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Edited Transcript of LIVEPOLC-1.MX earnings conference call or presentation 23-Oct-19 2:00pm GMT

Q3 2019 El Puerto De Liverpool SAB De CV Earnings Call

México, D.F. Oct 27, 2019 (Thomson StreetEvents) -- Edited Transcript of El Puerto de Liverpool SAB de CV earnings conference call or presentation Wednesday, October 23, 2019 at 2:00:00pm 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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* 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

* Luis Rodrigo Willard Alonso

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

* Martha Virginia Shelton

Santander Investment Securities Inc., Research Division - Research Analyst

* Nicole M. Zaragoza

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

* Valentín III Mendoza Balderas

Casa de Bolsa Banorte Ixe, S.A. de C.V., Research Division - Research Analyst

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Presentation

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Operator [1]

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Welcome to El Puerto de Liverpool's Conference Call. With us are Mr. Enrique Güijosa, CFO; and Mr. Enrique Grinan, Investor Relations Officer. Our speakers will present the results for the third quarter 2019. At the end of the presentation, we will have a Q&A session.

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 will now turn the conference over to Mr. Enrique Güijosa. 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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Good morning to all, and welcome to Liverpool's Q3 2019 conference call. As usual, I will go through a quick recap of our key achievements and financial results during the third 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 things -- comparisons easier, I'll comment on our 2019 financial results on an apples-to-apples basis versus 2018. Said differently, I will use 2019 figures without IFRS 16. And at the end of my remarks, I will take you through the most important effects of the new accounting rules for leases on our financial statements.

The top line figures for the third quarter indicates that the economic slowdown is finally translating into a cautious behavior from our customers. Although several of the key macroeconomic figures still show healthy figures and this is indeed the case for inflation, remittances, wage increases and a stable exchange rate, it seems that the uncertainties surrounding the future economic conditions is making consumers take a more conservative stance.

During Q3, we observed a significant reduction in our same-store sales growth rates across the board in most of our merchandising categories, although the growth ratio for durable goods, appliances, consumer electronics and furniture were slightly weaker.

Our Q3 same-store sales were certainly well below what we have planned for. We still have a weak July, what our -- [what relatively goes] and the first half of September was behaving as expected. However, the last 2 weeks into September were very, very slow. Importantly, the geographical region with the weakest performance was in metro area of Mexico City.

Same-store sales for Liverpool grew only 0.4% during the third quarter, with traffic going down to 2.4%. In the case of Suburbia, the same-store reading for Q3 was negative 5.9%. Besides the general slowdown, we also faced disruptions in our supply chain due to the implementation of a new ERP, which is on the SAP S/4HANA platform in the case of Suburbia. At this point in time, most of these logistics issues are already past us.

For perspective, same-store sales for ANTAD Department Stores during the third quarter increased 1.8% and apparel and shoes categories -- the total ANTAD region was negative 0.5%.

The weak and unexpected top line performance had a negative impact on our inventory position at the end of the quarter, which was almost 20% over a year ago. Our key challenge to navigate the fourth quarter will be to strike the right balance between sales and gross margins in order to close the year at the expected inventory levels.

Total Q3 retail sales grew 1.7% and retail gross margin was 31.5%, 10 basis points below last year due to higher logistics expenses.

Let me now move on to other areas where we do have positive news to share with you. As you know, digital transformation is one of our key strategic initiatives. Digital sales, excluding a onetime effect in our promotional calendar related to Fábricas de Francia conversion, grew close to 40% and they account for 8.6% of the past 9 months retail sales. Sales from the Liverpool Pocket platform grew 2.4x during this period while downloads increased 60%.

Almost 12% of our customers are now Omnichannel, and they account for close to 30% of Liverpool sales. We continue to leverage our store network in our supply chain for digital sales and have made significant improvements in collaboration amongst our physical and digital channels.

Around 87% of the fulfillment of digital orders involve our brick-and-mortar stores. Realtime inventory information and improved replenishment algorithms have both played a key part. We have improved delivery times [in] 10% and 91% of our orders were delivered on time. We continued the rollout of the fulfillment app for our sales associates to facilitate and expedite the pick up process of digital orders in our stores. This rollout should be complete before the holiday season starts.

Click & Collect continues to be the preferred delivery method for our customers, and it accounts for almost 50% of our total digital orders. Furthermore, Liverpool cards are the preferred payment methods in our digital channel with a share of more than 60%. Credit card revenues rose 14% in Q3 and our credit card portfolio grew 5.4% year-on-year.

