Robinsons Retail Holdings, Inc.

Ms. Selena Chua, the Group GM of Robinsons Department Store and Toys R Us, and Charles Truison, the Group General Manager of DIY Pets and Mass Merchandise, and Teres Ramalingan, the General Manager of Ministop. Also joining us in the call are Jovi Santos, the General Manager of the Appliance Segment, Edna Dolieza, the General Manager of Gore Robinsons, and E.R. Rollyan, the co-founder and CEO of Grozary. This presentation will cover the financial highlights of our operations for the second quarter and first half of 2021, an update on our store network and e-commerce platform, a detailed discussion on our financials, and some recent company developments. A brief question and answer session will follow the formal presentation to be answered by the management team. As a reminder for the Q&A portion, please use the Q&A function of the Zoom dashboard. We would appreciate if you would limit the questions to a maximum of three, including follow-up, so we can accommodate as many questions by the other participants. You may queue back. in for further questions. If you have any concerns regarding the sound quality of the call, please feel free to send your concerns via the private chat to Jake Crisolugo. With that, I'll turn you over to our president and CEO.

Good afternoon. Let me summarize RRHI's consolidated response for the first half of 2021. Net sales reached 71.4 billion. Blended same-store sales growth of negative 10.2%. 200 BIPs expansion to gross profit margin at 22.8%. EBITDA margin at 8%. Net income attributable to equity holders of the parent company increased by 1.7% to 1.7 billion. Store portfolio of 2,153 stores and 1,935 TGP franchise branches nationwide. E-commerce sales grew four times year-on-year, accounting for 2.8% of sales. Robinson's Retail has an extensive store network with 270 supermarkets, 49 department stores, 226 DIY stores, 462 convenience stores, 849 drug stores, and 297 specialty stores for a total of 2,153 stores plus 1,935 franchise stores of PGP as of end June 2021. Our stores serve as the fulfillment centers of Go Robinson's, our e-commerce site, which is the main online hub for our formats. Go Robinson's has recently onboarded Robinson's department store and currently serves a total of eight banners. Our discretionary format showed marked improvement as it registered positive sales growth for the quarter as they were closed for six weeks last year. Rose Pharmacy contributed $1.9 billion in the second quarter and $3.7 billion in the first half. Meanwhile, the supermarket segment, which accounted for 59% of the business, posted lower sales growth as it came from a high base last year induced by the panic buying of essential goods. As a result, consolidated net sales increased by 2.7% to 35.8 billion in the second quarter to reach 71.4 billion in the first half. E-commerce performance remained strong, with sales consistently growing on a quarterly basis. E-commerce sales accounted for 2.8% of total RHI sales in the first half, nearing the upper bound of our 2% to 3% target. Blended SSSG for the quarter was negative 3.4%, a significant improvement from negative 13.9% in the same period last year and negative 16.1% last quarter of this year. All of our formats, except for supermarkets, recorded positive SSSG for the quarter. Year-to-date, SSSG was at negative 10.2%. Gross profit margin expanded by 290 dips and 200 dips in the second quarter and first half, respectively, to 22.8%. The margin improvement was driven mainly by higher vendor supports this year and better category mix. EBITDA margin was at 8.1% and 8% in the second quarter and first half. Slightly lower versus the second quarter of 2020 and the first half of 2020 with higher OPEX due to higher operating days and lower rent reprieves versus last year. Net income attributable to parents increased by 0.7% to $724 million for the second quarter and 1.7% to 1.7 billion in the first half, still benefiting from the impact of the CREATE law. The next speaker will be Jody Gadia, who will talk about the supermarket segment.

