Earnings Report /
Mexico

Chedraui: CHDRAUI, Quarterly Report 1Q21: Surprising performance in Mexico stores

  • The highlight of the report was the SSS growth in Mexico and the profitability gains achieved in said operations

  • Margins at Bodega Latina continued improving, regardless of the drop in revenues due to a high comparable base

  • Spotlight lays on possible M&A, as it aims to become the second largest self-service chain in the country

Valentin III Mendoza Balderas
Valentin III Mendoza Balderas

Senior Equity Research Analyst, Consumer & Telecoms

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Juan Barbier
Juan Barbier

Equity Research Analyst

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Banorte
6 May 2021
Published byBanorte
  • Chedraui exceeded our expectations in terms of profitability. The highlight of the report was the SSS growth in Mexico and the profitability gains achieved in said operations

  • Margins at Bodega Latina continued improving, regardless of the drop in revenues due to high comps, mainly driven by the improvement at Fiesta Mart

Stores in Mexico outperformed ANTAD food retailers. Chedraui's results came better than our expectations in terms of profitability, reflecting a strong performance inMexico stores, and continuous margins gains in the US. Revenues slightly declined year-on-year, reaching MXN 35.186 billion (-0.9 %), hurt by a 5.3% drop in those of Bodega Latina, owing to the tough comps derived from the panic purchases in 1Q20, and a 23.9% slump in those of the real estate business, which were partially offset by a 2.6% growth of said indicator in Mexico. Regarding the latter, it stands out positively that LfL sales in our country increased 0.6% during the period, outperforming ANTAD food retailers (-3.7%) by 430bps. Meanwhile, EBITDA grew 2.1% y/y to MXN 2.638 billion, with a 20bps increase in the respective margin to 7.5%. Said performance is explained by a 10bps expansion in Mexico, due to less commercial aggressiveness and a more favorable sales mix, and mainly, by the 70bps gain in the US as a result of continuous improvement in Fiesta Mart's operations. Finally, net income soared 34.1% y/y to MXN 721 million, driven by lower FX losses. Spotlight lays on possible M&A. The company aims to become the second largest self-service chain in the country; therefore, it could soon look for targets, leveraging its strong balance sheet to bolster growth. In this regard, we believe that in Mexico some feasible options could lay within the hard discount segment aiming for names such as "BBB" or "Tiendas Neto", and in the US at small chains in N.Y. or Florida such as "Sedano's", "Gala foods" or "Food town", just to name a few.