Grupo Comercial Chedraui SAB de CV (GCHEF) Q4 2024 Earnings Call Highlights: Strong Sales ...

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Consolidated Sales: MXN77,582 million, an 11.2% increase year-over-year.
Retail Mexico Same-Store Sales Growth: 2.9% in Q4 2024.
Chedraui USA Same-Store Sales Growth: 0.8% in dollar terms in Q4 2024.
Net Cash Position: MXN4,330 million in 2024.
CapEx: MXN11,454 million, representing 4.1% of consolidated sales.
EBITDA: MXN5,921 million with a 7.6% margin; adjusted EBITDA would be MXN6,179 million with an 8% margin.
Net Income: MXN1,363 million, representing 1.8% of sales; adjusted net income would be MXN1,876 million, representing 2.4% of sales.
Store Openings: 57 stores in Mexico and 2 in the US in Q4 2024.
Real Estate Division Occupancy Rate: Increased to 98.4% from 97.3% in Q4 2023.
Gross Profit: Increased by 6.8%; 8.2% without supply chain transition costs.
Financial Expenses: Increased by 31.1% to MXN1,607 million.

Warning! GuruFocus has detected 10 Warning Signs with CHCT.

Release Date: February 19, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Grupo Comercial Chedraui SAB de CV (GCHEF) achieved double-digit consolidated sales growth of 11.2% in Mexican pesos for the fourth quarter of 2024.
The company outperformed ANTAD for the 18th consecutive quarter with a 2.9% same-store sales growth in Mexico.
Chedraui USA saw a 0.8% increase in same-store sales in dollar terms, supported by a 2.2% increase in total sales.
The company maintained a strong financial position with a net cash position of MXN4,330 million and a net debt cash to EBITDA ratio of minus 0.18 times.
Grupo Comercial Chedraui SAB de CV (GCHEF) plans to consider an extraordinary dividend for the second consecutive year, reflecting strong cash generation.

Negative Points

The transition costs related to the new distribution center in Rancho Cucamonga, California, impacted consolidated EBITDA, which declined by 7.2%.
Smart and Final's aggressive perishables pricing strategy led to internal deflation and impacted gross margins.
Operating expenses increased by 16.2% due to higher labor costs and accelerated store openings.
The company's EBITDA margin decreased to 7.6% of sales, with a further decline when adjusted for transition costs.
Smart and Final experienced a decrease in same-store sales, partially offsetting growth in other areas.

Q & A Highlights

Q: What are the expectations for Smart & Final in terms of revenue growth and same-store sales? A: Carlos Smith Matas, CEO of Bodega Latina, explained that Smart & Final has seen improvements in customer traffic and unit volume, with a 2% increase in customer count and over 5% growth in unit volume. The company is implementing an aggressive pricing strategy focused on perishables to drive more traffic and convert Smart & Final into a primary shopping destination. Positive comps are expected in Q1 2025.

Q: How is the performance in the Southern part of Mexico, and what are the main drivers affecting same-store sales in this region? A: Jose Antonio Chedraui Eguia, CEO, noted that the Southern region has a high comparison base due to past government investments, leading to a slower growth rate. Despite this, the company is growing more than its competition in the region, particularly in Quintana Roo, Tabasco, and Campeche.

Q: Are there any impacts from policy-driven crackdowns on illegal immigration affecting operations in the US? A: Carlos Smith Matas stated that Hispanic banners have been performing well, with improved customer counts. The current situation seems more targeted compared to past events, and operations have not been significantly impacted.

Q: What are the expectations for EBITDA margin expansion in the US, and how does the new distribution center (RCDC) impact growth potential? A: Carlos Smith Matas mentioned that the RCDC is expected to improve operational efficiencies, with normalized operations anticipated in the second half of the year. The company aims for a 50 basis points improvement in EBITDA margin from 2023 levels, with additional improvements over time.

Q: How does the increase in inventory relate to the distribution center and Mexico operations? A: Carlos Smith Matas attributed the primary reason for increased inventory levels to foreign exchange impacts.

Q: What are the market share opportunities in Mexico, and any implications from the COFECE ruling on Walmex? A: Jose Antonio Chedraui Eguia expressed confidence in sustaining same-store sales growth and is open to consolidation opportunities. He did not comment on the COFECE ruling, as it is a matter between Walmex and COFECE.

Q: What should be expected regarding margin impacts from the RCDC double cost in the first half of 2025? A: Carlos Smith Matas indicated that the heaviest portion of additional expenses is behind, with improvements expected each quarter. The company anticipates reaching normalized operating levels in the second half of 2025.

Q: Are there any changes in growth strategy or store openings in Mexico? A: Jose Antonio Chedraui Eguia confirmed no changes to the guidance, expecting a 10 basis points gain in EBITDA margin over 2024 results, despite a challenging first quarter due to calendar effects and government sales comparisons.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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