Inretail Peru Corp

Good morning and welcome to In Retail Peru's third quarter 2025 conference call. At this time all participants are in a listen-only mode and please note that this call is being recorded. After the presentation we will open the floor for questions. At that time instructions will be given as to the procedure to follow if you would like to ask a question. Also you can submit a Submit online questions at any time today using the chat function on the left side of the webcast platform, and they will be answered after the presentation during the Q&A session. Simply type your question in the box and click send. Before we begin, I would like to remind you that today's call is for investors and analysts only. Therefore, questions from the media will not be taken. Joining us today from In Retail Peru are Mr. Juan Carlos Vallejo, Chief Executive Officer, Mr. Marcelo Ramos, Chief Financial Officer, and Mrs. Andrea Febre, Investor Relations Officer. They will be discussing the quarterly report distributed by the company yesterday. If you have not yet received a copy of the earnings report, please visit www.inretail.pe on the Investor Risk section where there is also a webcast presentation to accompany the discussion during this call. If you need any assistance, please contact the investor relations team of In Retail Peru. Please be advised that forward-looking statements may be made during this conference call, and they do not account for economic circumstances, industry conditions, the company's performance, or financial results. As such, these forward-looking statements are based in several assumptions and factors like a change causing actual results to materially differ from the current expectations. For a complete note on the forward-looking statements, please refer to the quarterly report which was issued yesterday. At this point, I would like to turn the call over to Mr. Juan Carlos Vallejo, Chief Executive Officer of In Resale Through, for his opening remarks. Mr. Vallejo, please go ahead, sir.

Thank you, Megha. Good morning, everyone. I'm Giancarlo Vallejo. Thank you for joining Enrique's third quarter earnings call. Today, we will discuss the main highlights of Enrique's third quarter results for 2025. Joining me today are Marcelo Ramos, our chief financial officer, and Andrea Favre, our investor relations officer. I will start with a brief executive summary, and then Marcelo and Andrea will walk you through our earnings presentation. During this quarter, the Peruvian economy continues experiencing a stable economic momentum, benefiting from the low inflation and a strong exchange rate. In spite of the latest presidential transition, country risk and volatility remain low, reinforcing Peru's position as one of the most stable economies in the region. In terms of consumption, This quarter was affected by the high comparison basis in 2024, even the pension funds and compensation time accounts withdrawals, which created a temporary increase in demand, particularly in the month of July. Although general economic conditions are gradually more favorable, consumption is experiencing only a caution recovery, even in the international context and the pre-election period. In this quarter, we move forward with determination in the execution of our strategic priorities, advancing in our expansion project, in reinforcing the value proposition of our different formats, and in the transformation of our logistic operations, further consolidating our leading multi-format platforms. In general, our businesses continue to show resiliency with the challenging comparison basin mentioned before. posting on a consolidated basis a positive growth in revenues of 3.5% and a slight decline in adjusted VBA of 0.7%. Our food reader segment had a moderate growth in revenues of 5.4%. Growth was mainly driven by mass and to a lesser extent by macro. Lazarea, on the other hand, was the most affected by extraordinary withdrawal mentioned before and by the general slowdown in the supermarket channel. Our pharma segment had a low growth in revenue of 0.8%, combining a steady growth in our pharmacy unit with an anticipated decline in our distribution unit in Peru. impacted by an important change in the use of oil that prioritized cash flow generation over top-line growth. Finally, as expected, our shopping mall segment was still affected by the extraordinary impact related to the incident in the Real Plaza Trujillo Mall. However, this impact had a lesser effect on the financial results of our segment in terms of adjusted VBA. compared to the prior quarters. Revenues and adjusted VDA declined 5% and 12.8% respectively. Based on the impacts already recognized and on the information we have today in terms of the guidance for INRITEC, we remain in line with the guidance given in the prior earnings call of mid-single-day growth in consolidated revenues and low single-day growth in consolidated adjusted VDA for 2025. Finally, I would also like to highlight that on October of this year, we successfully issued approximately $500 million of senior and secure notes at the retail shopping malls in two bond branches. The spreads were the lowest ever achieved by retail shopping malls. These new instances extend relevant debt maturity beyond 2030. With that, let me pass the word to Marcelo, and as always, we look forward to answering your questions by the end of this call.

