections. As of this quarter, we are providing separate NPL ratios for Liverpool and Suburbia.

Liverpool closed Q4 at 4.4%, a reduction of 16 basis points versus a year ago. Suburbia closed the year with an NPL of 6.4%, which was way better than our original plan. Total Q4 bad debt provisions decreased 4.6% compared with last year. Revenues from our shopping centers during the fourth quarter grew 0.6%. It is important to mention that on a comparable base such growth would have been 4.1%, as we have several onetime effects in the base period.

Occupancy levels remained stable around 95.4%. On October 31, we opened our 28th shopping center, Galerias Santa Anita in Guadalajara. We have GLA of 46,500 square meters. Our selling plans for this new shopping center proceeds according to schedule. And we have lease commitments for 75% of the GLA already.

Total consolidated revenues increased 5.2% in the fourth quarter and 6.4% in the full year. Consolidated gross margin in Q4 decreased 23 basis points due to business mix. For total year, consolidated gross margin was flat. Operating expenses, excluding depreciation, decreased (sic) [increased] 5.6% during the quarter. It is important to mention that we have a couple of important onetime effects. The first one is the Fabricas de Francia transformation reserve of MXN 250 million that was posted in Q4 2019. The second one amounts to MXN 215 million in Q4 2019, and is related to the fact that we did not achieve our operating profit growth for most of our business units, and this resulted in a significant reduction in the provision for the performance-related one-offs that we paid to our executives. If we exclude both effects, our SG&A, excluding depreciation, would have fallen 0.7% in Q4, and would have increased 6.6% year-on-year.

The latter reflects the minimum wage increase, new store openings, higher electricity tariffs and the NPL provision for the Suburbia credit cards. These were partially offset by the expense reduction program that we implemented throughout the year in all our business units and the stable NPL provisions for the Liverpool credit cards. EBITDA margin in Q4 was 21%, an improvement of 177 basis points versus a year ago. On a cumulative basis, EBITDA margin was 15.4%, 46 bps higher than 2018. If we exclude the above-mentioned SG&A one-offs, our EBITDA margin in 2019 would have been 83 bps higher in Q4 and unchanged for the full year.

Net profit increased 10.7% during the quarter and 9.6% year-on-year, reflecting our operating performance. Inventory management was quite challenging throughout the second semester due to the uncertainty in our sales volumes. Our total inventory position at the end of the year grew by 12.9% year-on-year. The increase in Liverpool was 5.8%. This was a great achievement from our commercial areas, which allow us to enter the full winter clearance seasons in great shape. Suburbia, on the other hand, faced a more challenging environment due to the above-mentioned decline in same-store sales. This business unit accounted for 60% of the consolidated inventory increase. And importantly, new stores and introduction of a new hardline categories in this business unit account for 2/3 of the Suburbia's inventory increase.

Our CapEx during the year was MXN 8.7 billion. We invested MXN 1.3 billion in Arco Norte, which brought the cumulative figure for this new logistics facility to MXN 2 billion. Phase 1 of this important project which involves the construction of a new distribution center for big ticket items to replace our Huehuetoca distribution center continues advancing according to plan, and we expect to go live in Q2 2021. We closed the year with cash on hand of MXN 18.6 billion. And it's important to mention that this includes MXN 5 billion from the 10-year fixed rate bonds that we placed in the local market back in November 14.

Our net debt at the end of the quarter was MXN 14.8 billion, and the next debt maturity of MXN 3 billion is due in May this year. The net debt-to-EBITDA ratio closed the year at 0.66x.

Regarding our share buyback program, we closed the year with a balance of [MXN 444 million] outstanding. And the company has been exercising the approved shares buyback reserve since Q4 2018.

