Robinsons Retail Holdings, Inc.

Good afternoon, everybody. Thank you for joining us to review Robinson's Retail's unaudited results covering the second quarter of 2022 and the first half of 2022. I am Gina Dipaning, the Company's Investor Relations Officer. The speakers for this call are our President and CEO, Ms. Robina Gokongweche, our CFO, Ms. Maylene Kasiban, the Managing Director of the supermarket segment, Mr. Stanley Paul, the Group General Manager of the drugstore segment, Christine Tuarez, the General Manager of DIY and Pets, Ted Sogono, the Group General Manager of the department store and toys, Mr. Lina Chua, the General Manager of our CVS business, Suresh Ramalingam, and the group general manager of the appliance business, Joby Sanchez. This presentation will cover the company's financial performance in second quarter and first half of this year, an update on our store network and e-commerce business, and some recent company developments. The Q&A session will follow after the formal presentation to be answered by the management team. As a reminder for the Q&A portion, please use the Q&A function on your Zoom dashboard. We would appreciate if you can limit the number of questions to three first, including the follow-up, so we can accommodate as many participants as possible. You may queue back in for the added questions. If you have any concerns regarding the sound quality of the call, please send your concerns via private chat to Leah Artus. With that, I'll turn you over to our President and CEO.

Good afternoon. Moving on to our consolidated results for the second quarter. Consolidated net sales grew by 19.8% to 42.9 billion. Blended same-store sales growth of 15.5%. E-commerce sales was 3.1% of total sales. 110 dips gross margin improvement to 23.8%. 90 dips EBITDA margin expansion to 8.9%. Net income attributable to equity holders of the parent company more than doubled to 1.6 billion. Store portfolio of 2,235 stores and 2,082 TGP franchise branches nationwide. Robinson's retail store counts to 2,235 as of June 30. Composed of 300 supermarkets, 938 drugstores, 223 DIY stores, 50 department stores, 443 convenience stores, and 281 specialty stores. We opened 68 new stores at the end of 2021. but we also closed 41 stores. We also have 2,082 franchise stores of TGP. Serving as fulfillment centers for our store network, our e-commerce operations is complementary to our store network. GoCart, our very own e-commerce site, currently has 14 banners in the platform. We have also added 61 stores in GoCart to end June with a total of 168 stores. RRHI continued its strong performance, posting net sales growth at 19.8% in the second quarter and 15.3% in the first half to 43 billion and 82.4 billion respectively, both surpassing pre-pandemic levels in 2019. Most formats contributed double-digit growth rates in the first half of 2022, Improved sales were driven by the 10.2% SSSG given improvements in mobility and easing of border restrictions aided by sales uplift from election spending and partially from series of price increases. With the rebound of the non-discretionary formats, sales contribution increased to 23% in the first half versus 20% last year. E-commerce sales grew 1.5 times and accounted for 3.6% of total sales in the first half from 2.8% last year. In the second quarter, however, e-com contributions slowed down to 3.1% with an ease of mobility. Blended SSG for the quarter was up 15.5%, a turnaround from previous years minus 3.4%. Department store DIY convenience stores and specialty store segments delivered double-digit quarter SSST. Gross margin expanded by 110 dips in the second quarter to 23.8%. This led to a year-to-date gross margin improvement by 60 dips to 23.5%. EBITDA margin advanced by 90 dips to 8.9% in the second quarter and 70 dips to 8.7% in the first half. OPEX has a percentage of sales decline due to the impact of the cost-cutting measures implemented during the pandemic. Net income attributable to parents more than doubled to 1.6 billion for the quarter to end the first half at 2.7 billion. The surge in profitability is attributed to extraordinary good operating performance, forex gains, and higher equitized earnings from Robinson's stock and dividend income. Coupled with our share buyback, earnings per share increased at a faster clip by 122% to one peso and four cents per share in the second quarter, and by 69.6% to 1.83 cents per share in the first half. The next speaker will be Stanley Koh, managing director of the supermarket segment.

