Robinsons Retail Holdings, Inc.

Good afternoon, everybody. Thank you for joining us to review Robin's news details. I'm Alita Rispoks for the first half of 2024. I am Gina DiPaoli, the company's investor relations officer. The speakers for this call are the following. Our president and CEO, Ms. Rubina Lokmoy. Good morning, everyone. Our CFO, Ms. Maylene Casivan. The Managing Director of Robinsons Supermarket and Marketplace and Shopwise, Ms. Christine Juarez. The Group General Manager of the Drug Store Segment, Ms. Joanne Arceo. The Group General Manager of Robinsons Department Store and Toys, Ms. Elena Chua. The Group General Manager of DIY and Pets, Ted Sobono. The Group General Manager of Appliances Segment, Mr. Jody Santos. and our Conference Secretary, Attorney Bill Rivera. That is the agenda for this afternoon. We will provide an overview of our financial performance and highlights, and we will also share key updates across the organization. As a reminder for the Q&A session after the presentation, please use the Q&A function on your Zoom dashboard to type in your questions. We would appreciate if you can limit initially to a maximum of three questions, including follow-ups, so we can accommodate as many participants as possible. We'll bring you back into the Q&A box for additional questions. You may also use the respond function if you would like to ask questions live. With that, I will turn you over to Stanley, our CEO, to discuss the financial guidance.

Good afternoon. Here are the highlights of our results for the second quarter of 2024. Consolidated net sales grew by 3.1% to 47.8 billion. Standard same-store sales growth of 0.5%. Cross-profit increased by 5.2% to 11.6 billion. EBIT of 2.2 billion, up by 7.3%. And coordinate earnings increased by 15.3% to 1.5 billion. Net income to parent of 1.7 billion. 36.2% higher versus last year. Meanwhile, here are the financial results for the first six months. Consolidated net sales of 3% to 93.7 billion. Blended same-store sales growth settled at 0.7%. Cross-profit rose by 4.4% to 22.5 billion. EBIT amounted to 4.1 billion, higher by 5.5%. Cornet earnings grew by 12.1% to 2.6 billion, and net income to parent came in at 6.8 billion, 3x times higher versus last year, mainly due to the one-time gain from the BPI-Observant merger, which was booked in the first quarter. Blended SSSG came in flat due to stick inflation, stiff competition, and the heat wave during the summer months, which affected football and street-level stores. In June, however, we saw a pickup in blended same-store sales growth in line with moderating inflation. In addition, spending in our stores in June was boosted by the payday weekend for the month. First half, blended SSSG registered at 0.7%, and revenue of performers in the second quarter were food, drug stores, and the department stores. Gross profit rose by 5.2% in QQ to 11.6 billion due to improvements in category mix and vendor support. This pulled up first half tally to 22.5 billion up by 4.4%. EBIT rose by 7.3% to 2.2 billion in QQ driven by higher gross profit. This brought YDD EBIT to 4.1 billion up 5.5%. Net income to parent rose by 36.2% to 1.7 billion in 2Q due to higher dividend income from BPI and lower losses from associates following the reclassification of go time from an investment in associates last year to an equity instrument financial assets this year. YTD June net income to parent came in at 6.8 million, 3.8. 3.8x higher versus last year, driven by the one-time gain from the BPI measure. Core earnings came in at 1.5 billion in Tokyo, up by 15.3%. Year-to-date June core earnings rose by 12.1% to 2.6 billion. In terms of segment contribution, the staple businesses, namely food and drug stores, accounted for 79% of total sales and 81% of total EBITDA, respectively, in the first half. Meanwhile, our discretionary formats, namely the department stores, DIY stores, specialty stores, comprised 21% of sales and 19% of EBITDA, respectively. Our store count across the Philippines stood at 2,401 as of June 2014, comprising of 753 food stores, 1,082 drug stores, 49 department stores, 224 DIY stores, and 291 specialty stores. We also have 2,148 franchise stores of TGP. For year-to-date June 2024, we opened eight new stores. We usually release our store openings in the second half of the year, with bulk coming from food segment and drugstores. Passing you over to Tim for the food segment.

Thanks, San. The food segment reported net sales of 28.9 billion in the second quarter, a 4% increase from last year, bringing net sales from first half by 3.7% to 57 billion. Same-store sales growth came in at 0.9% in second quarter and 1.8% in the first half. Gross margin expanded by 30 bits in second quarter and 30 bits in first half due to scaled, higher vendor support and sustained demand for Uncle John's high-margin ready-to-eat categories. EBITDA grew by 3.5% to 2.5 billion in second quarter and by 2.5% to 4.8 billion in the first half. The expansion in gross margins was mitigated by higher OPEX from new stores. I turn you over to Joanne for the drugstore segment.