Finally, regarding the effects of IFRS in our financial statements, during the quarter, we had a negative effect of MXN 229 million or 3.4% of net profit. The full year effect was negative MXN 440 million, also 3.4% of net profits. The full year effect increased our EBITDA in MXN 1.7 billion or 7.5%, as a portion of our leasing expenses are reclassified to depreciation and interest expense. As far as the effects on our balance sheet, we posted a leasing liability of MXN 12.2 billion at the end of the year. This increases our gross debt by 36.5%. And on the asset side, we are now reflecting usage rights of MXN 11.8 billion. This represents almost 6% of our total assets. Thanks a lot for your attention. We will now move to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Mr. Ben Theurer from Barclays.

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Benjamin M. Theurer, Barclays Bank PLC, Research Division - Head of the Mexico Equity Research & Director [2]

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Yes. I actually have 2 quick ones. So first, on the issues with Suburbia. And clearly, it was an acceleration of the negative impact in the fourth quarter compared to what we saw in the third quarter, and it still seems some of the issues have not been solved. So how should we think about the recovery of sales here? When do you think the negative impact, particularly one that are within the supply chain are going to be solved, so that would be one question on Suburbia. And then I have a quick follow-up.

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [3]

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Yes. Thank you, Ben. Yes, if you recall when I said at the Q3 conference call that we thought at that point in time that the supply chain disruption was basically done, and we were confident that Q4 was not going to be impacted by this effect, unfortunately, that was not the case. I think we certainly underestimated the effect on our work processes of the new technological platform. I would like to highlight that the issue is not technology by itself.

The main issue has been the adoption of this new technology by our people. I mean they were used to work with a very old system for more than 20 years and adapting to this new, let's say, more strict SAP environment has been cumbersome.

Having said that, I think that right now, we're very confident that those supply change disruptions are now finally behind us. And we believe that as of Q1 2020, we should start seeing a reversal going back to positive same-store sales.

So that's what we're expecting. As guidance, I mean, we think that same-store sales for Suburbia for 2020 should be in the 3% to 4% range. That's what we are assuming in our financial plans and reigniting same-store sales for Suburbia is certainly the first order of business for this business unit.

We are confident that the spring and summer collection is the right one. We have been reviewing thoroughly our pricing against the competition. We have been also reviewing thoroughly our assortments. We are putting a lot of attention on e-commerce. And also, we think that the credit card, in the case of Suburbia, will continue to be a tailwind in terms of same-store sales.

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Benjamin M. Theurer, Barclays Bank PLC, Research Division - Head of the Mexico Equity Research & Director [4]

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Okay. Perfect. And then one on your Omnichannel initiatives, and you've laid out in your prepared remarks that you're basically now assigned with -- [pick up] in a certain store is assigned to sales in that certain store. So I was wondering if you could also give for the e-commerce piece of it some sort of the regional breakdown of the sales performance. Is there a similar, call it, weaker delivery and weaker results in the Mexico City area, as you've highlighted it for Liverpool, in general? Is that replicated for the e-commerce business? Or is that more homogeneously spread out through the country? Or do you have certain geographies that do better than others? If you could give a little bit more clarity here that would be much appreciated.

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [5]

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Yes. I think that we certainly see more robust growth rates in the key metro areas of -- throughout Mexico, sorry, that is Mexico City, Guadalajara and Monterrey, Puebla also. And the -- those are our key cities, and we see higher growth rates in those regions than the rest of the country. So that's talking about the softness of sales in the metro area of Mexico City. That has not been the case for the digital space.

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Operator [6]

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Our next question is from Mr. Antonio Gonzalez from Crédit Suisse.

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Antonio Gonzalez Anaya, Crédit Suisse AG, Research Division - Senior Analyst of Latin American Equity Research [7]

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Just 2 quick ones. And thank you for the explanation on Suburbia, because now, I wanted to see if you can elaborate when you put everything to rather, as you know, in the improvement that hopefully takes place in Suburbia throughout the next few quarters, but also the core Liverpool format, is there any chance to share with us what's your expectation for total same-store sales growth or broken down that format, whatever you have given for full year '20? And what kind of margin expansion or contraction you expect for the entire year? That's the first question. And then I have a quick follow-up.

