Equity Research , S.A.B. DE C.V. May 29, 2015

A work in progress Hold

Change in Recommendation Change in T.P. Change in Estimates Quarterly Review  Other

Last Price: P$ 23.90 Figures in millions of pesos GSANBORN High Liquidity Price Target 2015: P$ 26.50 11% Return 2014 12m 2015e 2016e

Sales 41,203 42,105 46,006 50,630  After meeting with management we came back with a positive impression on the EBITDA 5,248 5,329 5,863 6,681 prospects for 2015, as a year in which the lagging store openings and renovations Margin 12.7% 12.7% 12.7% 13.2% will catch up. The bulk of the benefits, however, will be seen until 2016 and Growth YoY -8.1% -4.9% 11.7% 14.0% afterwards. Net Profit 2,922 2,931 3,046 3,420  , which makes up for 52% of sales and 58% of EBITDA as the most Margin 7.1% 7.0% 6.6% 6.8% important division for GSanborn, will also be the main driver for short and Growth YoY -9.6% -6.4% 4.2% 12.3% medium term growth. As renovated stores are finished, their effect is beginning 1.250 1.258 1.307 1.468 to be evident; in 1Q15 SSS numbers are closer to industry benchmarks, after a Total Assets 40,246 38,384 43,804 49,258 couple years of severe underperformance. Cash 3,572 1,707 1,880 2,165 Total Liabilities 11,303 8,969 12,116 13,305  An update to our earnings model has yielded only slight positive changes, mostly Debt 0 0 0 0 in the farther end of the projected range, thus we continue with our TP of MP Equity 28,943 29,415 31,688 35,953 26.50 and our rating at HOLD. The confirmation of a strong 2H15 and a possibility Majority 27,144 27,545 29,551 33,443 of an accelerated capex plan could eventually sway us to a more optimistic view on GSanborn. Multiples Sears is coming back with a faster pace in openings! Recent openings and conclusion EV/Sales 1.3x 1.3x 1.2x 1.1x of renovations late in 2014 meant the company was able to publish positive numbers EV/EBITDA 10.4x 10.5x 9.6x 8.5x already during the first quarter; SSS of 7.1% (7.7% excluding units still in renovation) took P/E 19.2x 19.0x 18.4x 16.4x advantage of both renewed consumer spending and a very weak comparison base. Up to date, Sears has reached a 19% of image renovation and current projects mean a 36% rate ROE 12.1% 11.4% 11.7% 11.3% will be achieved by year end, with a target of 80% looking feasible a couple of years ahead. ROA 8.5% 8.5% 8.3% 8.0% For 2015 Sears will open 5 new units and will renew 9 other, closing with 88 units in Net Debt/ EBITDA (0.7x) (0.3x) (0.3x) (0.3x) operation, equivalent to a 9% hike in sales floor. Dividend Yield 3.5% 3.5% 3.5% 3.3%