Thank you, Ms. Rubina. Starting 2021, grocery and no-brand financials are now under the supermarket segment from the specialty segment previously. The supermarket segment recorded net sales of 21.1 billion in the second quarter, bringing first half net sales to 42.2 billion. The 14.5% decline in first half same-store sales growth was attributable to the high base of 16.4% existing stores growth versus last year. resulting from the enhanced community quarantine imposed in March 2020 all the way to mid-May 2020. Meanwhile, our first half e-commerce sales ended at 1.2 billion, or 2.9% of sales, and has now surpassed the level of our total full-year e-commerce sales last year, ended at 1.2 billion. or 1 billion or 1.1% of sales last year. Our gross margin increased to 21.5% in the second quarter. For life-for-life comparison, if we exclude the consolidation of grocery and no brand, gross margin expanded by 280 basis points to 22.1% in the second quarter. and 170 basis points to 21.5% in the first half, primarily due to strong vendor support for our category promotions, rate increase in supplier portal fees that we implemented, the business advancement support or new store opening fees, as well as from conversions, as well as higher revenues from new product listings as our trade partners resumed innovations. EBITDA margin rose to 8.4% in the second quarter. Again, for a life-for-life basis, EBITDA margin improved by 80 basis points to 8.8% in the second quarter and 50 basis points to 8.6% in the first half due to lower operating expenses from the austerity measures we have implemented and lower ECQ-related costs or incentives and allowances to our frontliners, which we granted last year. As of end June, there are 145 Robinson supermarkets, 70 Robinsons Easy Mart, 34 The Marketplace, 16 Shopwise, and five no-brands, bringing our total network to 270 stores. Our next speaker is Ms. Serena Chua of Department Store.

Thank you, Mr. Gadia. Robinson's Department Store recovered in the second quarter of 2021 with net sales up by 82.1% to 1.7 billion, with the first half at 3.6 billion. Same-store sales growth was up in the second quarter due to hard lockdown last year, which resulted to the temporary closure of all 49 branches for six weeks last year, versus the temporary closure of 17 stores only this year, covering the NCR Plus areas of Laguna, Cavite, Rizal, and Tuguegarao for two weeks this year. In terms of category performance, Home category continues to be strong, up by 17%, driven by home furnishings and domestic appliances, as more people are still home-based. Men's category also increased by 4%. Year-to-date same-store sales growth was at negative 2%. RDS launched a second online platform in Go Robinson's last June 8, 2021. Total e-commerce sales grew by 41.4% versus last year, contributing 1.1% of sales. Gross margin jumped by 140 bps to 29.3% due to the increase in vendor fees. The recovery in sales as well as the gross margin improvement managed to lift EBITDA margin back to profitability at positive 1.9% for the quarter. Year-to-date EBITDA margin was at 0.5%. Let me turn you over to the next speaker, Mr. Charles Houston for the DIY segment.

Thank you, Mussalina. For the DIY segment, net sales accelerated 43.6% to 2.7 billion in Q2, reaching 5.6 billion in the first half or up 16.2%. SSSG for the quarter was robust at 43.8%, as all our stores were fully operational for three months compared to the one-and-a-half-month closure last year. Categories which performed strongly in Q2 included hardware up 70%, cleaning supplies up 62%, and appliances up 60%. Our total e-com sales tripled in the first half, contributing 2.8% of sales and ahead of the full-year target of 2.5%. Gross margins compressed to 31.4% for the quarter as promotional events were not allowed for the same period last year. Year-to-date gross margin was down by 50 basis points to 32.6%. Operating expenses increased due to more operating days versus last year and less rental rebates. EBITDA margin dipped to 11% in Q2 and 13% in the first half. Our DIY portfolio includes 226 stores comprising of 178 handyman do it best stores, 32 true value stores and 16 Robinsons builders. Our next speaker is Suresh of the convenience store segment.