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [8]

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Yes. It was a -- I didn't hear you very well. I guess that you asked what are the expectation from same-store sales by format?

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Antonio Gonzalez Anaya, Crédit Suisse AG, Research Division - Senior Analyst of Latin American Equity Research [9]

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Yes, correct. Same-store sales and margins for full year '20. Do you think same-store sales and margins could improve this year?

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [10]

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Okay. Yes, yes. Thank you, Antonio. Well, as we're reviewing our financial plans and projections for the full year as we speak, but we're using at this point in time for same-store sales for the Liverpool banner is a range of 4% to 5% for same-store sales. And for Suburbia, as I explained before, we're assuming a 3% to 4% range. The fact that we are expecting a lower number for Suburbia, basically reflects that from -- coming from recovery. And also, we have some cannibalization effects due to the very aggressive expansion plans. In terms of EBITDA margin, we closed the year with a 16.6% EBITDA margin. And this is now -- I'm talking with the full IFRS effect, which from now on, we will talk only with that number in mind. And we, frankly, expect that -- we leave a space to improve that. I mean we are assuming today that we're going to be basically flat in terms of EBITDA margins. We again are going to face headwinds coming from the significant hike in the minimum wage, that if you're going to entail MXN [218 million] more or less negative effect in terms of profitability. So we're going to put in place, again, a very strong plan in terms of SG&A control in order to offset this, but again, we see little space to improve our EBITDA margin.

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Antonio Gonzalez Anaya, Crédit Suisse AG, Research Division - Senior Analyst of Latin American Equity Research [11]

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That's clear. And if I may, just secondly, very quickly. I don't know if you can quantify both at least directionally, I want to ask you, when you think of your Omnichannel business, obviously, the percentage growth rate is in the double-digit range, and it has been there for a number of quarters already. But if you think of the absolute dollars or the absolute pesos, that you are moving online, obviously, there's a number of -- a couple of players in Mexico, pure online players in Mexico that their absolute dollars are much larger. So when you think of 2020 or perhaps 2, 3 years out, do you think this is the appropriate growth rate? Or would you like to substantially increase the growth rate, I don't know, perhaps 100% per year or something significantly higher than what you are at the moment? And so would that come with a further impact on margins? Or do you think this is sort of the same realized sort of growth rate that we would expect for the next 3 years?

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [12]

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Yes. Well, as you might expect, I mean we will hope to have a higher growth rates, of course, in terms of sales. I mean we are -- as I said in my prepared remarks, the growth rate towards -- in Q4 was 34%. If we strip the negative effects of the promotional calendar that were due to the transformation of Fabricas de Francia. So 34%, it was, we think, a strong rate, but we certainly would like to see higher growth rates.

I mean we basically are like putting a lot of focus on our extended catalog. This is the initiative, as you know, that we've had with the (inaudible) -- with our sales associate, we are still -- we firmly believe that we're just scratching the surface today with the potential that initiative has to increase our top line. And the other big initiative is marketplace. Marketplace, we launched just in the second semester of last year, is still small, very small. But we also believe that it has great potential. No? Overall, our internal goal is that we should get to -- from the 9% digital sales account of total sales today to almost 20% in the next 3 to 4 years. So we're certainly expecting that the growth rate for Digital are going to be growing substantially.

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Operator [13]

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Our next question is from Mr. Luis Willard from GBM.

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Luis Rodrigo Willard Alonso, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [14]

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I have 2. One is a follow-up on Suburbia and I hope I don't repeat the question. Thanks for the explanation on what you've been doing to recover sales and the plans that you have for 2020 in Suburbia, specifically. But if you look at the same-store sales average of Suburbia since you owned it, it's a couple of points above what it used to grow with Walmex, so that's around a little bit less than 5%. So I mean it would mean that despite recent weakness, some of the advantages of Liverpool operating this format already in the underlying top line growth. Do you agree with this assessment? Or do you still see a large portion of top line synergies that are still needed to be achieved compared to your projections? That would be the first.

