Robinsons Retail Holdings, Inc.

Thank you for joining our first quarter earnings call. I am Gina Bifani, the company's investor relations officer. The participants from our company for this call are the following. Our CEO and President, Mr. Rina Gopamriti. Our COO, Stanley Kopp. Our CFO, Ms. Nayin Kasimba. The Group General Manager of Robinson Supermarket, Ms. Christine Duarez. The Group General Manager of our Drugstore Business, Ms. Joanne Arceo. The Group General Manager of Robinson's Department Store and Toys, Ms. Elina Chua. The Deputy General Manager of True Value, Don Don Gao. The Group General Manager of our Appliance Test Dispatchment, Mr. Joe Bucercos. the general manager of Uncle John's, Ms. Donna Lott-Yonzo, and the CEO of HB Retail Holdings, which operates OC, Mr. Jonas Nguyen. This presentation will cover the following, as you can see on the slide, the company's financial performance, for the first quarter of this year versus last year, an update on our store network, and recent company developments. The P&A section will follow up to the presentation. As a reminder, for the P&A section, please use the P&A function on your Zoom dashboard to type in your questions. We would appreciate if you will limit your questions into three, and then you can fill back in with your additional questions. With this, I will turn you over to our Telco Sandy. I'll see you over.

Thank you, Gina. Good afternoon, everyone. Here are the highlights of our results for the first three months of 2024. Consolidated net sales grew by 2.9% to 45.9 billion. Net sales growth of 0.9%. Gross margin increased by 3.6% to 10.9 billion. EBIT of 1.9 billion up by 3.4%. Cornet earnings increased by 8.5% to 1.2 billion. And net income to parent came in at 5.1 billion. This is 9.5 times higher versus last year, mainly due to a one-time gain from the DPI-Wallace Bank merger, which closed earlier this year. Earnings per share likewise increased substantially to 3.49%. 9.6 times higher. Consolidated net sales came in at 45.9 billion, up by 3.9%. Same-store sales growth has normalized after coming from an unusually high base in the past two years. In addition, a number of our discretionary formats were temporarily closed for two days during the whole week's holidays, which took place in March, affecting sales for the quarter. Our drugstores, and food segments posted positive growth for the partner as they continued to benefit from sustained demand. This is a more detailed picture of our P&L in Q1. Gross margin expanded by 20 bps to 23.8% on assortment changes and continued vendor support. Even growth by 3.4% to 1.9 billion driven by higher sales and gross margin expansion. Net income to parent increase from 537 million last year to 5.1 billion this year, largely due to the one-time gain from the BPI and Robinson's plant merger, and core earnings, which excludes the one-time gain from the merger, forex, interest income from bonds, equity earnings from associates, interest expense and dividends related to the BPI share, and other came in at 1.2 billion, up by 8.5%. In terms of segment contribution, the stable businesses, namely food and drug stores, accounted for 80% of our total sales and 84% of total EBITDA, respectively. Meanwhile, our discretionary formats, namely the department stores, DIY stores, and specialty stores, comprise 20% of the total sales and 16% of total EBITDA, respectively. Our store count in the Philippines stood at 2,399 as of March 2024, comprising 756 food segment stores, 1,072 drug stores, 50 department stores, 224 DIY stores, and 297 specialty stores. We also have 2,120 franchise stores of TGP. For year-to-date March, we opened six stores under the supermarket and drugstore banners. We usually accelerate our store openings in the second half of the year, all of which come from our food and drugstores. Turning you over to Pin Pueres for the food segment.

Thanks, Tan. Net sales for the food segment increased by 3.4% in the first quarter of 2024 to 28.1 billion, with same-store sales growth coming in at 1.7%. Our top line has normalized after a strong performance last year, which saw net sales growing by 18 and same-store sales growth up by almost double digits. We saw a 30-dip improvement in gross profit margins in first quarter of this year to 22.8%, due to increased penetration of important products, sustained demand for Uncle John's ready-to-eat categories, which are high-margin and continued vendor support. Kibita was slightly higher at 2.3 billion as the growth in gross profit was offset by expansion-related costs. Now I turn you over to John for the drugstore segment. For drugstore, drugstore net sales rose by 10.4% in Q1 to 8.8 billion on strong same-store sales growth and fresh contributions from new stores. Blended SSSG of South Star Drug and the Rose Pharmacy Accelerated to 6.5%, driven by sustained demand for prescription drugs and over-the-counter medicines. Gross margin expanded by 10 bps to 20.9% due to increased penetration of house brands. Meanwhile, addictive grew by 8.9% to 752 million, slightly lower than offline growth due to store expansion and incremental VC costs. Turning me over to Selena.