Thank you, Charles. Ministop recorded system-wide sales $1.3 billion in the second quarter and $2.7 billion in the first half. SSSG has been improving month on month since August 2020, with May and June 2021 achieving positive SSSG. As a result, SSSG recovered to 1.7% for the quarter. Also, around 95% of our 462 stores are already operating as of end June, an increase from 85% last year. Of the operating stores, 75% of our open 24 hours was 28% last year. Online sales climbed to 2.6% of total in first half from 0.7% in the same period last year. Our value-added services, which include telco bill payment, cash-in accounted for 0.9% of sales in the first half. Gross margin and royalty income was down to 35.3% in first half due to lower share of franchisees' profits. Operating expenses increased as more stores are now operational and open 24 hours. We have also received lesser rental rebates compared to last year. This leads to the decline in EBITDA margin to 4.6%. I'll hand it to next speaker, Ms. Christine.

Thank you, Suresh. So good afternoon, everyone. So the drugstore segment generated net sales of 6.3 billion in second quarter, up by 45.1% year-on-year, and 12.3 billion in first half, registering a total growth of 31.1%. Net sales of Rose Pharmacy was at 1.9 billion in second quarter, reaching a total of 3.7 billion in first half. Southstar Drug recorded same-store sales growth of negative 9.5% in first half due to the high base of 6.9% in the same period last year from the pantry loading effect during the start of the lockdown and unusually high demand of COVID-19 essentials. Meanwhile, second quarter same-store sales growth rebounded to 1.4%. E-commerce sales grew more than 30x and accounted for 3.1% of our sales for the first half of 2021. Combined gross margin improved quarter-on-quarter from 19.5% in first quarter to 19.9% in second quarter as a result of trading terms alignment and other supply chain synergies between South Star Drug and Rose Pharmacy. Year-to-date gross margin was at 19.7%. Consequently, EBITDA margin expanded by 110 BIPs quarter-and-quarter to 8.5% in second quarter, with year-to-date EBITDA margin at 8%. Rose Pharmacy achieved positive net income in first half after a long period loss prior to acquisition due to skill leveraging, strategic sourcing, and supply chain synergies. As of end June, the drugstore segment has 561 South Star drugstores, 288 Rose pharmacies, and 1,935 TGP stores. Now I turn you over to Ms. Mylene Casiban, our CFO for the specialty store segment.

Thanks, Dean. Moving on to the specialty store segment, net sales of the specialty store segment grew by 9.7%. to 2.8 billion in the second quarter, with year-to-date sales at 5.4 billion. Excluding no brand and grocery, segment sales grew by 25.7% to 2.8 billion in the second quarter, mainly due to the higher number of operational days this year compared to last year. Second quarter, same-store sales growth rose to 22.5%, with year-to-date same-store sales growth at 2.4%. E-commerce grew by 2x and accounted for 2.8% of sales from 1.1% last year. Blended gross margin surged to 24% in the second quarter and to 25.6% in the first half. Life-for-life basis gross margin expanded by 460 bps in the second quarter with a lift from the appliances and the toys segment. The gains in gross margins resulted to higher EBITDA margin at 7.8% and 7.7% respectively for the second quarter and first half. Excluding no brand and grocery, EBITDA margin increased by 30 bps. The specialty segment has a total of 297 stores at the end of June. Moving on to our working capital. Robinson's retail's cash conversion cycle was at 14.2 days in the second quarter versus negative 1.6 days during the same period last year due to the consolidation of Rose Pharmacy and lower field rates last year due to the pantry loading of essential goods. Okay, moving on to our next question. Capital expenditures, the group spent close to 900 million in capex for the first half of 2021. Supermarket accounted for the biggest share at 55%, followed by drugstores at 15%. So now I will turn you over again to Ms. Robina Gokongwipe.