Thank you, Mr. Bina. Good afternoon, everyone. The supermarket segment recorded net sales of 24.3 billion in 2Q, 15.2% ahead versus the same period last year. Same-store sales growth was at 9.4%, a turnaround from minus 14.4% in 2Q 2021, driven by a higher transaction count despite lower basket size. Consumers are shrinking their purchases or buying cheaper items in response to the high inflation that reached 6.1% in June. The reinvented Shopwise Antipolo store, which was relaunched on May 26, has also started to make positive contributions with an average daily sales improvement of 38% versus pre-launch ADS. Supermarket year-to-date net sales ended at 46.7 billion, up by 10.8%. E-commerce as a percent of sales grew to 3.5% in first half from 2.9% the previous year. With the opening of the economy, e-commerce sales contribution in 2Q has softened to 2.8% versus 3.9% in the same period last year and 4.2% in first quarter of 2022. Gross margin improvements were attributable to higher transaction count coupled with higher prices, increase in indent penetration across all banners, improvement in assortment mix. EBITDA margins were at par versus last year, as cross-margin improvements were offset by additional expenses from the new stores, still underutilized new distribution center in Pampanga and lower-end concessions. As of the end of June, there were 145 Robinson supermarkets, 91 Robinsons Easy Mart, 16 Shopwise, 35 The Marketplace, and 13 No Brand Stores, for a total of 300 stores. Next speaker is Finn for the drugstore segment.

Good afternoon. The drugstore segment generated net sales of 6.9 billion, up by 9.4% in the second quarter, and 14 billion in the first half. an increase of 14.2% on the back of healthy SFSB or same-store sales growth and sales contribution for new stores. E-commerce sales also doubled and accounted for 5.9% of our sales in first half of 2022. Lended same-store sales growth of South Star Drug and Rose Pharmacy remained robust at 3.7% in second quarter and 9% in first half with improved sales from mall and supermarket-based stores. void by the effects of election spending. Prescription drugs remained a stock driver of our growth. Gross margin expanded by 40 dips in second quarter and first half to 20.3% and 20.1% respectively. Those pharmacy reflected significant margin improvement as a result of trading terms alignment and other supply chain synergies with South Star Drugs. EBITDA margin grew by 90 dips to 8.9% in first half with continued improvement in Rose Pharmacy. We ended the quarter with 592 South Star Drug and 346 Rose Pharmacy and 2,082 CGT stores. Now I turn you over to Ted Sobono for the DIY segment.

Thank you, Tim. The DIY segment expanded net sales by 14.5% to 3.1 billion pesos in second quarter and 7.2% to 6 billion pesos in the first half. E-commerce sales contributed 3.6% of sales from 2.8% last year. Same-store sales grew 15.5% in the second quarter, a turnaround from minus 0.1% in the first quarter, with transaction count increasing by 14.5% in the second quarter versus last year. This resulted in YTD SSSG at 7.4%. Automotive kitchen and bath and hardware grew the most among the DIY categories. Gross margins were down by 140 bps to 30% in the second quarter and 170 bps to 30.9% due to sales promotions to move out aging inventories. OPEX as percentage of sales fell significantly as a result of increased productivity driven by improvement in sales. This lifted EBITDA margins by 190 BIPs to 12.9% in the second quarter and 50 BIPs to 13.6% in the first half. Our DIY portfolio totaled 223 stores comprising of 181 hand-demand do-it-best, 31 true value, and 11 builders. I now turn you over to Ms. Selena for the department store settings.

Department stores net sales more than doubled to 3.5 billion in the second quarter, bringing the first half net sales to 6.1 billion, a 68.9% increase from last year. Same store sales advanced by 94.5% in the second quarter and 55.9% in the first half. Shoes, bags, and luggage and apparel continue to be the top categories in due to the easing of travel restrictions and as people started going back to their offices. E-commerce grew 34% versus last year and accounted for 0.9% of sales. Gross margins advanced by 100 bps to 30.3% in the second quarter and 80 bps to 30.5% in the first half, coming from the increased share of outright sales. Strong top-line growth more than compensated for increased OPEX to improve EBITDA margin by 650 BIPs to 8.4%. Robinson's department store ended the quarter with 50 stores. I'll now turn you over to Suresh for the convenience store set.

Thank you, Ms. Suresh. Previous net sales accelerated by 37.3% to 1.6 billion and 16.5% to peso 2.6 in second quarter and first half respectively. E-commerce sales rose to 2.9% of sales from 2.6% last year. Same-store sales surged by 34.6% in second quarter and 19.3% in the first half, given spike in the transaction count by 35.8% and 21.1% respectively. On the top of the new product launch and consistent marketing promotion, the number of stores open for 24 hours also grew to 401 store from 291 last year. In terms of cluster, BPO and commercial area, where 55% of our stores are located, leading the growth with SSG of 46% and 31% for second quarter and 52% and 30% for first half. Gross margin and royalty income expanded by 580 bits and 330 bits into 38.6% in second quarter and first half, respectively, as RTE products continue to increase its share in the sales mix. EBITDA margin expanded by 740 bps to 10.7% in second quarter and 570 bps to 10.3% in first half, given strong sales coupled with the improvement in gross margin and push in the RTE-CBS sales mix ratio and control in effect. I'll head over to next speaker, Mr. Jovi, Group General Manager of Appliance Section. Thank you.