Regarding Suburbia credits, we closed the quarter with almost 600,000 card holders, 325,000 more than at the end of last year, and the net credit portfolio for Suburbia is close to MXN 950 million. During September, the Suburbia credit cards accounted for 20% of Suburbia sales.

NPLs, on the other hand, continue under control. We closed Q3 at 6.0%, 20 basis points above a year ago, but half of this growth is related to the Suburbia portfolio. New bad debt provisions increased almost 20%, as we faced a difficult comparison versus wages. Please recall that in Q3 2018, bad debt reserves were 18% below year ago as NPLs stabilized.

Importantly, Suburbia accounted for 2/3 of incremental reserves as it is a new portfolio. Revenues from our shopping centers grew 8.8%, reflecting the reopening of Galerías Coapa and occupancy levels stayed stable around 95%.

Total consolidated revenues increased 3.1% and consolidated gross margin was up 74 basis points due to a better business mix.

We continued with our expense-control program. Operating expenses, excluding depreciation, increased 6.8% during the quarter due to increasing wages, bad debt reserves, electricity rates, new store openings and higher IT expenses.

It is important to highlight that last year, as most of you know, we posted a MXN 200 million reserve for the conversion of Fábricas de Francia and this is indeed helping the comparison.

Q3 EBITDA margin was 12.5%, 26 basis points below year ago. On a cumulative basis, EBITDA margin is 12.3%, also 26 bps below the first 9 months of 2018. These comparisons are helped by the above-mentioned reserves for the Fábricas de Francia conversion.

Net profit increased 1.9% year-on-year reflecting our operating performance, lower net interest expense and a significant increase in the contribution from our associates. The latter is mostly explained by a onetime adjustment of close to MXN 100 million in the [resource] from Unicomer, which came from the final adjustments to the audited financial statements of that joint venture.

Our CapEx during the first 9 months of the year was MXN 5.6 billion. We closed the quarter with cash on hand of MXN 5.5 billion and our net debt at the end of the quarter was MXN 22.9 billion, which represents 1.1x our past 12 months EBITDA. Importantly, we don't have any debt maturities in 2019. The next one is until May 2020 when MXN 3 billion come due. As you know, all our debt is in pesos and under a fixed rate.

During the third quarter, we opened 5 new Suburbia stores, and we also reopened Suburbia Coapa, and we have a completely new store concept in terms of look and feel for our customers. Last week, we opened another Suburbia as part of our store opening calendar for this banner.

The conversion of all Fábricas de Francia stores is finished. We transformed 24 Fábricas de Francia stores into Liverpool, 14 were converted into Suburbia and 3 stores were closed. I'm glad to report that all these conversions were executed according to plans, and we don't expect any negative impact in terms of additional reserves to [accommodate] the expenses that came out of these conversions.

We held our shareholders' meeting on August 28. The main agreement was the shareholders' approval to increase the company's stock repurchase program fund from close to MXN 470 million to MXN 6 billion.

Finally, regarding the effects of IFRS in our financial statements. Our net profit in Q3 was reduced in MXN 65 million or 4.5%. Our EBITDA increases in almost MXN 485 million, as a portion of our leasing expenses are reclassified to either depreciation or interest expense, and this represents a 12.9% increase in our EBITDA and an improvement of 1.4 percentage points in our EBITDA margin.

As for the effect on our balance sheet, we posted a leasing liability of MXN 11.6 billion, and this increases our gross debt by 40%. On the asset side, we are now reflecting usage rights for MXN 11.3 billion, which represents 6.3% of our total assets. It's important to highlight that while Fitch Ratings confirmed during Q2 our corporate credit rating and our perspective, S&P confirmed Liverpool's ratings on August 21.

Thanks a lot for your attention, and we will now move to the 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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I actually wanted to follow up on the NPL ratios you've reported. And clearly, there was a step-up on a year-over-year basis by about 20 basis points. As you said, half of that driven by Suburbia, other half by the underlying portfolio. Clearly, 6% is relatively high one. Can you kind of split how much is the NPL ratio, actually, on the underlying -- on the initial Liverpool portfolio? And how much is it under Suburbia? And where is the level you would start feeling uncomfortable from an NPL perspective, considering maybe a little more strict credit approval metrics? That will be my question.

