Robinsons Retail Holdings, Inc.

Good afternoon, everybody. Thank you for joining Robinson City Dells' 3rd quarter 2024 earnings call. I am Gina Dipali, the Company's Investment Relations Officer, and the speakers for this call are the following. Our President and CEO, Ms. Romina Gokomoy-Pellet. Our COO, Sandy Oh. Our CFO, Mylene Kasiban. The Group General Manager of Small Formats for the Food Segment, Ms. Lillian Villasos. The Group General Manager of the Drug Store Segment, Ms. Joan Arceo. The General Manager of the Robinsons Department Store in Dilley, Ms. Lina Guzan. The Group General Manager of EIY and PETS, Mr. Ted Sobono. The group general manager of our appliances segment will be Sanikos. That is the agenda for this afternoon's call. We will provide an overview of our financial performance highlights, and we will also share key updates across the organization. As a reminder to the Q&A section, please use the Q&A function. on your Zoom dashboard to find in your questions. Please limit initially to a maximum of three questions, including follow-ups. You may key back into the Q&A box for additional questions. You may also use the raise hand function if you would like to ask your questions live. With that, I will turn you over to Sandy, our COO.

Good afternoon. Here are the highlights of our results for the third quarter of 1994. Consolidated net sales were higher by 3.1% to 48.7 billion. Blended same-store sales growth of 0.5%. Cross-profit growth by 4% to 11.8 billion. EBIT was slotted at 2.3 billion. Foreign net earnings came in at 1.4 billion. Largely unchanged versus last year. Net income to parents. of 1,028.7% higher versus last year. Meanwhile, here are the highlights for the results for the year-to-date September 24th. Consolidated net sales of 142.4 billion, up by 3% versus last year. Land fixing for sales growth settled at 0.7%. Cross-profit increased by 4.3% to 34.3 billion. EBIT registered at $6.4 billion, higher by 3.7%. Core net earnings grew by 7.6% to $4.1 billion. Net income dependent amounted to $7.8 billion, three times higher. This is largely due to the one-time gain from the VBI Robinson's Bank merger, which was booked in the first quarter. The blackfish trend in blended SSFG were largely due to the discussionary formats, mainly department stores, DIY, and specialty stores, which continued to be affected by sticky inflation and stiff competition. In the third quarter, the discussionary formats were further weighed down by the on-trip of iTunes, which affected food traffic while shipments full opening dates to July this year also had an impact on the top line, especially for department stores. Net sales outperformers in the third quarter and nine months for food and drug stores, as consumers continue to prioritize essential purchases. In addition, these two segments have consistently expanded their footprint, further contributing to their strong performance. Now, on a deeper look at RP&L, gross profit increased by 4% in the third quarter, bringing nine-month tally to 34.3 billion, up 4.3%. Cross-profit growth was driven by changes in merchandise mix and continued vendor support. 3Q EBIT came in at 2.3 billion, with growth of 0.6% affected by higher manpower and rental costs. 9-month EBIT rose by 3.7% to 6.4 billion. Net income to tenant increased by 28.7% to 1 billion in the third quarter. due to lower losses from associates following the reclassification of full-time with our state now down from 20% last year to 90% this year. Year-to-date, the September net income came in at 7.8 billion, three times higher versus last year as we benefited from the substantial gain in the first quarter from the BPI R-Bank merger. For earnings, which excludes the one-time gain from the bank merger, Forex Interest Income From bonds, equity earnings from associates, acquisition, financing, interest expense, dividends related to the BPI shares and others came in at 1.4 billion in the third quarter, largely unchanged versus last year. Year-to-date September coordinate earnings rose 7.6% to 4.1 billion. In terms of segment contributions, the core staple businesses, namely food and drug stores, accounted for 79% of our total sales and 82% of our total EBITDA, respectively, in nine months. Meanwhile, our discretionary formats, namely the department stores, DIY stores, and specialty stores, comprised 21% of total sales and 80% of total EBITDA, respectively. The net sales and EBITDA update down in TQ are similar to the year-to-date September fees. Our store count in the Philippines stood at 2,413 as of September 2024, comprising of 158 free segment stores, 1,101 drug stores, 50 department stores, 225 DIY stores, and 279 specialty stores. We also have 2,163 franchise stores of PGP. For year-to-date September 2014, we opened 20 new stores, mostly under the food and drug store guidance. Here's Liam Jesus for the food segment.

