Grupo Comercial Ched Ord

Good morning to all participants and welcome to the Grupo Comercial Chidrawi fourth quarter 2023 conference call. Participating in the conference call today will be Mr. Jose Antonio Chidrawi, CEO of Grupo Comercial Chidrawi, Mr. Carlos Smith, CEO of Chidrawi USA, and Berta Tafoya, Grupo Chidrawi's CFO and Arturo Velasquez, IRO for the company. We will begin the call with initial comments on Grupo Comercial Chidrawi's first quarter financial results by the company's CEO, Mr. José Antonio Chedraui. Please go ahead.

Good morning to all and welcome to our presentation of Grupo Chedraui's fourth quarter 2023 results. We are pleased to announce that Grupo Chedraui's fourth quarter and 2023 results met and in some cases exceeded the guidance we provided at the beginning of the year. Our organic growth strategy continued with the opening of 57 stores in Mexico and 3 stores in the United States, closing the year with a total of 460 and 379 stores respectively. Finally, I want to recognize and express gratitude to the commitment and dedication of our employees in Acapulco, who, in the face of the impact of Hurricane Otis, effectively applied our business continuity plan, which allowed us to overcome this event in record time, while reinforcing our commitment to customers, being the first self-service chain to reopen its stores. We also provided immediate relief to our coworkers and community members through Fundación Chedrago. We will now review the financial results for the fourth quarter of 2023, starting with the highlights of our consolidated results, continuing with the performance of each region, and ending with a summary of the financial results. Please, let's review slide 4. Consolidated sales declined 0.4%, primarily driven by an 11% foreign exchange impact on Chedrago USA sales when converted to Mexican pesos. Without the currency impact, consolidated sales would have grown by 5.9%. Sales in the US represented 50% of consolidated sales in the quarter and 53% for the full year. Our operating efficiency and cost control strategy offset the currency translation impact on EBITDA, which grew 7.3% compared to the same quarter of last year. Excluding the currency impact, consolidated EBITDA increased 14.2%. We achieved a higher EBITDA margin of 9.1% of sales and a 66 basis point increase compared to the fourth quarter of 2022. On slide five, higher EBITDA, efficient working capital management, and the decline in bank debt led to favorable net income and profitability levels. The four-year compound annual growth rate for net income in the fourth quarter was 60.5%. with total net income amounting to 2,494 million pesos. Profitability measured by return on equity stood at 18.6% and represented a 130 basis point increase compared to the fourth quarter of 2022. In the following slides, we will review operations in Mexico and the US. On slide 6, our ongoing commitment to an effective price strategy for our customers drove same-store sales above untapped levels. On average, in 2023, we had a positive spread of 283 basis points. Customers continue to prefer the value proposition offered by Chedraui through its various store formats, as we aim to provide them with the best product mix at the best possible price while maintaining excellent customer service. We opened 57 stores in 2023, for a total of 460 stores in Mexico. In the last four years, we increased store count by 154, and this includes 36 stores acquired from Arateli in 2022. Slide 7, as a result of strong same-store sales and a 2.5% increase in our sales floor area, consolidated sales were higher by 13.7%, compared to the fourth quarter. In addition, EBITDA grew 16.2%, which is explained by operating leverage and strict cost control. EBITDA ended at 8.4% of sales, which is an 18 basis points improvement versus prior. In the next slide, slide 8, we will review the highlights of our real estate division. The division sales continue to show positive trends with a 17.5% increase compared to the same quarter of 2022 amounting to 343 million pesos over the last 12 months 11 017 square meters of leasable area were incorporated representing a 2.6 percent annual growth Our occupancy rate increased to 97.3% from 94.4% in 2022. Finally, EBITDA declined by 4.4% due to one-time costs in the quarter. Now, I will turn the meeting over to Carlos Smith, CEO of Chedravi USA, so he can comment on our U.S. operation. Carlos, please go ahead.

Thank you, Antonio. Customer count continued to grow in the fourth quarter at all banners, driven by our strong value proposition and store remodeling investments. Beginning in November, all banners began cycling against last year's sales that were positively impacted by supplemental government assistance to our customers, which ran from November 2022 through March of 2023. In addition, we experienced deflationary trends in certain categories that impacted our average ticket size. During Q4, total sales decreased by 0.2%, with same-store sales declining by 1% in dollar terms, and As previously mentioned, Chedraio USA sales were impacted by the exchange fluctuation that caused an 11.3% decline in Q4 sales compared to the previous year when converted to Mexican pesos. Given their strong focus on price leadership and perishables, El Super and Fiesta delivered strong same-store sales results. However, sales slowed at smart and final in Q4 due to deflationary pressures and reduced government stimulus. We are currently executing several initiatives to drive smart and final sales, with a particular focus on delivering the best value and product offerings. Please turn to slide 10. Despite this currency impact, EBITDA performance in the quarter remains strong. EBITDA grew 1.3% to 3,295 million pesos, representing a 117 basis point margin expansion and 9.4% of sales. In US dollar terms EBITDA increased by 13.8%. It is important to note that each banner increased total EBITDA margin dollars compared to the previous year. This is a result of continued operating efficiencies and operating expense control. We continued our organic growth in the quarter with the opening of two smart and final stores in California. for a total of three store openings in 2023 and an L Super store in Las Vegas, Nevada in the third quarter, bringing our total store count to 379. Our U.S. operation remains committed to driving profitable growth through our three successful banners with the expected 2024 openings of six new stores, four L Supers, one Smart & Final, and one Fiesta. Our debt reduction plan is on track with $173 million paid in 2023 and an ending 2023 debt balance of $482 million. That concludes our report on the US operation.