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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, Ben. Thank you. Yes, as I said that the 20 basis points are basically half of that growth in our NPLs came from the Suburbia portfolio, I can tell you that the NPLs for the pure Suburbia portfolio are close to 10%, 10.0%. And that's a little bit below what we expected when we put together our business plan for that credit card. It's obviously helped by the fact that the portfolio is growing at a very high growth rate, so the denominator is certainly helping. And that growth in the portfolio we expect to continue for the next several quarters, as we move our market share in terms of the payment [made for] Suburbia from the 20% that we achieved only in September, which is already a very good rate -- number, all the way up to 35% -- we think 30%, 35% market share eventually in the next 2 to 3 years.

On the other hand, in terms of the pure, let's say, Liverpool credit card portfolio, basically the NPLs were pretty flat, I mean, 10 basis points above a year ago. But frankly, most of it was by the fact that the denominator didn't help a lot because as I said, I mean sales were weak and the credit card portfolio reflected that in lower growth than expected.

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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. So in terms of the metrics and the approval ratings, so you are not thinking of becoming more strict on the approval of credits, so you're still comfortable at the level where we are right now, but we should nonetheless expect with the usual seasonality that NPLs are likely going to go higher as the share of Suburbia gains relevance, correct?

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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, correct. I mean, we -- my expectation is that we're going to close the year -- this year with flat NPLs on the Liverpool side. So we are expecting these to be at the same level that we closed 2018. And yes, so -- and yes, this is the royalty as it's always the case, it has a lot [of denominator] in November and December months because of the holidays, of course. So we expect that also to be the case this year. And in terms of approval rates, yes, I mean, we tightened our scores way back in early 2018 as we were having like NPLs above what we feel comfortable. And we don't have plans today to tighten them anymore. We are probably more or less 40%, 45% of the applications, and that's where we expect that to remain.

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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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I have 2, if I may. The first one is on same-store sales. You mentioned, Enrique, in your prepared remarks that same-store sales were particularly weak over the last couple of weeks of September, and then you also called out Mexico City, right, as a market that was below average for both Suburbia and Liverpool. So I wanted to ask, if you can comment on what's the range that you are seeing between the cities where you are doing better versus those that are relatively weaker? Is Mexico City specifically in way lower figures than the rest of the average?

And then, when you look at your medium-term expectations, say, for the next 4 to 6 quarters, do you expect something significantly lower than the 4% to 6% range that you have been guiding for over the last couple of years? I have a follow-up question on the buyback program, but perhaps I can stop here to hear your views on same-store sales.

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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, Antonio. Thank you for the question here. In terms of the range that we see across the country, we certainly see a better performance on the northern part of the country. But frankly, I mean, it's not that we're talking like several percentage points, I mean, the Mexico City was certainly weak. It was even -- in some stores, even a negative same-store sales, but it's not that in the rest of the country we're seeing like a 6 or 7 growth rates. I mean, it's -- I will say that we are -- I will say that the range is between 1 to 2 percentage points above what we've seen in Mexico City.

And talking about what are we planning for, as we usually plan with a 5 to 6 same-store sales range, we think that this year based on the last opening that we did, and we just put together, what we call, the best estimate for the end of -- for how 2018 is going to close, we think that the same-store sales reading for -- is going to be on the low 4s. And that's what we are planning for the rest of the year. And for next year, we're planning low 5s, that's what we have in our financial plans.

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

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Okay. That's very clear. And then, if I just may, on the comment that you did on buybacks, I think that obviously MXN 6 billion is a quite sizable amount. It's roughly 0.5% -- half of 1 year's CapEx, right? So in light of the heavy investments that you are going through at the moment, given the Arco Norte and so forth, I just wanted to ask if there is any sense of timing that you could share with us to execute this buyback program? If it's possible at all to share whether you would expect to execute in the next 12 to 18 months? Or is this more of a longer-term solution that you want to have the option, but not necessarily execute in the very short term?

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

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It's latter -- I think it's the latter. I think that the idea was really to update our position. I mean, we did a benchmark with all -- like all the companies. And we at that point in time have only MXN 484 million, which was well below what we saw other companies were managing. So we decided to do like a big update all the way up to MXN 6 billion, but it's more to -- like a onetime adjustment in order to not start -- not doing this on a yearly basis. And we don't have any plans to deploy that, the total amount in the next 12 to 18 months, it's more to have an option to use it tactically. And as you were saying, we are very mindful that we have a high CapEx number for next year, as we start to develop finally the Arco Norte project. So we will use that fund selectively, and the funds that will be involved will be well below the MXN 6 billion.