For the drugstore segment, net sales of the drugstore segment rose by 4.1% to 8.5 billion in Q2 driven by contributions from new stores. Year-to-date sales increased by 7.2%. medicines caused by a high occurrence of flu. Gross margin expanded by 30 bps to 21.4% in Q2 due to higher vendor support. Year-to-date June 2024 GPM came in at 21.1%, 10 bps higher. EBITDA grew by 2.2% to 700 million in Q2, slightly lower than top-line growth due to store expansion and incremental DC costs. EBITDA for year-to-date June rose by 5.6% to 1.5 billion. Turning you over now to Ms. Selena.

Debt sales of the department store segment grew by 5.7% to 3.8 billion in the second quarter, driven by spending across categories related to the summer season, graduation, and advanced purchases of back-to-school merchandise towards the end of the quarter. Net sales in the first half reached 7 billion, up by 1.9%. The increase in vendor support from higher DCPs lifted gross margins by 30 bps to 30.8% in the second quarter and 30 bps to 31.1% in the first half. However, EBITDA declined by 2.9% to 248.2 million. The second quarter of 2024 driven by higher rent and personnel costs. Year-to-date June EBITDA came in at 390 million, lower by 1.8%. Let me turn you over to Ted for the DIY segment.

The DIY segment posted a net sales decline of 3.8% to 2.9 billion pesos in the second quarter, with SSSG at minus 3.2% for the quarter. stiff competition, rationalization of aging and duplicate items, and fewer off-site mall selling events this year affected the top line. Net sales in the first half of 2024 came in at 5.6 million pesos, lower by 4.8%. Gross margin expanded by 280 jits to 33.7% in the second quarter of despite the move-out sale of long-standing and discontinued SPUs. This improvement was mainly due to an ongoing replenishment program and introduction of new items. Gross margin came in at 33.5% in the first half versus 31.8% last year. EBITDA surged by 54.2% to 429 million in the second quarter, as OPEX declined due to cost-saving initiatives and closure of seven underperforming stores. It beat the lows by 23.4% in the first half to 734 million pesos. I'll turn you over to Brody of GrandLive Specialty Segment.

For Specialty Segment, net sales declined by 3.1% to 3.7 billion in the second quarter. with negative SSSG of 3.8%. This was due to the discontinuation of commercial account sales in Sabres Appliances and stock availability issues in Daiso. We continued to pivot to the retail channel for Sabres Appliances. Meanwhile, Robinson's Appliances delivered mid-teens growth in the second quarter due to strong demand in the airfare category. Net sales for the specialty segment in the first half amounted to 6.8 billion, down by 4.6%. Gross margins improved by 70 bps to 27.7% in the second quarter due to increased vendor support, higher DC fees collected, and changes in assortment. This brought the year-to-date June 2024 gross margins to 28.3%, higher versus the 27.5% last year. Despite GPM expansion, EBITDA declined to $185 million in the second quarter, attributed to lower sales and higher operating expenses. EBITDA in the first half came in at $334 million, also lower than last year.

Moving on to our working capital, RHI's cash conversion cycle improved 20.3 days in the first half from 25.3 days last year. The lower cap cycle is largely due to higher payable days for the partner. Receivable days and inventory days also slightly include year-in-year. On our balance sheet, we are in a debt position of 8.5 billion as of June 2024, with total borrowing rates of 23.2 due to the acquisition loan for the BPI shares. And as of June 2024, our debt related to the BPI share purchase amounted to 13.1 billion. Even with a net debt position, our balance sheet remains strong with a net debt to equity ratio of only 0.1%. ROA and ROP in the trading 12-month spaces came in at 5.8% and 11.4% respectively in the first half, both prior year and year due to the one-time gain from the BPI-R Bank merger, which we recognized in the first quarter of 2024. On our capital expenditures, Uriahe Capex for all segments in the first half came in at 1.7 billion versus 1.4 billion last year. 53% of the Capex spent in the first half went to food, 18% for drugstores, 11% for specialty, 10% for department stores, and 8% for DIY. Now, I'll turn it over to Ms. Firami.