Now I will discuss the latest digital investments of RRHR. G2M is a tech-enabled B2B platform that caters to sari-sari stores. It is the holding company of Grow Sari, which is engaged in selling wholesale goods to Sari Sari stores. Grow Sari sources products from Robinson Supermarket. GMB has grown exponentially, up from 45% year-on-year in the first half. It currently serves more than 30,000 Sari Sari stores. In 2018, RRHI joined a Series A funding of G2M. along with JG Digital Equity Ventures and Wavemaker Partners, at a pre-money valuation of $28 million. In 2021, G2M raised more than $30 million in its Series B funding with a pre-money valuation of $100 million, or 3.6 times increase from 2018. We also participated in the latest funding to retain our stake with conversion rights now at 14.16%. This round had participation from Pavilion Capital, Tencent, IFC, ICCP, SBI Venture Partners, and Sison Capital. In line with our strategy and pivot into e-commerce, RRHI invested in Edamama with 13.3% equity ownership upon conversion. Edamama is a new e-commerce platform designed for mothers to get easy online access to quality child care products and services. It offers several products through its platforms, including a gift registry feature and subscribe and save, an online diaper subscription service. It also launched Explore, a one-stop destination for parents to book online classes and activities for their children. GMV increased by six times year-on-year for the first half. Our investment in Edamama is a strategic fit for RHIA as we explore potential collaborations with Robinson's Department Store and Toys R Us in terms of joint buying, private labels, and click and collect programs. Leading Australian food retailer Woolworths partners with Robinson Supermarket, The Marketplace, and Shopwise to bring the Woolworths brand to the Philippines. The launch gives our customers space through Australia with over 150 products across various grocery categories. Woolworths products are currently available in 35 stores with more stores in the pipeline scheduled to house the brand within the year. At this point, we will now open up the call for Q&A.

Okay, we have our first question from EF Nguyen. Question for the DIY segment. What caused the quarter-on-quarter drops of 7% in sales and 31% in EBITDA? Again, what caused the quarter-on-quarter drops of 7% in sales and 31% in EBITDA?

So this question is for DIY. What's the problem with EBITDA? Sorry, hi. Hi, Jake. Can you hear me?

Yes, sir, Charles. You can go on ahead and answer the question.

Yeah, the quarter-on-quarter, I believe we grew the revenue of 16% for the total DIY.

Thank you, sir, Charles. Thank you.

So first half is up 16%, but compared with the same quarter last year, we're up 44%.

You're referring to first quarter, which is 2.9 billion?

This year.

This year, and then the second quarter was 2.7 billion.

Yeah. This year, I think even if DYI was considered an essential, we did feel the impact of the lower football once we had entered into a lockdown situation. So the big change was that this year we were allowed to operate, but just the same, the footfall was not there. So we tried to service the customers as well. We did a lot of call-in collect and e-comm sales, but that I think explained why we were down compared to the first quarter.

Can I add? This is Robina. We had a super lockdown, enhanced community quarantine from March 29 to... April 11. So that was two weeks of super lockdown.

The second, yeah, in April. Thank you, everyone. We have the next question here. What cost net income to drop quarter on quarter when sales, GP, EBIT were all flat quarter on quarter? And what is the nature of the one-off items in 2Q21, hence the discrepancy between headline and core earnings?

Okay.

The quarter-in-quarter net income fluctuation is just basically a mix of the formats that were open depending on the lockdown restrictions. Hence, there were, for example, some formats that got affected more by the quarantine restrictions. And of course, as we try to open more stores, some stores are not yet to the level of productivity that we're expecting and, you know, their fix was already coming in. The one-off items in the second quarter, the discrepancy is just on the, it's just, you know, the interest on bonds. Yeah.

Okay. Thank you, Ms. Mylene. So the next question comes from Miguel Ong. The formats which were negatively affected by the pandemic have shown significant signs of recovery. Just want to understand the reason for the continuous year-on-year decline of the royalty, rent, and other revenue portion. Again, the question is, the formats which were negatively affected by the pandemic have shown significant signs of recovery. Just want to understand the reason for the continuous year-on-year decline of royalty, rent, and other revenue portion.

Yeah. When you look at the total gross margins, actually, we're okay. The difference is just between how we actually treat the other income versus gross margins as we have converted more direct stores, sorry, more franchise stores into direct stores.