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [15]

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Well, I mean, in terms of synergies, I mean, we did not expect, frankly, I mean, any synergies at least in the first few years from the combination of the 2 business units. We decided, and I think that, that was -- made sense at the time and it still makes sense today that the front office overall, Suburbia had to be separate, completely separate on Liverpool, to make sure that we preserve the identity or the DNA of Suburbia in the case of our customers, and that, again, we are still like convinced that that's the right way. We are, of course, I mean, for example, we're today working on implementation of a new software to manage private label. And this, by the way, we are completely sure that it's not going to generate any disruptions in our supply chain. Basically, it's more of a management tool. And in that case, for example, we are implementing the same software for both Suburbia and Liverpool. So there are some synergies in terms of implementation. But again, the idea is that each of the buyers are in charge of private labels in the case of Liverpool, again, will run their show and the Suburbia buyers will be in charge of their business units.

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Luis Rodrigo Willard Alonso, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [16]

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Again, I think I wasn't clear enough. I was looking for -- on the commercial side of the business, on the top line side of the business, do you still see that the plans that you're rolling out this year something that you would have liked to do maybe sooner? Or this is on top of what you've already done? Just to get a grasp on how we return to the 3% to 4% same-store sales for 2020?

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [17]

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Well, yes, I mean we are -- frankly, I mean, in the case of Suburbia going back to basics and reviewing all the fundamentals of the business. So as I said before, we just conducted a very thorough review of our pricing with Suburbia's key competitor, for example, that will be the case with the [Grupo de Hierro], which is a key competitor or with Coppel. So we will review, basically, SKU by SKU, what's our pricing for vis-à-vis our key competitors. We also review our assortments thoroughly, again, it has been done. We think that we have the right fashion play for the spring, summer, which obviously, in the case of Suburbia is key. We also think, again, that the supply chain disruptions are now behind us. So we just launched a few months ago a new sports apparel private label brand called Sprint. The initial results are very strong. They are encouraging. This is the first launch of a private label in Suburbia in the past 20 years. And we are now also, like introducing some very selective hardline categories like TVs and consumer electronics, toys, for example, in Suburbia. It should give us also, we believe, additional traffic, particularly on the e-commerce side.

So all in all, again, it's going back to basics, making sure that you know that we have the right combination of the usual no price promotion and in the right location. So that's, again, what we're trying to do. And again, we're being very thorough to reignite the same-store sales for Suburbia.

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Operator [18]

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Our next question is from Mr. Andrew Ruben from Morgan Stanley.

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Andrew R. Ruben, Morgan Stanley, Research Division - Research Associate [19]

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I was curious if you could talk through some more of the drivers on the favorable expenses. The bridge you provided was very helpful. But we still had cash expenses down 1% year-over-year, which was a pretty big step change from the 7% growth on a full year basis. So just trying to understand if there were any other items that were more temporary, or if we should think of the 4Q run rate as more of a sustainable level going forward? I'd appreciate the color here.

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [20]

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Yes, Andrew. As you're pointing out, the growth year-on-year, taking into account the 2 onetime effects that I mentioned is, basically, we are flat year-on-year. And frankly, I mean, this is related to the fact that you see the SG&A last year, but what usually happened in our case is that in Q4, we have a huge spike in terms of our SG&A.