Allow me to update you on some of our team minorities. Investments may be OSAFE and Grozami. We have a 23% stake in OSAFE, a hard discounter which was established in 2021. As of June, OSAFE's store count rose to 270 compared to 122 stores last year. Sales have increased 2.6 times year-on-year to $97 million. The private label's share of business accounts for 16% of sales in the first half versus 9% last year. Operations are current and supported by three distribution centers. B2M Solutions is 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 MFMEs nationwide. Grocery currently has around 100,000 monthly active stores and operates in 23 key cities. Total platform value amounted to $436 million in the first half, a 25% increase year-on-year. Current free money valuation of Grocery is at $450 million, up 36% from the previous round, which was valued at $330 million. Aside from being an investor in G2M, we procure 90% of growth salaries requirements, which are sold to Sari Sari stores. Now let me pass the floor to Lydia Rivera, our Corporate Secretary. She will report on the leadership transition that we disclosed to the Philippine Stock Exchange last week.

Thank you, Ms. Rubina. We would like to give an update on the recently announced organizational changes in the Board of Directors and Officers of RRHIB. On July 25, 2024, the Board of Directors of RRHI approved the following. As part of leadership transition, Mr. Lance Gohungwe shall step down as Chairman and Director of RRHI and shall assume the role of Board Advisor, also effective January 1, 2025. Ms. Rubina Gohungwe-Pe shall transition to the role of Chairman of RRHI, effective January 1, 2025. And she will likewise be the Chairman of the Remuneration, Nomination, and Succession Planning Committee, effective January 1, 2025. Mr. Stanley Ko shall be a Director of RRHI and shall be the President and CEO, effective January 1, 2025. And he will take the place of Ms. Robina Gohungwepe, who is the current President and CEO of RRHI. Lastly, Mr. Curtis Liu, the incoming food CEO of the BFI Retail Group, shall be a director of RRHI. He will be a member of the Audit and Risk Oversight Committee, effective September 1, 2024. He will replace Mr. Chu Peng Shi, who will be resigning from the BFI Retail Group. Let me just give a brief background on Mr. Stanley Koh, RRHI's incoming president and CEO effective January 1, 2025. Stanley has been with Robinson's Retail for 21 years, joining the company's DIY segment as Division Merchandise Manager in 2003 and appointed as its Group General Manager in 2018. He was appointed Managing Director of the Food Segment on September 1, 2020, and Chief Operating Officer of RRHI on August 1, 2023. He earned a Bachelor's Degree in Commerce from the University of Santo Tomas in 1998, and an MBA from the De La Salle University in 2003. Let me also provide a background on our incoming Director, Mr. Curtis Ewing, who will succeed Mr. Chu Pen-Chi of the BFI Retail Group in our Board of Directors, effective September 1, 2024. The BFI Retail Group recently appointed Curtis as their food CEO, effective September 1, 2024. He has over 24 years of retail experience in mainland China and Taiwan. And he previously served as the Merchandising and Marketing Director for Welcome on BFI Retail and Walmart China. The Board of Directors were pleased to have Curtis to be one of its members. Next will be Stanley for more additional corporate updates.

Thank you, Attorney Lin. Allow me to update you on the other corporate development across our businesses. Last July 25, our Board of Directors approved a $1 billion additional share buyback, increasing the total amount allotted for the repurchase program to $8 billion. Since the start of our share purchase transaction in March 2020, we have purchased a total of 132.8 million, or 9.2% of the total outstanding shares of RHI, worth 6.9 billion. Our pre-flow remains healthy at 29.8% and projected to increase to go down to 28%. We are happy to announce the inclusion of RHI together with JG Summit Holdings in the inaugural Fortune Southeast Asia 500. We ranked 105th in the region, while JG Summit ranked 55th. We were only two of the 38 Philippine companies included in the list. Last April 13th, South Star Drug opened its new 11,000-square-meter distribution center in Pasig City, the company's fourth D.C. This GCN has a capacity of 3,300 pilot positions and can handle 8,000 SKUs. Meanwhile, PGP Open is a new 4,500 square meter GC on June 21 in Consolación, Cebu. This is PGP's second GCN, has 1,400 pilot positions and can handle 1,300 SKUs. We recently brought together close to 16,000 individuals at four events. Pet Lover Center's inaugural Pet Wellness Walk in April, Shopwise First Bike Fest in May, South Star Drugs' 13th Annual Run for Wellness in June, and Robles' Supermarket's 16th Annual Fit and Fun Wellness Body Run in July. Donations were also made to various causes and organizations from proceeds raised from all of the four events, including UTV Le Mans, our Philippine Olympians who are now in Europe for the Paris Olympics, World Vision, Climate Action Non-Profit Core Philippines, and Food Rescue Organization SOS Philippines. 25 RHI executives recently completed the Leadership Management Development Program of the Ateneo Graduate School of Business Center for Continuing Education last June 10, 2024. The course featured a comprehensive six-module curriculum spread over three months that covers subjects available in the regular MBA. Moving on to our guidance for the rest of 2024. We are now looking at an organic net store addition of 90 to 110, slightly down from 100 to 120 previously. Meanwhile, we are now aiming for a blended SSSG of 2 to 4% from 3 to 5%. On margins, we are raising our guidance from 20 to 40 BIPs GPM expansion from 10 to 20 BIPs previously. And finally, we are still here marking 4 billion to 6 billion in organic capital expenditures. This ends our presentation for the first half results. We will now open the floor for Q&A. Thank you.