Thank you, Ms.

Mylene.

Thank you, Ms. Mylene. The next question comes from Steven Gabriel Oliveros. I would like to ask if there are any changes in your guidance, for example, on store additions, SSSG, and KPEX. Again, they would like to ask if there are any changes in your guidance regarding store additions, SSSG, and KPEX.

For store additions, as of this point, we are looking at 100 to 120 for the year. Same-store sales growth, I think we're looking at 0 to 3%. No change there. And CapEx, there's no change. It's still 3.5 to 5 billion. The store opening this year is skewed towards the latter part of this year. That's why the store additions forecast, we're not changing it.

Okay, thank you, Ms. Gina. Our next question comes from Rainer Ivan Yu. Hi, can you provide the net sales growth or decline in GPM and SSSG for the different segments in supermarkets, marketplace, easy market, et cetera?

We don't disclose... We don't disclose it by format anymore as we look at it on a total segment, especially now that we have consolidated our marketplace into a supermarket, Robinsa supermarket.

Thank you, Ms. Maylene. The next question comes from Carissa Mangubat. What percentage of supermarket sales is from mall-based stores? Are you seeing any significant trends in mall-based supermarkets versus standalone?

The standalone community-based stores are the ones that are very resilient. And obviously the mall-based stores are still struggling a bit with food form or food traffic. Although compared to last year, we're seeing signs of recovery in food traffic, but not at the same level as pre-pandemic. I'm sorry, I don't have the visibility of mall-based percentage contribution versus community-based or standalone stores.

Thank you, Sir Jody.

Okay, our next question is, how large is Josary's contribution to total sales?

Uh-huh. One... Total turnover is about 2.4%.

Because those are turnover in the first half was close to 1 billion. We're reporting, what, 42.2? Yeah, so it's 2.4%.

Yeah. Thank you, Sir Jody. The next question is for Rose Pharmacy. So Ms. Christine, you could unmute your line so you could answer this question. It was mentioned that the company already earned positive net income this year. When did it and what is the expected growth moving forward?

Hi, good afternoon. So we started seeing a positive net income at the start of May, and it has been continuously doing a positive a bit from May, from the month of May. And then the next question, when did it, okay, expected growth moving forward? We're looking at, wait, around, sorry, Gina, do you have the data? Sorry. Okay.

Okay, thank you.

Okay, the next question comes again from Hiep Nguyen. Are all stores open at the moment and what's your outlook for 3Q? Comparing with 2Q, should we expect quarter-on-quarter improvement?

We are going on lockdown again, starting August 6th up to August 20th. So while there's panic buying again in the supermarket, we're going to see a reduction in sales in our non-essential formats that will be asked to close from August 6th to 20th, but we're going to try to recover through our call to deliver and e-commerce business.

Thank you, Ms. Urbina. The next question is for CBS. So, Suresh, you can unmute your line. The question is from Carissa Magbayo. What's the reason for converting more franchise stores to direct stores? Again, the question is, what's the reason for converting more franchise stores to direct stores? Yes.

Okay, good afternoon. The reason why we need to convert more direct stock to franchise stock, this will be increased. Okay, the model which we are going to introduce, which is more into a sales group based on the income, but they're going to earn it, which is benefiting mini stock and benefiting the franchises. So by doing a franchising also, the CapEx and the OpEx will be coming down for... our site for many stock. So that's one of the reasons why we want to introduce franchise to more people, more franchising to reduce our OPEX. Thank you.

Yeah, just to add, we have converted, you know, as a result of the pandemic, you know, some franchisees have given up all those But the stores still have potential and, you know, earning this to the big wealth. Hence, we converted them to the next stores.

Thank you, Suresh and Ms. Malin. The next question again comes from Miguel Ong. Should we expect further margin improvement from the integration of Rose Pharmacy? If yes, by how much?