The first quarter net sales of the department store segment declined by 2.2% to 3.2 billion with same store sales growth at negative 2.1%. The decline in revenues can be attributed to stiff competition from fast fashion brands and the timing of the March 2024 Holy Week holidays as a number of our stores did not operate for two days. Meanwhile, an increase in vendor support and higher DCPs led to a 30-bits lift in gross margins to 31.4%. Higher GPM augmented by cost efficiencies enabled Vita to remain flat year-on-year at 141 million despite slightly lower revenues for the period. Let me turn you over to Don Don for the DIY section.

Thank you, Talia. The DIY segment recorded a net sales decline of 6.2% to 2.7 billion with SSG at minus 6.5%. This is due to intense competition while new inventories to replace stock collection will start to arrive in people's issue. Meanwhile, the temporary closure of some stores during the Holy Grail holiday in March also affected sales. Despite the reduction in the net sales Gross margin expanded by 40 leaps to 33.2% due to assortment improvements. The improvement in gross margin had a mitigating effect on the EBITDA, which recorded a decline of 3.7, relatively slower than the decrease in revenues. Next speaker, Joel.

Good afternoon. Net sales of the specialty segment in the first quarter of this year declined by 6.4% to 3.1 billion. with negative SSSG of 7.1%. This was due to the temporary closure of stores for two days during March 2024 holding week, reduced demand in Saver's appliances sub-dealer and corporate channels, which have gone straight to the vendors, and low fill rates in Daiso affecting mass merchandise sales. The low fill rates in Daiso, however, are already being addressed. Meanwhile, sales of the beauty and pet retail formats continue to exhibit double-digit revenue growth. Gross margins improved by 100 bps to 29.1% due to increased vendor support, higher DC fees, and savers' transition to the higher margin retail channel. Despite this, EBITDA declined from 245 million in the first quarter last year to 149 million in the first quarter this year attributed to lower sales and higher operating expenses.

You know what I mean? Yeah. Moving on to our working capital, RHI's cash conversion cycle rose to 25.6 days in June from 22 days last year. The increase in June higher inventory days in June this year at 79.6 versus 76.8 last year, as well as increased stocks of event products, which we are seeing a strong demand. Moving on to our balance sheets, we are in a net debt position of 8.2 billion as of March 2024. Our total borrowings were 21.3 billion, mainly due to the acquisition loan for the BPI shares repurchased in January 2023. As of March 2024, our debt related to the BPI share purchase amounted to 13.3 billion. Even with a net debt position, our balance sheet remains healthy with a net debt-to-equity ratio of 20.0 million. ROA and ROE in the 2012 months basis came in at 5.5% and 10.7% respectively in Q1 2024, both higher than last year due to the one-time gain from the big guy ARBAC merger, which we booked in Q1. In terms of capital expenditures, organic capex for all segments in Q1 came in at 8.6 million versus 6.85 million last year. While our 37% active expense in the first quarter went to the food segment, 22% for drugstores, 13% for department stores, 8% for DIY, and 20% for specials. So now, I'll take it over to Ms. Yumi.

Now, allow me to update you on some of our minority investments, mainly OSAID and Rotary. We have a 23% stake in OSAVE, the hard discount grocery chain established in 2021. OSAVE serves as our entry into the hard discount category. As of March, OSAVE's store count in the Philippines increased to 238 stores versus only 90 in the same period last year. Sales have grown 2.8 times year-on-year to 47 million US dollars with a share of privately owned total sales continuously increasing. However, he did die still in negative territory due to aggressive store expansion. Most of OTA stores are located in Munzon, particularly in Bulacan, Pampanga, Rizal, and NCR. Operations are currently supported by three distribution centers. G2M Solutions, the parent company of Grocery, a tech-enabled platform that helps the broader Philippine population gain access to products and services through the network of 2 million MES nationwide. Rosari currently has around 100,000 monthly active stores and operates in 23 key cities across the Philippines. Total platform value reached $750 million in 2023. a 40% increase from the previous year. Aside from being an investor, we also collaborate commercially with Grozari. Robinson Supermarket procures Grozari's FMCG requirements, which the latter sells to the stores. In the first quarter of 2024, RRHI sales to Grozari amounted to 2.7 billion pesos, up 10% year-on-year. The partnership also allows us to gain stronger leverage with suppliers in terms of procuring merchandise. RHI has infused a total of 17.6 million US for a 14% stake. Free money valuation for the Series C funding round was 3.3 times higher versus the Series B free money valuation. Our investment has gained 230% based on the post-money valuation of the company at that time. Back to Stanley, we'll discuss some key developments across the business.