Food segment net sales increased by 4.8% to 29.7 billion in the third quarter, bringing nine-month net sales up by 4.1% to 86.7 billion. Same-store sales growth slightly improved to 1.9% in the third quarter. This brought nine-month same-store sales growth to 1.5%. Gross profit increased by 5.2% in the third quarter and 5.2% in nine months due to higher vendor support and category mix improvements. OPEX rose due to store expansion, digital-related costs, and the conversion of Amazon stores from franchise to direct. Higher OPEX, however, was offset by growth profit growth. As a result, EBITDA rose by 4.2% to 2.6 billion in third quarter and by 3.1% to 7.1 billion in nine months. Good afternoon. Revenues for the drugstore segment increased by 9% to 9.1 billion in third quarter. With year-to-date government sales up by 7.8%, to 26.3 billion. This was driven by same-store sales growth of 3.5% and 3.8% in 3rd quarter and 9 months respectively, and contributions from new stores. Gross profit increased by 9.2% in 3rd quarter and by 8.5% in 9 months, supported by changes in category mix and prior vendor support. The build-up grew by 2.8% to 2.2 billion in 9 months, Lower than top-line growth due to investments for store expansion, new supply chain systems, and opening of two new businesses.

Turning it over to Ms. Nina. Net sales for the department store segment declined by 3.9% to 3.8 billion in the third quarter, mainly due to the shift in the school opening date from July this year from August last year. This moved back to school buy-in from June to August this year from July to September last year. The decline in sales was partially offset by the launch of Spatio last September 5 in Hupus Mall. Spatio is our new lifestyle banner, which is a curated department store that serves the upper income market. Meanwhile, increased vendor support, higher DCPs, and improved category mix enabled gross profit to post a slight improvement in nine months. However, higher operating expenses from rent, personal costs, and one-time marketing expense For the launches, Afro led to the EBITDA declining from 320 million in the third quarter last year to 200 million in Q3 this year. Nine months EBITDA declined by 17.7% to 519 million, trading over to 10.

The DIY segment hosted a net sales decline of 5.9% to 2.9 billion pesos in the third quarter with SSSG at minus 5.8%. due to intense competition. Net sales in nine months came in at 3.5 billion pesos, lower by 5.2%. EBITDA, however, rose by 5.5% to 349 million pesos in the third quarter, supported by the introduction of new items that boosted gross margins and cost of savings from the closure of seven underperforming stores. This contributed to a double-digit EBITDA growth in 9 months to 1.1 billion pesos, turning over to June.

The specialty segment net sales declined by 8.5% in the third quarter to 3.3 billion with negative SSSG of 8.6%. This was due to the discontinuation of commercial and sub-delivered sales of Sabre's appliances. some availability issues in mass merchandise, and lower number of movie releases impacting toy sales. Meanwhile, Provincetown's appliances delivered 6.3% net sales growth in the third quarter due to stable demand for home appliances, home entertainment, and kitchen appliances. Net sales for the specialty segment in the first nine months of the year amounted to 10.1 billion, down by 5.9%. Despite category mix improvements, higher vendor support, and DCPs, EBITDA for the specialty segment declined to $152 million in the third quarter on lower sales and higher opens. Year-to-date EBITDA stood at $486 million.