Good afternoon. So we will prioritize reading questions sent via the Zoom Q&A facilities. But if you would 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 the company that you are working for before you ask your question. We have one question from the Q&A facility. This is from Carissa of Macquarie. What was the SSSG in the second quarter and in the first half for FoodX Uncle John's? How is this broken down between transaction problems? and ticket size.

I agree. So supermarkets, same as for our sales group, it's up 1% for the first half, plus 1%. And then if we look at the second quarter, it's just 2.9%. Sorry, it's a 0.6%.

For the transaction half, it's just 14%, while basket size is down 13%.

Thank you. Next question still from Teresa. What was the net sales Gross profit in EBITDA in the first half, excluding Uncle John's.

Net sales for the first half is 53.7B. GPM is at 21.7% for the first half.

EBITDA is at 8.4%.

Thank you.

Or 4.5 billion.

All right. Thank you. Next question is from Natasha of CLSA. Can you give more color on why there was a downward revision on net store ads and same-store sales growth targets? How about the upward revision on the GPM gains?

For the downward revision of the store addition for this year, it's mainly coming from closure of non-performing stores. we announced that, you know, the margins of DIY actually improved because of the closure of number from the source. On the increase in GPM, as you can see for the first time results, our GPM already rose by 10 to 12 basis.

Good job.

30 dips for the first half of this year. We think that can be sustained for the rest of the year.

Thank you, Gina. Thank you, Natasha, for your questions. Next one is from Christina Ulam. Good afternoon. May I ask what is the meaning of the value of the platform shown on the grocery slide? Sorry, what's the value? The total platform value stands for?

That's the gross merchandise value, the GMB.

All right, thank you. Next question is from Nadine of JP Morgan. What is the current breakdown of store edition targets for 2021?

For supermarket, we're still looking at 25 new store editions. Thank you, Gina. Teresa from Macquarie has a few follow-up questions.

This one, Uncle John's. What the same-store sales growth in 2Q and 1H? And how much did Uncle John's sales grow year-on-year in the first half? And third question, how much did RPE or Ready2Beat contribute to sales in the first half?

Yes, good afternoon, Carissa. In terms of same-store sales growth, we ended the first half at plus 6%. Year-on-year, the growth is at about 4%. And Ready to Eat now contributes 40% of our sales.

Thank you. Next question from, next set of questions from Nadine, again, of JT Morgan. Can you share more color on what grew lower EBITDA margins for a debt store, specialty, and drugstore despite higher gross margins? So what triggered higher personnel and rent expense for the department store business?

Okay, for the department store, the margins are lower because of increased rent, rent expenses, and manpower expenses. And what triggered it is because of the rent escalation that we have and filling up of vacancies for manpower. Okay.

The same for specialty segment, annual escalation of rent and the recently mandated salary adjustment, especially in the province.

For the drug-free segment, similar reason, we have personnel from new stores and also the mandatory wage increases in various regions. I know from the fact and also increase in these costs because of the new warehouse.

Thank you, Marianne. Okay, we can see John there raising his hand. All right, John, please go ahead and ask your question. We will unmute you now.

Hello, hey, thanks for the opportunity. Hello, can you hear me? Yes, yes. Please go ahead. Thanks. I couldn't see the chat box function, so sorry I had to. So two questions. First is maybe we can talk a little bit about the objective or the motivation for the leadership change, especially that I guess this wasn't flagged in the past. Second is maybe we can also talk about gross margin, especially in the food segment. How is it increasing? And we even revised our guidance when competition has been tight and your peers have recently guided that their gross margins are under pressure. So I guess the question is, what's different between yourself and some of your competitors? Thank you.

Since we are a multi-format retailer, we have some segments that we're seeing higher margins. On our food segment, we're also seeing higher margins because of the increasing share of indents and private label. And, you know, the private label and the exclusive. Yeah, and then the exclusive brands, especially Mendels. Yeah, that's much better.

Yeah.

And then for also lesser impairment, so we're seeing better margins for the online business. And the leadership change, the retirement age in RHI is 60 years old. Ms. Rubina is actually just going 63 plus June. Yeah.

I'm trying to remember what the question was. Why is there a leadership transition? The objective, it's a succession planning. I'm already 63.