Sanborns continues in slow motion. This retail format has shown a milder recovery than Market Data: Sears, and looking at the planned investments, should continue to do so. In 1Q15 Sanborns Mkt. Cap (mn) USD 3,698 stores had SSS 4.4%, but achieved zero expansion in sales floor YoY as a couple stores Firm Value (mn) USD 3,681 were closed in the period. The plan for 2015 calls for 3 new stores and 3 renovations, closing with 173 units and a 1.5% sales floor expansion, by our numbers; clearly, the shift is 1yr. High—low MP 25.95—MP 20.88 less intense in this format. We are nonetheless estimating a positive 2015 for this format Float 18% and our forecast calls for a 5% rise in sales and 6% in EBITDA, well below Sears’ expected 11% and 14%. GSANBORNS vs IPC (May 2014 = 100) 110 iShop is the future, MixUp the past? The company has been making reconversions in some MixUps as a result of weak results of the format and we expect this trend to continue, 105 while in some locations the definitive closure might come due to redundancy. We are 100 forecasting no change in total stores in this division as the addition of stores and conversions will offset closures. At this moment 49% of the stores are iShops and the rest 95 are MixUp; we believe that this weight will change to 85% for iShops and 15% for MixUp at 90 the end of 2019. For 2015 4 new stores are planned, along with 5 renovations, ending the year with 111 stores, unchanged YoY. It is worth noting that even as iShop has lower 85 margins, its generates higher sales per square meter that should support the earnings May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 May 15 growth of this division in the coming years. GSANBORN IPC Carlos Hermosillo Bernal Even if the capex program stands at a hefty MP 3,000 m for 2015 and the rate of investment should remain similar for at least the next three years, our estimates show that Food, Retail, Beverages current liquidity and internal cash generation should suffice to fund such a program and pay  [email protected] the average MP 1,800 m dividend, still generating cash surpluses. As such, we believe the  +52 (55) 1103 6600 x 4134 company will be open to acquisition opportunities, though no firm plan seems to be in place José Antonio Cebeira González at the moment. Food, Retail, Beverages Looking beyond the first half of the year will be relevant as fort now, and for 2Q15  [email protected] results, the company has enjoyed a soft comparison that bolstered its own internal efforts.  +52 (55) 1103 6600 x 1394

Nonetheless, once we have 3Q15 numbers, a clearer picture will be had on both the consumer trends and the company’s expansion and store renewal success. As a result, we Actinver believe the real inflexion point for the company will be a positive result in the 3Q15 as Corporate Headquarters temporarily it is the weakest quarter, and positive results could deploy an acceleration in the investment plan as the company has ample liquidity and will do its best to catch up as Guillermo González Camarena 1200 much as they can within the recovery on the consumption sector. 11th Floor, Centro Ciudad Santa Fe México, D.F. 01210 1

Equity, Economic, Quantitative and Fixed Income Research Departments

Equity Research

Senior Analysts

Martín Lara Telecommunications, Media (52) 55 1103-6600 x1840 [email protected]

Carlos Hermosillo Bernal Consumption (52) 55 1103-6600 x4134 [email protected]

Pablo Duarte de León FIBRAs (REITs) (52) 55 1103-6600 x4334 [email protected] Mining, Metals, Paper and Pablo Abraham Peregrina (52) 55 1103-6600 x1395 [email protected] Conglomerates Ramón Ortiz Reyes Cement, Construction and (52) 55 1103-6600 x1835 [email protected] Energy, Chemicals and Federico Robinson Bours Carrillo (52) 55 1103-6600 x4127 [email protected] Industrial Junior Analysts Juan Enrique Ponce Luiña Telecommunications, Media and (52) 55 1103-6600 x1693 [email protected] Energy, Chemicals and Enrique Octavio Camargo Delgado (52) 55 1103-6600 x1836 [email protected] Industrials

José Antonio Cebeira González Consumption (52) 55 1103-6600 x1394 [email protected]

Cement, Construction and Mauricio Arellano Sampson (52) 55 1103-6600 x4132 [email protected] Concessions

Laura Elena Bosch Ramírez FIBRAs (REITs) (52) 55 1103-6600 x4136 [email protected]

Economic and Quantitative Research

Head of Economic and Ismael Capistrán Bolio (52) 55 1103-6600 x6636 [email protected] Quantitative Research Jaime Ascencio Aguirre Economy and Markets (52) 55 1103-6600 x1100 [email protected]

Santiago Hernández Morales Quantitative Research (52) 55 1103-6600 x4133 [email protected]

Roberto Galvan González Technical Research (52) 55 1103-6600 x1837 [email protected]

Fixed Income Research

Araceli Espinosa Elguea Head of Fixed Income (52) 55 1103-6600 x6641 [email protected]

Roberto Ramírez Ramírez Fixed Income Research (52) 55 1103-6600 x1672 [email protected]

Jesús Viveros Hernández Fixed Income Research (52) 55 1103-6600 x6649 [email protected]

Raúl Márquez Pardinas Fixed Income Research (52) 55 1103 6600 x1110 [email protected] 2

Disclaimer

Guide for recommendations on investment in the companies under coverage included or not, in the main Price Index (IPC) Buy. The stock’s total return is expected to exceed the total return of the IPC index in the current year. Neutral. The stock’s total return is expected to be in line with the total return of the IPC index in the current year. Sell. The stock’s total return is expected to be below the total return of the IPC index in the current year.