Thanks, Joby. Moving on to our working capital, RHI's cash convertible cycle is moved to 25.1 days in the nine months from 26 days last year. The lower tax cycle is largely in prior payable days as we prepare for the fifth season. As for our balance sheet, we are in a debt position of 10.2 billion as of September. We totaled borrowings of 22.4 billion, known for the BPI shares, which we purchased in January of 2023. As of end September this year, our debt related to the BPI share purchase is at 12.6 billion. Even with a net debt position, our balance continues to be strong with a net debt of 0.11%. ROA and ROE in a trading 12-month basis came in at 5.9% and 11.2% respectively, both higher on a year-to-year with a one-time gain from the ARPDI-ARBOC merger, which we recognized in the first quarter of this year. In terms of CAPEX, organic CAPEX for all segments in the nine months this year reached $2.8 billion. compared to 2.5 billion in the same period last year. 58% for Caprex was allocated to food segment, followed by 16% for drugstores, 10% for department stores, and 8% each for DIY and specialty. So, barely over now, good for you. Now, allow me to update you on some of our key minority investments, and if all's saved, the growths are in. As of September, wholesale store count in the Philippines increased to 380, compared to 255 stores in the same year last year. As a result, sales have increased 2.4 times year-on-year to $155 million. The private label's share of this business has grown to 17% from sales, compared to 12% the same year last year. Now on G2M, which is the parent company of Rosario. Rosari's total e-commerce platform sales value sold under the Sari Mark track amounted to $674 million in nine months, a 26% increase year-on-year driven by the business growth in coverage and a number of its 100,000 monthly active customers. The company operates in 20 main key cities across the Philippines. Rosari is currently valued at greater than $450 million up from 2022 when it was valued at 330 million. Aside from being an investor in G2M, we collaborate with them. We procure 90% of Sari Mart's FMCG requirements, which are sold to Sari Sari stores some day over, as well as leverage them for logistics in our business. The next speaker will be Staggy, who will talk about the development.

Now let me update you on some e-commerce developments across the business. We again received a one Golden Arrow Award from the Institute of Corporate Directors for our sustained efforts in corporate governance. This is the third consecutive year of our inclusion in the list, which is comprised of Philippine stock publicly listed companies. Spacio, our newest concept store banner, opened last September 5 at Opus in Bridgetown. Spasho is a luxury shopping and relaxation hub that features designer pieces from Philippine designers and exclusives from Seoul Academy, as well as financial care services, personal grooming, a cafe, and a bar. We are proud to have also been recognized as the world's best companies of 2024 by Time Magazine and Stapista. Proposals retail is not only a 13% companies in the list of 1,000 industry leaders from around the world, and drafts based on employee satisfaction, revenue growth, and PSG metrics. Last October 7th, our food segment opened its fifth distribution center in Calamba, Latina, spanning close to 40,000 square meters with a capacity of 29,000 pallets, pallet positions. The utility is far and wide, starting to go towards convenient expansion outside of Metro Manila. The four other goods and my VCs are located in Sokrat, Canik, Sinti, Companda, and Sinti. We are pleased to announce the appointment of Tadeo Sanchez as General Manager of South Star Drug effective November 1, 2024. Tarek has close to 22 years of experience in drug and pharmaceuticals. He joined South Star in 2016 as Operations AVP managing 412 stores. He was appointed Deputy GM in 2022 and oversaw merchandising, supply chain management, and store expansion. Under his leadership, we've seen an increase in our store network to 678 stores since September this year. Last October 14, a US-based true value company filed for voluntary Chapter 11 proceedings. Do It Best Corp has agreed to acquire most of True Value's operations And despite the sale, Luitbest plans to retain its True Value brand, which means that Robinson's Retail will continue to operate two DIY banners, Handiman Luitbest and True Value Philippines. True Value Philippines, operated by Robinson's Cruiser Hardware, a majority-owned subsidiary of Robinson's Retail, is not affected by the Chapter 11 filing, so this will be business as usual for us. Once the sale is finalized, New Value US will become part of the do-it-best and will benefit from expanded supplier access, new products, ultimately benefiting our own DIY buyers. Our guidance for the year is unchanged from the last quarter. In particular, we are looking at the net store addition of 90 to 110 with both opening this quarter. Meanwhile, we are aiming for blended essential food for possession. Our margins, we are keeping our 20 to 40 days GPM expansion target. And finally, we are still earmarking 4 billion to 6 billion in organic capital expenditures. This ends our presentation for our nine-month results. We will now open the floor for Q&A.

Thank you. Thank you, sir. Good afternoon, everyone. So we will read first three questions via the Zoom Q&A facility. And then if you would like to ask a question live, you can do so using the time function. And if you prefer this option, please do not forget to introduce yourself first and identify the company that you are working for before you ask your question. Our first set of questions would be from Teresa Magpayo of Macquarie. This is on the supermarkets business. What was same-store sales growth in the third quarter and in the first nine months, excluding Uncle John's? And how is this broken down between transaction count and ticket size?