So we were very controlled in our spending all the way up to September, October, and then in November, December, a lot of people take decisions in terms of expenses, I mean, expense, whatever they have left to reach their budget. So there wasn't like, let's say, like a seasonality effect. This year, however, we were very clear that we expected a major reduction versus the original budget. Since the -- basically since Q3, because, as you know, we have a very soft numbers for Q3. And so the communication to all the key executives was that we wanted to see a controlled environment in terms of SG&A spending in Q4 and the original budget was going to be replaced by a new budget, and the expectation was, again, to see those savings in our bottom line. So the numbers that you see, basically, reflect that this was a very direct message to our executives in terms of expectations for savings for Q4. So again, the number is basically, as you see, it is very low, basically reflects the seasonality effect. I think, that the 6.6% that we're reporting for the full year, again, apples-to-apples, we have the onetime effects reflects in a better way the trends that we think are more sustainable or going forward. We had a negative effects in terms of the minimum wage, which again are present this year. We also had a negative effects in terms of the NPLs for Suburbia, the provisions because Suburbia is coming from a very low base in terms of the size of the portfolio. We also are facing some issues in terms of electricity rates, which, frankly, in Q4 were less acute, but were also important. And we're also facing any SG&A pressures from the rest of expansion plans in terms of the Suburbia store openings. And on the other hand, I mean, we will continue throughout 2020 to put a lot of attention in keeping the -- basically, all the SG&A items very tight in order to offset these headwinds.

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Andrew R. Ruben, Morgan Stanley, Research Division - Research Associate [21]

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Got it. That's extremely helpful color, particularly on the budget flush there. And just one more quick one, if I may. So I'm curious if you've been seeing any improvements in Suburbia so far year-to-date? Or should we think about getting to that 3% to 4% as more second half weighted when you get to those easier comparisons?

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [22]

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Yes. Well -- generally, frankly, it was, I would say, like an easy comparison because, as you know, 2019 was a very bad January due to the gasoline shortages that we faced for a couple of weekends in the mid-January 2019. So we already saw positive same-store sales figures for Suburbia in January. And they're also looking positive now in February. So we are feeling, let's say, like encouraged by those trends this year. So we would expect the recovery to start since Q1.

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Operator [23]

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Our next question is from Ms. Irma Sgarz from Goldman Sachs.

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Irma Sgarz, Goldman Sachs Group Inc., Research Division - Equity Analyst [24]

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And very good explanations on some of the previous ones. I was curious, just whether you feel that the more than 90% of orders that are currently being fulfilled from stores. Is that a number where you'd like to be? Or do you expect that number to ultimately come down as you inaugurate new logistical projects and distribution facilities, because, correct me if I'm wrong, but it also, obviously, creates an onus on the in-store employees, if you're fulfilling orders from the store, and you obviously have to have very good visibility on inventories in order to be efficient by fulfilling from the store.

So if you could just help us think about where you think that the right balance is between fulfilling from store via a centralized facility. And how you see that mix evolving over time? And then the second question is on Click & Collect, which I think, you mentioned there was a bit more than -- or around 50% of orders. Do you also feel now that, obviously, using new measures of scheduling deliveries, like WhatsApp contact with your customers, do you think that 50% will ultimately come down as you fine-tune your ways of getting product directly to the customer?

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [25]

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Yes. Thank you, Irma. Well, on your first question on what are we expecting in terms of the percentage of Digital orders and we feel fulfill by the store network. As you said, I mean, today it is at 93%. Frankly, I think that we're still learning. I mean we -- if you had asked us probably 3 or 4 years ago, whether we're going to be able to achieve this very high number, I will have been, personally, very skeptical. I mean at that point in time, we were facing a lot of issues to -- for the stores, basically, to free up the digital sales, the people at the stores thought that e-commerce was like a competitor.

We were not getting the right collaborations across channels. And that's something that we have been working very hard at during the past 2 to 3 years.

So as I said at the beginning of the call, I think that 2019 was really a breakthrough year in terms of collaboration. And going forward, I would expect that that the percentage of these orders that are going to

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Operator [26]

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We are experiencing technical difficulties. Please wait for further instructions. (Operator Instructions)

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [27]

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Hello? Yes, it might, I guess, that the line failed, right? I mean did you hear anything of what I said?