Thank you, Juan Carlos. Good morning, everyone. Thank you for joining us on this call. Today, we will review the main highlights of NVIDIA's third quarter results for 2025. Now, please turn to page four. As anticipated in our previous earnings call, Q3-25 had an overall challenging comparison basis given the pension fund and compensation time account withdrawals, which created a temporary increase in consumption during the initial weeks of the quarter. Even in this context, InVital delivered revenue growth across most segments, resulting in a mid-single-digit growth in consolidated revenues of 3.5%. This growth results from a moderate growth in our food retail segment, and a slight growth in our pharma segment. Our shopping mall segment, to the contrary, registered a decline in revenues, mainly explained by the closing of the Real Plaza Mall in Trujillo. In terms of adjusted EBITDA, we recorded a slight decline of 0.7% compared to Q3-24, explained by the decrease in gross margin, the increase in operational expenses from the new stores opened, and remaining extraordinary impacts arising from the incident in the Real Plaza Trujillo Mall. affecting mostly our shopping mall segment. As it relates to net income, we registered a 12.7% decrease in the quarter, explained by the decline in adjustability and the increase in net financial expenses despite a higher net effects gain. In summary, in spite of a challenging comparison basis, our food vehicle and pharma segments showed their resiliency. while our shopping mall segment experienced lingering impacts related to the incident earlier this year. As evidenced by our financial results, these impacts are dissipating towards the end of the year. Overall, based on the information we have to date, we remain in line with the guidance given in the prior earnings poll of mid-single-digit growth in consolidated revenues and a slight positive growth in consolidated adjusted results for 2025. Now, please turn to page 5 to review a financial and operational snapshot of our consolidated figures. In terms of contribution by segment, these have remained similar to recent quarters. Our food retail segment continues to gain more participation in revenues relative to the last 12 months, while our pharma segment has gained a share in adjusted EBITDA. Now, please turn to page 7 to give you a brief update on our continued ESG progress during this quarter. First of all, we are extremely proud that our food retail segment obtained its fourth carbon footprint start from Minam in recognition of its progress in reducing emissions. On the social front, our flagship program, Bueno Por Dentro, donated more than 4 million food rations, equivalent to 17 million soles. On the environmental front, we managed to save over 1 million soles in our food retail stores by implementing best practices in energy management and recycled over 3,000 tons of waste. Additionally, thanks to Peru Pasión, we generated over 10 million solids of SME sales through all our channels. Finally, during this third quarter, we released our annual sustainability report with additional and valuable information about our sustainability strategy and projects, which is available on our website for review. Now, we will discuss the results by segment. Please turn to page 9 to review our third quarter results for our food retail segment. Our food retail segment registered a top-line growth of 5.4% in Q3-25, with a same-store sales growth of 1.5%, despite the temporary closure of stores, including the Plazarella store in the mall in Trujillo and the high comparison basis mentioned before. Growth in revenues were mainly driven by a strong growth in our mass format, with a same-store sales growth of around 15%, and a moderate growth in our macro format, with a same-store sales growth of about 2%. Our Plaza Bea format, on the other hand, posted a low single-digit decline in same-store sales, affected by the short-term boost in disposable income from the pension fund and time deposit withdrawals on the comparison basis, impacting the supermarket channel in general. In terms of categories, our food categories experienced a low stem cell growth, with a moderate growth in fresh food and a slower growth in dry food. On the other hand, our non-food categories registered a slight decline in stem cell growth. Revenues were also favored by the contribution of the new stores opened in the last 12 months, including 325 new mass stores and one new macro store. During Q3 25, we opened 53 net new mass stores, reaching a total of 1,467 hard discount stores. Next week, we will inaugurate our 1,500 stores. Our gross profit increased 3.7% with a gross margin of 23.4, below Q3 24 due to the change in format week. Our emerging format accounts for approximately 50% of our food retail revenues, with mass already represented more than 20%. In terms of adjusted EBITDA, food retail's adjusted EBITDA grew 2.3% in Q3 2025, with a reduction in margin of 28 basis points. This reduction is mainly explained by the decrease in gross margin and by the incremental expenses new stores opened, the new minimum wage, and the increasing logistic expenses associated with additional warehouse space rented for eight new dedicated distribution centers for mass, and with a greater presence of our hardest-count stores in provinces. Overall, despite the challenging comparison basis, we showed progress in our multi-format strategy, refining our formats and their value propositions. As already mentioned, and in line with our strategy, the change in format mix, The progress made in our organic expansion plans and the investments made in our logistic platform involve incremental investments and expenses that affect our short-term results. However, we are confident that they are essential to building a solid and sustainable foundation for strong and profitable growth starting next year. Now, please turn to page 10 to review our third quarter results for our pharma segment. Our pharma segment posted an increase in revenues of 0.8% in Q3-25, combining a positive growth in revenues of 1.9% in our pharmacies unit with a decline in revenues in our distribution unit. Same-store sales growth for our pharmacies unit reached 1.2%. Pharma categories were favored by the winter season, driving demand for cold, flu, and respiratory-related products. Non-pharma categories posted a slight positive sense of growth. And during the quarter, we continued to see growth in consumer-related categories, in particular personal care, driven by the successful execution of our category diversification strategy. During Q3-25, we continued innovating with our formats, looking to increase productivity per store. we implemented certain modifications in some of our Mi Pharma beauty stores to enhance the experience and increase focus on personal care and beauty care categories. This new format aims to exploit niche categories with high growth potential where our market penetration is still low. Additionally, in our pharmacies unit, we progressed with our expansion plan, opening 48 new pharmacies, and in the last 12 months, we've opened 87 new pharmacies. In relation to our distribution unit, we posted a decrease in revenues of around 3%, combining its light growth in Ecuador with a decline in Peru. As mentioned before, our distribution business in Peru is going through an important change in its business model that started late last year, prioritizing cash flow generation and returning invested capital, implementing stricter collection terms, and focusing on our main channels, aligned to our core competencies in the pharma segment. Although these changes have resulted in a drop in revenues, they have also created substantial efficiencies in working capital and in operating expenses. We expect these trends to persist in the near term as we continue to simplify structures, streamline processes, and focus on our core categories and competitive capabilities. In terms of gross margin, We registered a gross margin of 32.5% below Q3-24, mostly explained by the global gross margin in our pharmacies unit, given the high comparison basis of last year, which included an extraordinary reversal of provisions related to shrinkage costs. Gross margin was also affected by the decline in margins in our distribution unit. These effects were partially offset by the higher participation of our pharmacies unit in the revenues mix. Our pharma segment recorded an adjusted growth of 1.1%, driven by the growth in revenues and operational efficiencies, despite the lower gross margin. Overall, our pharma segment continues to deliver a positive growth, supported by the steady performance in our pharmacies unit, despite the changes in business model in our distribution unit in Peru, maintaining profitability and enhancing cash flow generation in the segment. Please turn to page 11 to review our third quarter results for our shopping mall segment. As anticipated in our previous earnings call, the financial results in Q3-25 for our shopping mall segment still experienced some impact arising from the incident in the Real Plaza Trujillo Mall, although to a lesser extent compared to prior coverage. Our shopping mall segment registered a decline in revenues of 5%, impacted by the income lost from the continued closure of the mall in Trujillo and by the extraordinary discounts granted to tenants of the mall. Additionally, revenues were hindered by the decrease in variable rent in several tenants from the high comparison basis in Q3-24. These effects were partially offset by the improvement in performance in other malls. Our handouts registered a negative same-store sales of 2.3% during the quarter, impacted by the high comparison basis mentioned before. Our gross margin was 65.6% this quarter, lower than Q3-24, mainly explained by higher marketing and maintenance costs due to the phasing in the curse of these expenses, in addition to the higher rental costs. In terms of adjusted EBITDA, we reached 109 million soles, a drop of 12.8%. This decline is mainly explained with the external impact arising from the incident earlier this year, the lower gross margin, and the increase in other operating costs. As anticipated, the impacts from the incident are gradually easing towards year-end, as evidenced by the lower decline in adjusted EBITDA compared to prior quarters. Now, please turn to page 12. During Q3-25, we advanced in our organic expansion strategy. opening new mass stores and new pharmacies, together with the expansion of our Real Plaza Primavera mall. In terms of same-store sales, Q3-25 presented a more challenging consumption environment, driven by a more demanding comparison basis, particularly during July, resulting in lower same-store sales growth across every segment. Now, please turn to page 14 with your consolidated net income results. In Britain registered a net income of 241 million soles in Q3 25, a 12.7 decrease compared to Q3 24. As mentioned before, the decrease in net income is explained by the decline in the and the increase in net financial expenses, despite the higher net effects gain. The increase in net financial expenses comes from the larger IFRS 16 related financial expenses associated with the opening of masks and pharmacy stores, and from higher financial debt interest rates related to the liability management strategies executed over the last 12 months in all segments. Now, I will pass the word to Andrea, who will discuss our CAPEX, cash flow generation, and consolidated financial debt.