Yes. Yeah, we have seen improvement already, quarter and quarter, and even compared last year. So actually, the difference between South Star and Rose Pharmacy's gross margins is around 200 BIPs. So we're looking at recovering of around at least 100 BIPs with the synergies that we are doing just for this year.

Thank you, Ms. Christine. The next question comes from Janet Butan. Can we expect the same supermarket revenue run rate in 2Q for the rest of the quarters?

We're very hopeful about the second half, Janet. As you know, historically, the second half accounts for about 55% of total turnover, especially peaks during the month of December. Well, we are a little bit cautious about this year because of the pandemic. We still are very hopeful that the Filipinos will still celebrate Christmas. There's early election spending, hopefully, coming in this October or November. That's something that we are anticipating. And we're rolling out a lot of stores. Gina mentioned about back-ended for second half of the year with too many stores. So these are all purely incremental because these are new white spaces that we've entered into and quite a hefty incremental sales to the supermarket segment. So we can only be very hopeful with some cautious optimism that second half will be good. better than the second quarter.

Okay, thank you, Sir Jody. The next question again comes from Janet Yutan, which Ms. Mylene will answer. What was the cost of acquiring CVS franchise stores?

Technically, there is no cost as we just assume the inventory of the franchises, whatever remaining inventory is left. And they just maintain a very small inventory per store.

Thank you, Ms. Mylene. So at the moment, we don't have any questions, but the Q&A function is open. Please send your questions via Q&A. Thank you. Okay, another question from Janet . Can you provide SSG variants among supermarket brands?

Sorry, we don't provide SSSP by banner. Let's open mic.

Thank you, Ms. Gina. Okay, once again, the Q&A is open. Send your questions by the Q&A function if you have any. Okay, another question from Janet. The total investments made in digital ventures.

Digital ventures.

Again, she's asking for the total investments made in digital ventures.

Are you talking about Babi?

Are you talking of the... Does that include GoRobinsons and more rewards? That's everything? Or is it only...

All the investments in B2M, in Edamama, in BPMNL, in Grocery.

What about, does that include GoR?

GoRobinsons?

Just Grocery and Edamama.

BPMNL.

Edamama. Edamama.

We've invested 100 million in groceries as far as the supermarket is concerned. The mama is just less than 100 million.

Thank you, everyone. So we have another question from Rainier Ivan Yu on foot traffic on department store supermarkets and consolidators. How far away are we from pre-pandemic levels? Again, the question is on foot traffic. How far are we from pre-pandemic levels?

I think we can compare it by sales. If we compare 2019 first half and 2021 first half this year, we're still on a console level. I think we're still like 12% away from the 2019 numbers the lowest will be supermarket which is like 2.4% lower compared to first half 2019 drugstore is already up not from first half 2019 the rest are down

Thank you, Ms. Gina. The next question again comes from Janet. I believe she's asking again on the investments in digital. She's asking for the G2M excluding in-house.

Including GoRobinsons? We invested in the Publix. I think the Publix. G2M, is that? What does excluding in-house? Just G2M. We mentioned it already a while ago. Yeah.

The investment, 100 million in Rosario. Yeah. G2M. On G2M, slightly over 100 million.

Thank you, everyone, for the answers.

Yeah, almost 300 million.

300, yeah. Wow.

300 million, sorry.

Janet, I hope you got that. The next question comes from Carlos Navarro on dividends. Special dividends were declared a couple of months ago. Do we expect the same level of payout in the succeeding years? Again, on dividends, special dividends were declared a couple of months ago. Do we expect the same level of payout in the succeeding years?

There are no major acquisitions. I think we can sustain the higher dividend payout.

All right, thank you, Ms. Gina. Okay, once again, we're still open for Q&A. If you have any questions, feel free to send them via the Q&A. Okay, seeing as there are no more questions, Mr. Bina. Thank you very much and see you at the next earnings call.