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Irma Sgarz, Goldman Sachs Group Inc., Research Division - Equity Analyst [28]

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I got to the point where you explained that, sort of just looking back 3 to 4 years, you wouldn't have imagined to got to the type of collaboration that you've gotten to, but I think then it -- basically, it started to cut off.

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [29]

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Okay. Well, then you lost the most important part.

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Irma Sgarz, Goldman Sachs Group Inc., Research Division - Equity Analyst [30]

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You mentioned 2019 was a breakthrough year so...

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [31]

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All right, yes. I say sorry then for the technologies issues then. Yes, 2020 was -- or 2019, again, we firmly believe was the record year in terms of our collaboration. And what I think is that -- and again, we're still learning is that if you think about only one P, the percentage of Digital orders to be fulfilled by the stores, I'm going to stay, I believe, in the high 80s or low 90s. I think that they're going to be by far the most important, like fulfillment points for centers. Obviously, I mean, marketplace grows a lot, and the marketplace is going to be fulfilled by either suppliers or eventually, we hit the Arco Norte capacity by us.

But those orders are not going to be involving the store, only for returns. I mean in the case of marketplace, we do assess returns in our stores, but the stores don't play any role in terms of the fulfillment of those orders.

So again, we're learning as we go, but that will be my expectation. And your second question regarding the Click & Collect if it's going to stay on the high 40s or low 50s. Again, my expectation would be that it will go down as we are more assertive, let's say, in terms of the delivery windows and communication with our customers, improved visibility for both customers and ourselves.

So if I have to wait, I would bet that it will go down. How much? Frankly, I don't know. I mean, I personally have been surprised in the very beginning by the fact that Click & Collect is so important. This is not something that we push. It's entirely the customers call so we will learn again as we go on what are the preferences from our customers.

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Operator [32]

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Our next question is from Mr. Ulises Argote from JP Morgan.

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Ulises Argote Bolio, JP Morgan Chase & Co, Research Division - Analyst [33]

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Just 2 quick ones here from my side. Can you please provide an update on the store opening expectation for 2020 and the overall CapEx expectations as well there on store openings and on the Arco Norte project? And then the second one, real quick, just on your expectations for NPLs. I mean, Suburbia has been performing better than expected, as you mentioned there in your remarks. So what can we expect there going forward as you roll out the product further? And also, if you can give us a sense of how you're looking at things at the Liverpool portfolio level?

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [34]

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Yes. Thank you, Ulises. Well, in terms of store openings for 2020, in the case of Liverpool, we will have only 2 stores -- 2 new stores. Originally, we had 3, but the 1 that we were thinking the (inaudible) 52:52 project in Mexico City moved at least 1 year back. So we are now thinking of only 2 new stores. One in Tijuana and another one in Guadalajara. And in the case of Suburbia, we have 25 new stores planned for 2020.

In terms of NPLs, we think that Liverpool should be basically flattish by the end of this year. So we should stay at around 4.4%, 4.5% that that's our expectation. And in the case of the NPLs for Suburbia, we are thinking that as the portfolio continues to mature, NPLs are going to be moving slightly upwards. So we're thinking that next year -- or this year, sorry, we are going to close around 7.0%, 7.1%. So that will be like 60 basis points above the level that we saw for the end of 2019. Now in terms of Capex. Our CapEx for 2020 is in the MXN 10 billion to MXN 11 billion range. And we increased against previous year is on the Arco Norte project. The CapEx that we have earmarked for Arco Norte in 2020 is MXN 2.9 billion, and also to give some color in terms of the Arco Norte project for the next following years, we think that the CapEx for the 2020 to 2022 time frame for Arco Norte is going to be around MXN 5 billion in total for those 3-year time span.

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Operator [35]

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That was the last question. I will now hand over to Mr. Enrique Guijosa for final comments.

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [36]

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Well, thank you all for your attention. And we'll see you next time to report, hopefully, a very good Q1 2020. Thank you very much.

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Operator [37]

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All conference hosts have hung up. This conference is over. Thank you.