Thank you, Marcelo. Now, please turn to page 15. During Q3-25, we invested $230 million in CAPEX for our three business segments. This was mainly invested in the expansion of our physical network, in maintenance of our existing network, and in our new pharma distribution center. In our food retail segment, CapEx in Q3-25 was mainly invested in the opening of 57 new mass stores, 53 nets, in the implementation of two new plaza area stores in Provence, and in scheduled maintenance of existing stores. In terms of openings, we expect to open around 300 mass stores and two Plaza de la stores in 2025. In our pharma segment, CapEx was largely invested in the construction of our new distribution center, in the opening of 51 new stores for T8Net, and in scheduled maintenance of our existing network. We expect to close 2025 with around 100 stores opened. Finally, in our shopping mall segment, CapEx this quarter was invested in scheduled expansion projects in existing malls, mainly in Piura and in Primadera, the latter inaugurated in Aguas, and in one new power center in Tarapoto. The remaining CapEx was invested in maintenance of our malls, mainly related to extraordinary investments made as further preventive and corrective measures. In terms of cash balance, we ended the third quarter with approximately 1.5 billion soles of cash, in line with the end of last year's cash balance, despite the higher capital investment and the decrease in adjusted dividends during 2025. Now, please turn to page 16 to discuss our consolidated financial debt. As of September 2025, Ingridale had a consolidated net debt of $5,859 million, with a net debt to adjusted EBITDA ratio of two times, below the comparable quarter of 2024, despite the decrease in adjusted EBITDA during 2025. The decrease in total net debt compared to Q3 2024 is mainly explained by the higher cash positions, despite the schedule amortization, and by the appreciation of the local currency, which affects our dollar-denominated bonds related to our international bond issuances. The short-term position of our consolidated debt stood at 798 million soles, significantly below the prior quarters as we completed the refinancing of our structural medium-term loans during Q3-25 in our food retail, pharma, and shopping mall sets. As of September 2025, we have successfully refinanced more than 2 billion soles in our three business segments over the last year. Now, I will pass the word back to Marcelo to review our debt by segment.