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Operator [11]

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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 [12]

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I just have a follow-up on the credit business. You've been trying to catch up in the last quarters or even more than a year the increasing provisions with higher interest rates. However, when you look at risk-adjusted financial income of the credit business, it nevertheless grows below your interest income. So my question is, do you see more room to continue repricing up the credit card interest rates? Or what plans do you have in mind to improve the business financial income? That will be my question.

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [13]

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Yes. Thank you, Luis. No, we don't have any plans to not to increase the interest that we charge -- the interest rate that we charge out right now. What we are doing though is that we are implementing a risk-based pricing model. So we have divided portfolio in 5 quintiles. And we are having like a different interest rate for each of those groups. And we have been doing this little by little in order to test how the overall portfolio is performing.

And today, we are more or less -- 60% has been transitioned to this risk-based pricing, the other 40% remains on the general run rate for all methodology, let's say. We're not planning to move from now till the start of next year to move the 100% of the portfolio in this risk-based pricing. We feel that with that change, we're going to gain some productivity in terms of what our interest revenues represent from the total credit portfolio. So the move is never going to be on -- let's say, the average interest rates is going to be an effect of this transition into a risk-based pricing where we have 5 different interest rate levels.

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Operator [14]

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Our next question is from Mr. Valentín Mendoza from Banorte.

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Valentín III Mendoza Balderas, Casa de Bolsa Banorte Ixe, S.A. de C.V., Research Division - Research Analyst [15]

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The first one has to do with what you just mentioned regarding the logistics issue you faced in Suburbia. You mentioned that most of it has already been solved, right? However, I was wondering if you could share with us what's still pending to be fixed on this side?

And secondly, I would like you to give us some further color on your expectations regarding the impact you have on your working capital due to the inventories growing well above sales. I mean, are you targeting any -- [maintaining your] inventory level by year-end? And I have follow-up questions afterwards, if I may.

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [16]

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Yes, Valentín, thank you for your questions. Well, in terms of the logistics or supply chain issues that we face in Suburbia, on July 2 we implemented this new platform from Suburbia. It's a completely like a new ERP, and it will have 2 major implications -- or 1, besides the pure technical change which it's always a challenge. One other thing that we always tend, I guess, to underestimate is the impact on the working process of what people are used to do. And this is something that really has been a huge impact for Suburbia. So we have big changes in terms of how we receive goods in our distribution center. For example, we -- in the case of Suburbia, we didn't have the things like the advanced shipping notice. This was implemented. We -- also, we didn't have appointments from our customers. They just arrive whenever they feel like it. So now we have these things, which put more, let's say, order or in our working process, both are big changes, both to our people working in [the D.C.] and also to our -- and broadly more to our suppliers.

So we faced issues both in terms of receiving the merchandise at our distribution centers and also moving that merchandise towards stores. We had a negative impact. As I said, we think that most of those things are past us. I think that the process today is under control. We are not facing any delays in terms of moving the merchandise, but it's still going to take some time, and I think this is going to take probably the next 12 to 18 months for the Suburbia people to get used to the new working processes. I mean it takes a long time to change the mindset and move to this more, let's say, orderly supply chain processes. So that's on the logistics side.

And in terms of the working capital, yes, I think that the big challenge that we have, as I said in our prepared remarks, is to balance our sales and our promotional calendar in order to keep healthy gross margins for the holiday season and to get to the end of the year with inventories growing very close to the sales growth range. That's what we are always expecting that we are not going to have any negative effects in terms of inventory turnovers, so that's still what we're planning for. And we will monitor -- and we are monitoring very closely every week how sales are doing vis-à-vis the inventory position in order to make sure that we close the year in line with expectations and not have a high inventory that may have a negative effect in the profitability for Q1 in 2020.

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Valentín III Mendoza Balderas, Casa de Bolsa Banorte Ixe, S.A. de C.V., Research Division - Research Analyst [17]

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Okay, Enrique. It was very clear. Just my follow-up question is -- has to do with the performance that you are seeing both in consumption and same-store sales in both of your banners so far. I mean, October is reasonably over, right? I don't know if you could share with us, well, how are you doing on this side?