Thanks, Suresh. Net sales for the specialty segment grew by 26.5% in the second quarter to 3.6 billion pesos, with year-to-date sales at 6.7 billion. Bulk of the sales came from the appliance and consumer electronics segment. E-commerce sales was at 2.1% for the first half. For the second quarter, e-commerce sales as a percent of sales had eased to 1.8% from 3.1% last year and 2.6% in the first quarter. SSSG remained robust at 24.1% in second quarter, with all formats contributing double-digit growth. This resulted to a significant jump in year-to-date SSSG to 22.7%. Blended gross margin expanded by 150 bps to 25.5% in the second quarter and 20 bps to 25.8% in the first half. The strong SSSG helped by gross margin gains lifted EBITDA margins by 210 bps to 9.9% in the second quarter and 130 bps to 9.9% in the first half. The specialty segment ended with 281 stores for the period. The next speaker is Ms. Mylene Casiban, our CFO.

Thanks, Jody. Moving on to our working capital, Robinson's retail cash conversion cycle was 23.2 days in the first half versus 14.2 days last year, still reflecting faster payment to vendors. to be given priority to load up purchases at lower prices before vendors affect price increases. Moving on to our balance sheet, our cash and cash equivalents plus liquid marketable securities at 22.6 billion as of June. We are in a net cash position of 14.9 billion with borrowings of 7.7. Our ROA and ROE increased to 4.3% and 8%. driven by higher profitability coupled with increased dividend payout and our continued share buyback program. In terms of KPEX, we have almost doubled to 1.7 billion, with 72% of the KPEX spending going to the supermarket segment, as we added new stores and renovated shopwise. Supermarket opened 15 stores in the first half of this year. I'll turn you over to me, Robina Gokowicz.

We'll move on to company highlights. As reported by Stanley earlier, the reinvented Shopwise at the Apollo store was relaunched on May 26. From then, we're already seeing a lift of 38% in average daily sales from the pre-launch period of January to May. Their invention aims to give Shopwise a more upscale look, attracting the insulated shopper. We're targeting to complete the renovation of Shopwise Makati by 2020. the late third quarter, and will continue to renovate the rest of the Shopwise stores following this format. Now, Southside Drug launched its first drive-thru store on June 17 in Muntinlupa. The additional service was welcomed by our customers, evidenced by the 40% drive-thru sales share to total store sales. On our digital investments, Edamama had its Series A funding round where we participated with a US$2 million additional investment. Our HI initially invested US$2 million in 2021 during the pre-Series A funding. With the latest investment, our stake is currently at 12.3%. The pre-money valuation for Series A was $45.6 million, which was 4.6 times of pre-Series A pre-money valuation of $10 million. The total raise was $15 million. And the lead investor for the round was Alpha JWC, the largest early-stage venture capital fund in Southeast Asia. Edabama is an e-commerce platform for mothers in the Philippines to shop for childcare products and services. RHI, through New Day Ventures, also invested in an instant commerce play called Dart and invested US$800,000, equivalent to a 15% stake, based on a pre-money valuation of US$4 million. Total raise was US$1.3 million. Dart is a quick commerce business, which is based on Germany's Gorillaz. Europe's largest Q-commerce player. Robinson's will serve as the primary supplier of the business selling products to DART at 5% margin, and will also enjoy 50% of volume incentives coming from the purchases. Now, South Star Drug, with the support of our trade partners, hosted a health fair for employees from June 28 to 30 at the head office. During the three-day health fair, employees availed of free consultation, and screenings. A lecture series on health topics was also held with experts from various medical fields. And finally, Robinson Supermarket, Marketplace, and Shopwise partnered with Woolworths of Australia for World Hunger Day. A portion of the profits from Woolworths sold from May 20 to June 20 was donated to support Thrive Foundation's work. in providing underprivileged Filipino children with daily school meals. Over 400,000 pesos was raised benefiting 66 Filipino school children. We are pleased to welcome our new independent director, Mr. Cesar G. Romero. He will be replacing Antonia Goh, who had been RRHI's independent director for nine years. Cesar served as president and CEO of Shell Philippines from 2016 to 2021. Prior to that, he served in various capacities in Shell for more than three decades. He was a member of the Shell Global Retail Leadership Team, which set policies, targets, and capital allocation for Shell's downstream retail business composed of over 43,000 petrol stations. He obtained his BS in mechanical engineering from the University of the Philippines and MBA from the University of Michigan. Finally, here is our 2022 guidance. Net store additions of 100 to 150. Organic capital expenditures of between 4 billion to 6 billion pesos. SSSG target of between 5% to 10%, gross margin guidance of 20 BIPs to 50 BIPs improvement, and e-commerce target of between 2% to 4% of total sales. At this point, we will now open up the call for Q&A.