Thank you, Andrea. Listen to page 17. Our food retail segment ended the third quarter with a net debt of 2,875,000,000 soles below the previous quarter and below Q3 24. Net debt to adjusted EBITDA stood at 2.6 in line with the comparable quarter of 2024. In retail pharma, ended the third quarter with a net debt of 1,518,000,000 soles and a net debt to adjusted EBITDA ratio of one. From a continued increase in cash flow generation during the execution of the strategies mentioned before, despite the higher cap. In retail consumer, ended the third quarter with a net debt to adjusted EBITDA ratio of 1.6 below the previous quarter. We expect to close 2025 with a net leverage ratio slightly below 2024. Finally, in retail shopping malls ended the third quarter with a net debt of 1,477,000,000 soles resulting in a net debt to adjusted EBITDA ratio of 3.4 affected by the decline in adjusted EBITDA and the pickup in CapEx related to our expansion projects and to preventive maintenance investments. Nevertheless, Our shopping mall segment remains with a very solid liquidity position and a very comfortable outlook with respect to our limits set by our bond intention. We anticipate our shopping mall segment to end 2025 with a slightly higher leverage ratio compared to Q3 2025. Now, please turn to page 19 to give you a brief summary of an extraordinary post-quarter event. On October 9th, we successfully issued approximately $500 million of seven-year senior unsecured notes at InVita Shopping Malls, combining one U.S. dollar tranche of $375 million and one pen tranche of $428 million at attractive coupons of $565 and $7125, respectively. The implied spreads were the lowest ever achieved by InVita Shopping Malls. The proceeds were mainly used to refinance all outstanding 2028 notes, extended material debt obligations for shopping malls to 2030 and beyond. The dollar tranche reached an order book oversubscription of around three times at peak, evidencing investor confidence and trust in the credit, given its high predictability, strong liquidity position, and resilient nature. As we have done in previous issuances, we executed different hedging structures until maturity to partially hedge the US dollar denominated principal debt and coupon payments. With that, we cover our presentation and now we will be glad to answer any questions you may have.