Now let me update you on some key developments across the business. Effective May 1, our supermarket segment, comprised of Robinson Supermarket, The Marketplace, Shopwise, Robinson's Easy Mart, No Brand, and convenience store segment, Uncle John's, will be joined to form a new division called the food segment. This segment will be comprised of two clusters, the big format and the small format. And with the formation of our new food segment, we are happy to announce the following appointments effective May 1, 2024. Tim Tuarez, current group GM of Robeson Supermarket as managing director for the big formats. Linda Jesus, current GM of Robeson's Easy Mart as group GM for small formats. Kerwin Ligarde, current GM of the marketplace in Shopwise as Group GM of Robinson's Supermarket. Mahe Maglayo, current merchandising director of Robinson's Supermarket as GM of Robinson's Easy Mart. And Donna Leoncho, who we appointed as GM of Uncle John's in February, also joins the full segment. Our food and drugstore segments recently hosted their respective trade partners' night to thank partners for their contribution in 2023 Our supermarket recognized Sanitaria Care Products Asia as its top partner, while Uncle John recognized Oleofax Inc. Meanwhile, the Trade Partners Night, hosted by our TalkStore segment, was its first-ever Trade Partners Night with Haleon Philippines winning South Star and Rose Platinum Award, and Ambika International winning PGP Supplier of the Year Award. Finally, PGP held its annual Franchisee Summit on February 29, 2024 with over 500 franchisees from across the country in attendance. The highlight of the summit recognized our top franchisees for their commitment to excellence. Moving on to our guidance for 2024. These numbers are unchanged since the last briefing. We are looking at the net store addition of 100 to 120. Both of the store openings for the year should happen in the second half. Next, we are aiming for a blended SSSG of 3% to 5%. On margins, we are guiding for 10 to 20 bps GPM expansion. This takes into account the impact of lower margin growths in business. And finally, we are earmarking $4 billion to $6 billion for organic capital expenditures. This ends our presentation for the full presentation. For the Q1 results, we will now open the virtual floor for Q&A. Thank you.

Good afternoon. We will prioritize reading questions sent via the Zoom Q&A facility. But if you would not like to ask your questions live, you can do so using the raise hand function. If you prefer this option, please do not forget to introduce yourself and identify as well the company that you are working for before you ask your questions. Okay, so our first set of questions are coming from Joyce Ramos of CLSA. First, I'll just read this one by one. First one is, may we get details for Uncle John's net sales growth, SSSG, gross margin, and commitment margin?

Yeah, net sales growth rate is around 1.5% for Q1. Same-star sales growth of 5.9%. 2 p.m. of 38.5% and 38.2%. Thank you.

Joyce has a follow-up. She's asking for the food segment margins excluding Rosary and Uncle John's.

It will be higher by 50 days as well.

Okay. And then Joyce has a question. Can you give more color in the specialty segment, specifically on the appliance business? Yes. How are competitive trends faring and how are you seeing demand from your customers?

Hi, yes. Consumption counts have increased, but basket sizes have remained flat. Key categories that have been selling are in air conditioners and certain sub-segments in kitchens like refrigerators and cleaners.

Thank you. Next set of questions, Nadine Bautista from J.P. Morgan. She's asking a bit again about food segment. Can you ask for comparable figures for supermarket-only sales growth and excess eating margins for the first quarter?

For market-only?

Yes.

We got Afrojams?

Yes.

This is it. And then the second question, what are the efficiencies?

expected upon transfer of the CVS business to the food business or the food segment? Should we expect higher margins for the food segment following this integration?

Hi, Nadine. I guess the biggest would be opportunity to align trading terms and it would eventually lead to higher gross margins.

Okay, next question. We have Diep, the CM, raising his hand. Go ahead, Diep. Please ask your question.

Hi, thanks for taking my questions. I have three quick questions. First one is on the other income. I think in the previous quarters, you used to have a slide. Here we go. Yeah, thank you very much. So I was asking for this slide. Okay, thank you. And then the second question is, in terms of the SSSG, just wondering if you can comment whether this has bottomed in the first quarter, meaning sequentially from here, it's just going to improve? If not, it means either potential to revise down the guidance in the following quarters? And the last question is, in terms of the loan that we got for the BPI shares, I'm just curious, Lenny, why don't we pay faster, given this has been a drag on our income, right? And we still have a lot of cash on hand. Thank you very much.

For the BPI loan, actually, we are planning to pay between $2 billion this year. Right, yeah. It should be... We're looking at around 10 billion. We're looking at ending around 10 billion this year and possibly lower depending on the results. So we should be able to be faster versus our original projections. On the same-size sales growth, and we're coming from a high risk last year, If you're going to look at the same-store sales growth last year on a quarterly basis, it's actually trending down. So I'm meaning the base for the succeeding partners will be lower. Hopefully, we should be able to recover from the... It should be slightly higher than what it is right now.