All right. Thank you, John, for the questions. We're going back to the Q&A box. Next question is from Kenji. How much were the dividends we received from BPI?

Yeah, it's around 600 million. We are on a possible year.

Thank you. Next question is from Stephen of China Bound Securities. First one, given the soft performance of the discretionary formats in the first half, What would be your outlook for these segments for the balance of the year?

Speaking for appliances, we expect sales to improve in the third quarter as we complete the shift of Sabres towards retail sales.

For discretionary, for the balance.

Okay. For the balance of the year for the discretionary form segment, I think we will be seeing improvement in sales, both in sales and margins.

Thank you. Yes, a housekeeping question. What led to the reduction in the effective tax rate in the second quarter? And will this level go for the rest of 2024?

Yeah, we have been implementing tax strategies to improve our

effective tax rates.

And part of it is really shifting the VBI-related loans to the subsidiaries from RSI.

Yeah, we think this should hold for the rest of the year.

All right. Thank you, Stephen, for the questions. Our next set of questions would be from Rainier Yu. First one, can you share the breakdown in the equity and net earnings of associates in the second quarter? And the second one, are we still seeing signs of downgrading, especially for the supermarket segment? Right.

For the first one, it's mostly from OC. Yes, yes, actually not trading for supermarket. We are seeing that. That's why that's the lower basket size.

Great, thank you. Asha has a few set of questions again. This is Tasha from CLSA. So what led to the weakness in CUCU SSSG and EBITDA of the drugstore business? How could this impact growth expectations for the balance of the year?

For the CUCU, the drugstore segment slowed down a bit because of the extreme hot weather. And for the EBITDA, We are seeing this is just a fraud loading of the VC expenses because of the consolidation of warehouses and the investment that we made for the rentals implementation. But we expect this to be normalized and regularized in the second half of the year.

Thank you, Mariel. Next set of questions from Christina Woodall. We'd appreciate to have more further on Greening's contribution of OSAID. Do you have any timeline for breakeven and even break even number of stores for this business.

Um, um, yeah, I'll see. Yeah, we will invite the OC management to join with our call next time. Unfortunately, we cannot divulge any, um, sensitive information for now, and we'll see.

Thank you, Gina. Parisa from Aquarium has a few set of questions, follow-up questions on supermarkets. First one, how did private label contribute to sales in the first half? And how much did exclusive brands like Meadows contribute to sales for the business in the first half as well?

Private label for the first half would be around 7%. Specifically, business share to the category that we have been most adds up 1.69%.

Thank you. Next set of questions, again, from Nadine of JP Morgan. Will there be a change in the strategic approach in RHI's portfolio, ID court segments, and equity investments given change in leadership? What will be the goalposts under Mr. Stanley Pope?

Actually, as chairman, Ms. Rubina will still be here every day. Overlooking after the business. In terms of strategic implementation, it will be standing. But, you know, direction will still be from the top.

Okay, next set of questions. This is on the drugstore business. What led to the weak SSS gene to queue? How much did private label contribute to sales in the first half?

For the week, SSSG as mentioned earlier, for the people, we were affected by this really hot weather because 12 noon up to 4pm, there's a slowdown in the foot traffic in the stores. However, in terms of basket size, we were at heart. You should also remember that last year was really high during the peak of all the capitals in the weather. So it's a high baseline, so last year. We'll get back on the exact figure. Okay.

And then next, this is on the department stores. So what drove the acceleration in same-store sales, particularly in the second quarter?

The summer season graduation and the advanced purchases for about the school drove the sales, and the category drivers are coming from beauty, shoes and bags, toys, and apparel.

Just to add, because of the change in the school opening and graduation, and there's also sort of changes in the sales process, All right, thank you.

Question from Nadine again. Can you give more color on what segments are driving the slower or lower SSG guidance for this year?

What segments?

Well, for the first half of this year, our SSSG was a bit low already. Although for the year, we're still looking at 2.4%. So there should be a recovery in the second half.

Thank you. Next is from Denise, talking about Wealth Financial. Could you provide the interest expense amount related to the financing of the BPI shares for the second half, second quarter and first half.

Thank you. Yeah, first half is around 450, so just divided it by 40, please.

All right. If anyone still has some follow-up questions, you can do so using the raise hand function or you may type it through Zoom, the Zoom facility, Zoom Q&A facility. Okay, there are no more questions coming in. So at this point, we can, okay. Sorry, there's one more from Arisa. How much did Rosario contribute to supermarket sales in the first half?

It's around 10% of sales of the supermarket business. Sorry, food sales.

Okay. There are no new questions coming in. I think we can now end this call.

Thank you very much and see you at the next earnings call.