Thank you. At this time, we will open the floor for your questions. First, we will take the questions from the conference call and then the webcast questions. If you would like to ask a question, please press the star key followed by the 1 key on your touch-tone phone now. Questions will be taken in the order which they are received. If at any time you would like to remove yourself from the question queue, just press star 2. Again, if you ask a question, please press star 1 now. For the webcast viewers, simply use the chat function on the left side of the webcast platform. and type your question in the box and click send. We will pause momentarily to compile a list of questioners. The first question comes from Alonzo Aramburu with BTG. Please go ahead.

Yes, hi. Good morning and thank you for the call. I wanted to ask first on Trujillo whether you have any updates on the potential reopening of the shopping center, and if you can comment on potential new projects in the shopping center business in 2026. And second, if you could also give us some color as to how sales and consumption has evolved after the close of the quarter in October and November.

Thank you. Thank you, Alonso, for the two questions. Can you repeat, sorry, the third question? We couldn't hear you very well for the third question.

Yeah, no, the first one was on Trujillo. The second one was on the trends after the quarter, what you're seeing sales in October and early November.

Okay, perfect. Thank you. So, Luke, as it relates to the opening of the mall in Trujillo, as we mentioned before, we will continue to work closely with the authorities. However, the final decision lies beyond our control and it's dependent on local authorities to be honest. Despite our efforts at this point, sadly we don't have a precise visibility regarding the opening of the mall. We believe it's highly unlikely or nearly impossible that the mall is gonna be open this year. Having said that, As you guys know, in 2024, Real Tras del Trujillo accounted only for 6% of total revenues and about just the EBITDA, no? And over the next year and next year, the natural growth of the business will more than offset the income and EBITDA loss from the closure of the mall, no? And as we mentioned in the poll as well, most of the impacts regarding the incident have been recognized to date. And in terms of adjusted EBITDA, these impacts are essentially progressively dissipating, no? Then the second question on the new project I believe was regarding the, in shopping malls, what we have is this year we opened not in the third quarter, but we opened in the fourth quarter, a new power center in Tarapoto. That was open a couple of weeks ago. We have a couple of important expansion projects, one of which is already open in Primavera, the other one in Piura. And as it relates for next year, we have a big expansion project as well in Lurín for the existing mall, and one power center as well in Provinces that should be open by the end of the year. And then the third question as it relates to trends. So important to mention again, Alonso, If you look at the third quarter results, the effect on the same store sales and the performance had to do basically with a very negative July. And that's essentially given the high comparison basis that we had in 2024. Beyond July, if we looked at August and September, there was a progressive improvement in same store sales. All of the businesses with positive same store sales in August improved. and in September. And October has been pretty similar to what we saw in September. I mean, we have food retail at same-store sales of around 2%. Farm is actually performing slightly better. Same-store sales grow closer to 4% as opposed to the 1% and the 2% that we saw in the quarter, no? Still, though, as I mentioned the call, on a consolidated basis in pharma, if we add the distribution business, distribution business in Peru is still suffering from a decline in revenues given this change in the business model.