The same-store sales growth for the first nine months is positive 1.4%. That's ex-Uncle John's. But for the third quarter alone, it's 2.1%. the highest among the three quarters now. We started with 1.5% in first quarter and flattish in second quarter. This is the highest, so we're seeing an improvement in trends for the same-store sales growth. Basket size also, we posted positive for this quarter, so meaning there's really an increased demand already for our supermarket sales. In the previous two quarters, it's negative basket size growth. For the private label, it's higher by 40 bps versus last year. It's now at 7.2% versus 6.2% last year.

How about net sales, gross profit, and EBITDA in 9.4%, excluding the drawings?

Sales for the supermarket, excluding Uncle John's, is 82 billion pesos. Cross-margin is around 22.7%. And David's Da is 7 billion.

Thank you. Next set of questions would be from Stephen Oliveros of Flying Daft. So first is, what led to the quarter-on-quarter drop in effective tax rate in the third quarter? That's his first question.

It's just because of some non-taxable expense.

Thank you. His second question is, have there been any shifts in consumer spending behavior in light of the recent slowdown in inflation and lower borrowing costs.

Almost across all our formats, we've seen a recovery in September, starting September. I think the vendors also find a test to that.

Okay, thank you. Next set of questions would be from Nadine Bautista, JP Morgan. On food segment, can you share the breakdown of 2% SSSG in the traffic and basket size in 3Q. Are you continuing to see down trading among consumers and what products are driving higher basket size? So that's your first question.

It's largely driven by basket size. The same-store sales growth in 3Q.

Okay. Then Nadine's second question, it would be on the department stores. So could you also share a breakdown of the 3.4% same-store sales Um, in think you think the traffic in basket science group.

That's the question. So, uh, both basket size and traffic is done. I'm writing this for you. Don't do the part. I think our transaction count is up 6%, sorry, and basket size is down 9%.

The transaction count is up 6%, and then basket size is down about 9% for department stores in the third part. Next set of questions would be from Kenji. Given the significant surge in net income to parents, attributable to the one-time gain from the bank merger. Is there any consideration or possibility for a special dividend this year? And with the share price currently at the full-time low, or at full-time low levels despite the buybacks, do you believe that declaring a special dividend would help unlock value for shareholders?

The one-time gain is largely non-cash. And the dividends are... Dividend policy is actually extraordinary.

Thank you, Gina. Next question would be from Dan Ryan Guo of BPI Securities. I wanted to ask what are the bottom three categories of your non-food segment which are dragging same-star sales growth? Likewise, what are the top three categories driving food segment growth?

The one dragging the foot is no foot. The one dragging down is diaper. Next would be from Tasha Reyes of CLSA.

How much was the gross profit margin of the food segment, excluding popcorn joints and brew sack?

Gross profit? Thank you. 24 and a half.

Okay, 24 and a half. Next will be from Rainier Ivan Yu. Thank you for the presentation. First question, gross profit margin appears to be at a record high. Which component mostly contributed to this? So that's his first question.

Thank you. Food segment, DIY, GPM margin increase.

Okay, the second question would be... Also, department stores. Right. So, food, DIY, and department stores contributed to the GPM expansion. The second question would be on specialty. Any new brands that will be added to add more color on the discontinuation of Savers appliances?

Just to answer for the Savers part, we're really focusing on retail. It's a pivotal retail because the corporate and sub-dealer channels have become very competitive.

What would you Yeah, we're converting the stores of Sabres from Sabres Appliances to Robinsons Appliances. But the company itself, we're not closing the store. We're converting the name to Robinsons Appliances. For a new brand? No, not for now.

Alright. Teresa has a few follow-up questions. How much did Rosari contribute to the supermarket business in the first nine months.

It's around 10% of sales.

And still from Paris, this one's zeroing in on Uncle John's. So it was same-store sales growth in three, two, and nine months. And how much did Uncle John's net sales grow year-on-year in nine months? And how much did Ready to Eat or RTE contribute to sales in the first nine months?

SSST for Uncle John's is at 3 1⁄2. RTE sales contribution for Dodo sales is now at about 41%. And what was that? Sales growth for the first 90 months is at 2.8%. Thank you.