So our first question is from Maria Victoria Tabora. So she extends her congratulations for grade two, well, second quarter 2022, first half results. So just two questions from her. So what are Rose Pharmacy's sales, GPM, and EBITDA margin in 2Q? 2Q? Yep.

Yeah, 2Q.

Sales is 2.24 billion pesos. GPM is 19.6%. And EBITDA margin is 4.4%. Sorry, 7.5% after PFRS. All right.

Thank you. We received also a bunch of questions beforehand. Can you give us some color on the progress of GroSari in penetrating the Sari Sari stores? Do you think it's having an impact on the likes of competition like PureGold? Would anybody like to answer the question? Some color on the progress of GroSari.

GroSari sales have in terms of sales, Rosario has obviously progressed. In terms of whether it has affected Pure Gold, you know, I, sorry, this is Robina, I would not know. I think Pure Gold will know the answer more than we do.

Okay.

All right, thank you. So now we have another question. So what are the competitive dynamics in Mindanao and the Visayas? How are your stores in terms of profitability in these areas? And if they are profitable, how do they compete versus the stores or the competition in these areas?

Uh, okay.

Hi, Stanley here for the supermarket segment. I think in terms of, you were asking about how is the profitability of stores in the size of Mindanao compared to here in Luzon, right? Generally, it's slightly better, just slightly better than Luzon. Rent are generally cheaper in besides in Mindanao, but then freight expenses, they've gone up so high that the average increase is now almost 40%. So that somehow diluted the savings from lower rent. So there, in terms of profitability, it's just slightly better. In terms of growth, though, Visayas and Mindanao are actually leading the sales growth right now.

All right, thank you. So what is the sales contribution of Grossary in the first half?

For the total RHI, it's around 3, 3.5%.

All right. Thank you. So can you give us some color in the market segment that RRHI supermarkets target? How are they vis-a-vis the current high inflationary environment? And have we seen demand destruction or down trading? So can you give us some color in the market segment that RHI supermarkets target? How are they vis-a-vis the current high inflationary environment? And if we're seeing demand disruption or down trading?

Hi, Stanley again. For the supermarket segment, I think we're so far trending pretty close to our targets. There are inflationary pressures. So we are seeing a lot of downgrading, downsizing from customers. But then our products being basic commodities, I think that people still consider it as a primary need. So therefore, in terms of effect to total sales, it's not that visible. We're only seeing a downgrading of their baskets, general ticket.

All right. Thank you. So now another question from Carissa Magpayo. So for the specialty stores, what was the driver of GPM improvement in quarter two? just generally a higher top line in improvement of margins across formats even the higher issues all right and then another question from from uh carissa so for cvs how much did rte products contribute to sales in the first half of 2022 versus the first half of 2021

Hi, I'm Suresh. The contribution of RT is 38% out of total sales. First 2021 was 32%.

All right. So another question for our supermarket segment. Have we implemented price increases in quarter two? And are there more programmed price increases in the third and fourth quarters? There are a lot.

There are a lot of price increases in 2Q within the average of 7% to 8%. In this 3Q, yes, I think we are continuously seeing a lot of price increases as well coming from our vendors.

So another question for the supermarket segment. So is it possible to break down the 9.4% supermarket SSSG in Q2 2022 to lower basket size and higher transaction count? Which specific formats are seeing the highest impact of lower basket size?

yeah uh for that transaction count for supermarket in 2q it's up 22 percent and basket size down 12.6 percent which specific formats are seeing the highest impact of lower basket size so it's seen across all formats yes um but uh

Yeah, it's seen across all formats. The lowest, the smallest effect is seen in the marketplace.

All right. And then another question from Nadine Bautista. Can we please have the breakdown of the 29 million other income in Q2?

29 million in WML. 26,468. 26,468.

The breakdown for the other income is the interest income is 77 million. Forex gain is 253 million. Dividend income of 43 million. Equity earnings, 114 million. Interest expense, this is for the PFRS-16. Plus, yeah, including the interest expense, 478 million negative and others of 20 million. For a total of 29 million.

All right. Thank you. So can we get an update on GoCart? Overall, what percentage of sales does it contribute now?