Important Statements a) Of theAnalysts:

“The analysts in charge of producing the Analysis Reports:

Jaime Ascencio Aguirre; Mauricio Arellano Sampson; Laura Elena Bosch Ramírez; Enrique Octavio Camargo Delgado; Ismael Capistrán Bolio; José Antonio Cebeira González, Pablo Enrique Duarte de León; Araceli Espinosa Elguea; Roberto Galván González; Carlos Hermosillo Bernal; Santiago Hernández Morales; Martín Roberto Lara Poo; Raúl Márquez Pardinas; Ramón Ortiz Reyes; Pablo Abraham Peregrina; Juan Enrique Ponce Luiña; Federico Robinson Bours Carrillo; Jesús Viveros Hernández, declare”:

1. "All points of view about the issuers under coverage correspond exclusively to the responsible analyst and authentically reflect his vision. All recommendations made by analysts are prepared independently of any institution, including the institution where the services are provided or companies belonging to the same financial or business group. The compensation scheme is not based or related, directly or indirectly, with any specific recommendation and the remunerationis only received from the entity which the analysts provide their ser- vices.

2. "None of the analysts with coverage of the issuers mentioned in this report holds any office, position or commission at issuer’s under his coverage, or any of the people who are part of the Business Group or consortium to which they belong. They have neither held any posi- tion during the twelve months prior to the preparation of this report. "

3. "Recommendations on issuers, made by the analyst who covers them, are based on public information and there is no guarantee of their assertiveness regarding the performance that is actually observed in the values object of the recommendation"

4. "Analysts maintain investments subject to their analysis reports on the following issuers: AC, ACTINVR, ALFA, , , AMX, AZTECA, , CHDRAUI, FEMSA, FIBRAMQ, FINDEP, FUNO, GENTERA, GFREGIO, , ICA, IENOVA, KOF, LAB, LIVE- POL, MEXCHEM, OHLMEX, PEÑOLES, POCHTEC, TLEVISA, SORIANA, SPORTS, VESTA, and WALMEX. b) On Actinver Casa de Bolsa, S.A. de C.V. Grupo Financiero Actinver

1. Actinver Casa de Bolsa, S.A. de C.V. GrupoFinanciero Actinver, under any circumstance shall ensure the sense of the recommendations contained in the reports of analysis to ensure future business relationship. 2. All Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver business units can explore and do business with any company men- tioned in documents of analysis. All compensation for services given in the past or in the future, received by Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver by any company mentioned in this report has not had and will not have any effect on the compensation paid to the analysts. However, just like any other employee of Actinver Group and its subsidiaries, the compensation being enjoyed by our analysts will be affected by the profitability gained by Actinver Group and its subsidiaries. 3. At the end of each of the previous three months, Actinver Casa de Bolsa, SA de C.V. Actinver Financial Group, has not held any invest- ments directly or indirectly in securities or financial derivatives, whose underlying are Securities subject of the analysis reports, represent- ing one percent or more of its portfolio of securities, investment portfolio, outstanding of the Securities or the underlying value of the question, except for the following: * AEROMEX, AXML, BOLSA A, FINN 13, FSHOP 13, SMARTRC14. 4. Certain directors and officers of Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver occupy a similar position at the following issuers: AEROMEX, MASECA, AZTECA, ALSEA, FINN, MAXCOM, SPORTS, FSHOP, and FUNO.

This report will be distributed to all persons who meet the profile to acquire the type of values that is recommended in its content.

To see our analysts change of recommendations click here.

3