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [18]

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Yes. October, so far -- I mean, projections that we have to close October, we think that Liverpool is going to be -- total sales are going to close, so retail sales are going to close this month around plus 1, plus 2 hopefully. So still a slowdown. And in the case of Suburbia, we have figures now that the supply chain disruption has been resolved mostly. So there, we are thinking that we're going to close them [once] in terms of total sales in the 9% to 10% range.

For November and December, which, as you know, is very, very important in terms of seasonality, we feel confident that we have a very strong merchandising plans and that are some of the cautiousness that we're seeing from consumers they will go back to the stores for the holiday season, and we have reasonable numbers to close the year at the more low-4 same-store sales reading that I mentioned before.

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Operator [19]

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Our next question is from Mr. Ulises Argote from JPMorgan.

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Ulises Argote Bolio, JP Morgan Chase & Co, Research Division - Analyst [20]

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Here, the first one that I have is from the use of the card by your customers and the tracking that you can do there. Can you give us some sense if you are seeing any significant movement from typical Liverpool shoppers to Suburbia? Or how this dynamic is looking like?

And the second one is there on the cost side. [Now] electricity, you continue to cite that as an issue impacting cost, but we have seen a lot of news that you are signing some long-term contracts and et cetera. So can you provide also some details there on when we can expect to see these benefits from these initiatives rolling in and maybe some sense of how relevant they can become?

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [21]

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Yes, Ulises. Well, in terms of Arco Norte, the usage of the Liverpool credit cards in Suburbia, we implemented that, let's say, facility in September 2017. So at that point in time, we changed our systems in order to allow the private label credit card for Liverpool to be accepted at Suburbia stores. And since the very beginning, we saw and we were frankly surprised that 5% to 6% of the Suburbia sales were done with the Liverpool credit cards and that has been the case since then, I mean. So you see our market share in terms of -- in September, 20% of the sales in Suburbia were done with the Suburbia credit cards, but another 6% were done with the Liverpool credit card. So all in all, 25%, 26% of the Suburbia sales in September were done with our own credit cards. We haven't seen any change. I mean I think the 5% to 6% has been pretty stable. And we are doing promotional activity from Suburbia to Liverpool credit card holders that have used the Suburbia credit cards in the past, [not to all the payers] but only to the credit card holders from Liverpool that have been using Suburbia or having -- buying in Suburbia on a constant basis.

Now in terms of the electricity, yes, electricity has been a headache, especially for the first -- I would say the first 6 months were worse than the past 3 months. In the first 6 months, we saw almost like a 35%, even 40% decrease in the electricity rates. In Q3, we saw that more on that 10% to 15% range. So -- but obviously, the rate is also helping. I mean, the rate comparison basis was already high for Q3.

In terms of the -- you're right, I mean, we have signed a couple of agreements, long-term agreements with IEnova in order to provide us with electricity either from solar or in the case of IEnova. And also, we have an agreement with Cemex, which involves wind. And I think that materially these savings -- we are expecting savings of around MXN 250 million per year, but the majority of those savings will come -- will start to appear in early 2021. For 2020, we will still have a mix of mostly CFE rates, the IEnova sourcing will come in little by little. So we expect that the full MXN 250 million savings on an average basis will kick in, in our P&L by 2021. In 2020, it's still going to be a mix. And by 2021, we expect that 80%, 85% of our electricity consumption will come from renewable sources and particularly from IEnova and Cemex.

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Ulises Argote Bolio, JP Morgan Chase & Co, Research Division - Analyst [22]

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Perfect. Super helpful. And just a follow-up there, maybe just like some housekeeping item here. We have on the radar that you plan to open a shopping mall late this year. Is this still on track? Or has there been any change in that plan?

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [23]

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No, you're right. In terms of new stores, I mean, new shopping centers. I mean, new stores, in Liverpool, we still have 2 new stores that we are planning to open. Actually, next week, we are opening Liverpool Santa Anita, which is going to be in our shopping center. So the shopping center is still not like ready to open. At the same time, the Liverpool store is going to open.

But -- so the Liverpool Santa Anita is going to open next week and the Santa Anita shopping center is going to open in mid-November. And -- so the total store openings for Liverpool this year will be 4. For Suburbia, the total store openings that we have planned for this year are at 19. And that we are considering, of course, the conversions from Fábricas to Suburbia and that's still our plans. So we still have a very heavy calendar in terms of store openings for Suburbia in the November and December period.

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Operator [24]

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Our next question is from Ms. Martha Shelton from Santander.