So on this... Yeah, so on this, if I press a little bit further, I mean, on the monthly basis, you know, just curious, I mean, for March, for example, the SSSG for March, how is it compared with the first quarter average of 0.9%? And then based on what we are seeing in April, have we seen any, you know, basically pick up in SSSG in April? Thank you.

Yeah.

In March this year, because we have the two-day holidays, which affected sales for most of our formats. In April last year, it was actually our winter holiday was in April last year, I know. So the days is lower. So far, I think we're okay so far.

Okay, so it doesn't mean in April you saw some pickup in April. Just want to make sure I understand what's going on. Okay, thank you very much.

Thank you, Yip. Going back to the Q&A box, we do have a few more questions. Fasina sent two questions. The first one is how much was interest expense in the first quarter related to borrowings to acquire the BPI shares?

It's around $400 million.

Thank you. Fasin, second question. Could you share sales contribution of imported products and ready-to-eat products for the food segment and the contribution of house brand sales in the drugstore segment? Maybe we can take the food segment first.

The percentage of imported products in the first quarter is around Thirteen and a half. Thirteen and a half percent. For total sales of supermarket. For the ready-to-eat, that's the other question. For the ready-to-eat, just for ample chance, it's almost 40%. It's actually 40%. For drug stores, it's close to 10% share of house rentals for total drug stores.

For... Thank you.

Next set of questions from Ken Guilito. First one, is the company considering to access the capital markets both for debt and equity to finance CapEx for this year or for the remainder of this year?

No.

Okay, no. Next question, is the company open to exploring potential joint ventures for the establishment of concept stores, new concept stores? No. We can consider. All right, thank you. Next question from the Q&A box. This is from Stephen Oliveros of China. How should we look at the performance of your discretionary formats in the balance of this year given constrained consumer volumes?

Well, I think for the quarter, we've seen beauty and pet retail formats grow. we've addressed the problem at Daiso. And we are looking at improving our assortment by offering broader choices, multiple price points to consumers to ensure that we serve a broader demographic. Thank you.

Joyce Ramos of CLSA has a follow-up question. Given the slower same-store sales growth for the discretionary segments in the first quarter, Are we still expecting this segment of performed staples?

I think staples will be the driver for load per pursuit.

Thank you. Pasin, I have some follow-up questions. Excluding the timing or, sorry, excluding the impact of timing difference for the boundary, what would SSG do? of the discretionary formats available.

I think we should wait until the end of April. It will add March, just April.

OK, next. Thank you. Next question is from . What is the outlook for the DIY segment? Is the weakness coming mostly from weak demand?

Yes.

The weakness is coming from I think we need a change in assortment. I think we were left with some aging stocks all the way back from COVID when we could not open. It's a matter of newness of merchandise.

We'll come back. All right. Nadine of JP Morgan has a follow-up question. How much of the P146 million equity losses are coming from GoTime and OSAFE?

We stopped. We did not equitize GoTime anymore. OSAFE is around P100 million.

Okay. And then Nadine has a follow-up question. Given the need to change the assortment for the DIY business, Is there any chance of impairment of full inventory?

Yeah, so there's none. That has already been captured last year. So expect that there will be no more pressure on margins this year.

Just a reminder for the audience on the floor, if you still have any questions or want to clarify anything from the presentation, please send them through the Q&A box, or you can just simply raise your hand and ask your question back. Okay, Stephen has a follow-up question. How much was the one-time gain from the BPI and Robinson's math merger?

Both of the other income there is BPI.

Okay, yeah, thank you. Someone's raising his hand up. Okay, Johnny Manahan, please go ahead. Hello? Okay, not here. Yeah, we'll just go back to the Q&A box. Sorry, the question is from Rainier Yu. What was the nature, again, of the one-time gain from the merger of BPI and Robinson's?

Yeah, it's just the difference in the value of Robinson's lab in our groups versus the value of the shares of BPI in exchange for the arm actions.

Thank you. Nadine Bautista has a few follow-up questions. Are promotions shared by retailers and manufacturers? Is supermarket also a shouldering part of value promotions to push sales volumes? Are we seeing increasing or increasing levels of supplier support from vendors or manufacturers?

Which ones are actually... Normally, it's actually supplier-initiated. So normally, that is actually being reimbursed to us by the suppliers. Seeing increasing levels of supplier support. Yes, we are actually seeing an increasing support from the supplier to the manufacturers. There are more promotions now given the situation.

Thank you. Another question from here. Can you share more color on ticket size? traffic for supermarkets and store sales, can we still see lower ticket size and higher traffic for this year?

Yeah, okay.

Consocks for income is up 11%, basket size is down by 9% in the supermarket.

Thank you. Hi to the audience, if you have follow-up questions, please do send them over through the Q&A box. All right, there are no more questions coming in at this point. We can now end this forum. Thank you very much, and see you at the next earnings forum.