Again, if you have a question, please press star, then 1. Our next question comes from Giovanni Vescovi with JP Morgan. Please go ahead.

Hello. Thanks for taking my question, Tim. From our end, we just wanted to know what are you thinking about the competition, the food retail as a whole?

Thank you. Thank you, Giovanni, for the question. So competition in food retail, as you mentioned, Whereas now we compete against Falabella Totus and Cinco Sud. Well, Falabella has two formats, Totus and Bodega and Cinco Sud with one and Metro and a new format which is a modified version of Metro called Metro Almaceno. What we're seeing essentially in terms of organic expansion, still not much going on there to be honest. I think we've been the player with investing more in organic expansion locally. We've seen though over the last few months more aggressiveness in the supermarket channel in particular as it relates to competitive pricing and promotion and a lot of wholesale revenues from competition, focusing more on wholesale revenues, of course affecting margins. But that's pretty much it, if it leads to these two players. As you guys know as well, and it's been out in the media as well, there's another competitor in hardest count called 3A, which recently announced that they opened their store number 200. Look, as we've said before, we believe that the opportunity in hard discounting in Peru is huge, correct? The informality in the country would be still at 70, 75, or the traditional trade represents 70 to 75%. So we believe there is huge opportunities, huge space, not only for us, but for an additional player as well.

Okay, thank you.

At this time, we will take the webcast questions.

The first question. For food retail and pharma, looking ahead to 2026, how do you see the impact of no longer having pension fund withdrawals in 2026, considering that SSS this quarter was under pressure without the withdrawals, especially in sales at Plaza Vieja and pharmacies? Is there any way to mitigate this effect?

Thank you for the question. So I believe the question was whether we believe we can mitigate the effect of the eighth withdrawal that we have in this year or next year. Look, and to be pretty clear, so far we haven't seen, honestly, in 2025, any material change in consumption related to the pension fund withdrawals, no? Based on the information we have, honestly, we don't necessarily expect the same effect in this withdrawal compared to the previous ones. Our understanding is that the rate of withdrawal is actually below prior years. And as you guys know, those that can actually withdraw or still have funds in their pensions are typically the higher socioeconomic level population which don't necessarily consume more because they withdraw their funds. The reality is that subsequent pension funds have and will have lower marginal effects on consumption. We might see some improvement in demand probably in December of this year and earlier next year. But as I said, we don't necessarily anticipate a material change, and so we don't believe that 2026 should be materially affected in terms of a comparison basis to 2025 related to the pension funds.

Next question, looking at the net debt levels of pharma, they are quite low. Do you think that a vision could pay more dividends going forward?

Thank you for the question. So the way we look at leverage and allocation of capital, essentially we divide our leverage and credit even though it's all under Invitil, in two worlds. The real estate world, which is where the shopping mall segment is, and then the consumer world. So the way we manage leverage is more at the consumer level than independently on each operating entity, and the way we've done that is essentially utilizing cash flows and using cash allocation between both pharma and the supermarket segments, given that it combines a high-capital intensive business, which is the supermarket, the food retail segment, with a very low-capital requirement business, which is the pharma segment. So, essentially, we're in next year and so forth. Yes, of course, the pharma business should know, pay more dividends, which should be utilized for the growth of the consumer world in particular.

Thank you. At this time, I'm showing no further questions. I would like to turn the call over to the operator.

There appears to be no further questions. At this time, I would like to turn the floor back over to Mr. Vallejo for any closing remarks. You may be muted.

Oh, sorry. Thank you. Overall, as we mentioned, the third quarter was a challenging quarter given the high comparison basis in 2024, particularly affecting the beginning of the period. In this context, our companies continue to show resiliency. We progress with our expansion plan and with the execution of initiatives that are laying the foundation for growth next year. With this, we are finalizing the third quarter in school. If you have any follow-up questions, please do not hesitate to contact any of us. Thank you very much for your participation.