Thank you. Nadine has a few follow-up questions. Any indications you can share how discretionary sales are trending in October? Are you seeing any green shoots for stronger holiday spending so far this quarter?

I mean, for the first few weeks of October, we're starting good. Now it's raining, so let's see. They'll be recovered after, you know, next week.

Okay, thank you. Stephen from China Valley, Sokolo. So revenues of your discretionary segment when still below 2019 levels, what do you attribute this? And when do you expect a recovery through pre-pandemic levels?

We thought it will happen this year. I think we're moving our target to next year.

All right. Then Clarissa again from Macquarie, this would be 3.5% same-star sales growth for Uncle John's for the third quarter or for the first time? That's for year to date. And then Nadine Bautista again from JP Morgan. First on drugstores, what is driving lower EBITDA margin in the third quarter?

Thank you. Your second question, this one is on OSAVE.

So how does RHI intend to harness synergies with the OSAVE venture? How does the partnership work with majority owners? What insights and data do we get a hold of from working with OSAVE?

To answer the first question, we can negotiate with vendors together and get the best margins for both our HR and OC. Number two, what does that mean? How does partnership work? You mean how do we work? How does it work? Well, we work as board members and we have dedicated management running the business for us based on the strategy that the board gives them. What insights and data? You mean what do we learn from?

All right, Nadine's third question will be, what will be the eventual plan for doing 142 million shares held in treasury for about 10% of outstanding shares? Any plans to sell this back to the market to improve stock liquidity?

For now, if it will be canceled or not, that's up for the board to decide. For any plants to sell, there's no need for us to raise money for now.

All right. Thank you, Gina. Another question from Kenji. Thank you for your responses. Are there any plans to open additional spatula stores next year? And if so, which specific locations are we considering for expansion?

Not at the moment. We just opened last September 5. So at the moment, we're still reviewing the requirements of Spatram.

We're considering a second store, but it won't be ready until next year. We may consider expanding it, but if the building's not ready, then it's not going to be ready next year.

Okay. Just a reminder for the audience on the floor, if you still have questions or want to ask your questions live, you can do so by typing in your questions in the Q&A box or just raising your hand. Some follow-up questions from JP Morgan. From JP Morgan first, would it be able to get further on how OSAVE, I'm sorry, would it be able to get further on how OSAVE sales in SSSG were in the third quarter?

Jonas is in the call.

We'll unmute you.

Diana.

Hi, Jonas. You're unmuted now.

Take this one.

Hi, everybody. This is Diana from OSAFE. Good afternoon. Same sales growth for the third quarter, specifically for the last month, September 2024, is at 12.7%. Thank you.

Thank you, Diana. Okay, Teresa from Macquarie has another question. This one is on the drugstore business. So what will be faster, same-store sales growth in the third quarter?

One would be the recovery of prescription medicine.

So it's also the back-to-school season for students has also been increasing for the people. By the way, we have speakers from GoTime and Rosari. If you have questions.

At this point, there are no more questions from you. Nadine has a follow-up question. Maybe Diana can take this one. How is the 12.7% same-store sales broken down into basket sizes? and transaction count growth?

Hello? Yes. For the transaction count, we have a growth of between 34% to 36%. And in terms of basket size, we have about 15% to 17%.

Okay. Thank you again, Dayana. Next question is from Rainier. Thank you. So this is on the DIY business. How much of an improvement can be expected next year and will be this continuation of two value-approved margins, assuming less priorities?

I think for DIY next year, we'll continue to improve our gross margin as we continue to introduce new products. we are not discontinuing true value. So as mentioned by Sally, it's business as usual. And yeah, for the information of our value, we're not paying royalties for true interest and true value.

Okay. Yeah, thank you for clarifying, Ted and Gina. Next would be from Kenji again. Can you share if there are any potential acquisitions that the company is currently exploring or considering in the near future.

For the potential acquisitions, there are always potential acquisitions but we can't mention them at the moment. For more granular information on OSAID, maybe we can send it in a separate call.

Okay. We don't have additional questions coming in at this point. Maybe we can open this up.

Okay. Thank you very much. See you at the next earnings call.