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Martha Virginia Shelton, Santander Investment Securities Inc., Research Division - Research Analyst [25]

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A quick question for you regarding same-store sales at Suburbia. The negative 5.9% was a bit concerning although it's encouraging to hear about the 9% to 10% same-store sales thus far in August -- I'm sorry in October. Can -- is there some way that you can give us some sense for what the technology disruption, what the actual effect of the technical disruption was on Suburbia same-store sales? If -- like I guess what I'm trying to get at is what the underlying trend is for consumption there.

And then also another question on Suburbia is, could you update us regarding the introduction of new product categories at Suburbia? I know that at this time last year there was a conversation about introducing new, like, cellphones or certain electronics in some Suburbia stores. But if you could update us on the introduction of any new product categories?

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [26]

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Yes. Martha, thank you. No. I mean, unfortunately -- I mean, frankly, I cannot tell you how much of the negative 5.9% same-store sales we saw in Q3 for Suburbia, how much of that came from the supply chain disruption. I think that what I can tell you is what I explained before is that October is looking healthy in the 9% to 10% range, and that we have very strong merchandising plans with new promotional campaigns and also, launch, for example, in new private label for sports. I mean, Suburbia has not launched a new private label in the past several years, so we're launching a new private label here for sports apparel. And we think that's going to be a big plus with our customers. And regarding new merchandised categories for Suburbia, you're right, I mean, we have been doing very well in terms of cellphones. Although cellphones were already sold by -- when Suburbia was part of Walmex. We have revamped all the offerings, and we have leveraged the [learn] that we have on the side of the Liverpool in order to have a good proposition in terms of our cellphones for our customers.

And we are using the Fábricas de Francia stores and the recent openings, Galerías Coapa, in order to see if we can have more of a full-line department store merchandise offering. So we are now selling appliances and TVs in the stores that we have converted from Fábricas to Suburbia and also in the new Coapa. We're quite excited to see the early results, but still too early to tell you how much that's going to impact the total sales in the Suburbia.

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Martha Virginia Shelton, Santander Investment Securities Inc., Research Division - Research Analyst [27]

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Okay. And just a quick couple of follow-ups, if I may. So just I know this -- I know that we went through this at this time last year as well. But if you could perhaps quantify the percentage of your P&L that's indexed to the minimum wage because that conversation is once again rearing its head? And then other part -- the other question I had for you which is an update regarding your CapEx plans for 2019. I just want to make sure I've got my numbers in order?

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [28]

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Yes. I mean, in general terms, I can tell you that like Liverpool has more or less 80,000 employees earning the minimum wage. And as you can imagine, majority of those are in the stores. And most of them are sales associates, which have the minimum wages is the base salary. And on top of that, they have a 2% commission on what they sell. We also have another 10,000 employees more or less whose salary was retabulated due to increase in the start of the year of the minimum wage [indiscernible], only we have like almost 30,000 employees, which were, let's say, impacted by the increase in the minimum wage. We estimate that the total effect of these wage adjustments in our 2018 P&L was in the neighborhood of MXN 320 million, that's how we are absorbing in our P&L in 2019 due to the huge increase that we saw in the minimum wage and the impact that we have in the lower scales -- salary scales in the company.

And in terms of CapEx, I mean, our CapEx for this year should be in the MXN 8.5 billion to MXN 9 billion range. For next year, we're planning to bring it up to MXN 11 billion to MXN 12 billion. And most of the refinance is related to the fact that the Arco Norte project will require MXN 2.5 billion or MXN 3 billion CapEx next year compared to a very small amount this year. That's the main differential.

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Operator [29]

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Our next question is from Ms. Nicole Zaragoza from GBM.

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Nicole M. Zaragoza, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [30]

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Just a quick follow-up. Regarding the October figures you were providing, you were talking about total sales or same-store sales? I mean, the 1% to 2% in Liverpool and the 9% to 10% in Suburbia, are they total sales?

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

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Yes, Nicole, they are our total sales.

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Operator [32]

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(Operator Instructions) That was the last question. I will now hand over to Mr. Enrique Güijosa for final comments.

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Enrique Güijosa, El Puerto de Liverpool, S.A.B. de C.V. - CFO & Administrative Officer [33]

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Well, that was all. Thank you very much. Thanks for all the lots of questions that we received and looking forward to talk to you when we have to report what we hope is going to be a very successful holiday season for Liverpool in Q4. Thank you. Goodbye.

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Operator [34]

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