This is Edna Villesa of GoCart. GMB grew by 45% in the first half of 2022 versus 2021. And our percentage contribution to the supermarket e-commerce business grew by two points from 24% last year to 26% this year. But with the faster growth of e-commerce sales to mobile sales. But because of the faster growth in offline, we are about All right, thank you.

So is there any change in consumption patterns in the current inflationary environment? And how does the company manage its inventory risk?

Inventory risk. We're also with you, right?

Yes. Wait, what's the first question? Change in consumption pattern in the current inflationary environment.

Okay, so we're seeing a lot of downgrading, trading down. Some of what we're seeing is constrained customers switching to less expensive brands. Now, in terms of... risk to inventory. I think we keep a healthy balance between maintaining a good level of inventory plus a little of a hedge coming from because of the price increases.

All right, thank you. So for the department stores, are we witnessing a resurgence with the likes of SM Retail? Is this also true for RRHI? So are we witnessing a resurgence for our department stores? And then can we have a bit of color on RRHI's department store appliances business and how it has been benefiting from the reopening?

This is Selena for the department store. Yes, we are benefiting from the reopening. Department store net sales has doubled in the second quarter. And for the first half of the year, we're up by almost 69%. And our same stores also grew by 94.5% in the second quarter, driven by apparel, the increase in apparel sales, shoes and luggage due to the easing of travel restrictions and also because people are going back to work.

Yeah. All right. So, Next question.

For the appliances.

This is Jovi for the appliances. It's following the same trend as department stores. We're seeing an increase in terms of foot traffic and transaction counts, as well as in high value segments like gadgets, mobile phones and laptops, as well as kitchen appliances too.

Great. So a question from Tin Heng Lui. How should we look at the SSSG in the coming quarters given the inflationary pressure? Have you seen any impact to consumption patterns compared to earlier months?

For the month of July, as an example, we're still at low teens since their sales growth. And August of last year, there was a lockdown. So we're coming from a low base. So we expect positive same-store sales growth as well in August.

All right. So another question from Nadine Bautista. Can you share more color on the two department store closures in Q2 2022? Yeah. Yeah.

Okay, for the two department store closures, one of them is because of the mall redevelopment, so we really had to close. And for the other store, we're relocating to our own mall in Gapan.

Right. And then can we please have the breakdown for the new 100 to 150 store openings guidance on this? And which segments are driving the lower guidance versus 140 to 150 store openings at the start of the year?

So right now, in terms of net store opening, we're looking at around 45 for the supermarket, around 90 to 100 for the drugstore business. DIY, we're looking at net around 10. Convenience store though, we're looking at around net closure of 30 stores for the year. Department store will be no addition.

Will there be one?

One addition. And then for the specialty will be the balance. which is, I think, a net additional 10 to 15.

Great. So a question from John Teh. What's driving the GM expansion in supermarkets, protection orders, or others? And if we are confident to sustain margin expansion in the second half of 2022, given that competitors seem to be guiding for lower margin to expand market share?

So the drivers are protection order, fire indent penetration, and new store opening fees. And if we are able to sustain this, you know, we're still seeing a huge amount of price increases coming in. So with that, it goes without saying that we will continue to get some protection orders. I think we will be able to sustain this probably, but on a lower level, but I think it will still be higher.

All right, thank you. So question from Fasine Retanaler. For a longer-term view, can you give us guidance in store network expansion potential of each segment in the next three to five years?

I think for supermarket, we're already like, on the average, probably opening 30%. 30 to 50 new stores a year. More of the Easy Mart format stores. Drugstore will be around 100 per year. CVS, I think we will be starting our next store addition starting next year. DIY will be around 15 to 20 new stores. And specialty will be 20 to 40 new stores across all formats under specialty. And then for the department store, it depends on how many new Robinson Smalls will be open.

All right. A question from Stephen Gabriel Oliveros. So just want to ask, how is the company affected by the rising interest rates? And can the company share how much of your debt has been fixed and floating rates?

Yeah, our debts are actually, the interest rates are floating for our debts and we dilute it on a monthly, generally on a monthly basis. We continue to reduce our loan exposure And most of the borrowings are due to expansion in the acquisitions.

All right. Thank you. And then another question from Facine Reton Alert. Can you update on the share buyback program you've done and the remaining in the pipeline?

We have purchased so far 5.25 billion pesos. So we have 750 million remaining for our share buyback program.

All right. So those are our questions so far. So we'll give you some time. If you have any more questions you'd like to ask, please send them through to the Q&A function.

Thank you, everyone. I'll see you at the next earnings call.