4Q13 Retail Preview: Liverpool and Alsea far ahead of Pack
January 31, 2014 Self-service retailers will see weak 4Q performance. We expect to see very weak numbers from self-service retailers, continuing with a trend we have seen all year for Self-service relative performance the four supermarket chains. We project the four combined will see a marginal 3% gain in total revenues with EBITDA down 3% and Net Income off 7%. 200
Comerci with best expected bottom line result but we still rate it as SELL on 180 valuation. Same-store sales performance will range from a low -4% for Soriana, to a 160 high of 2.5% for Comerci, with Walmex at -1.6% and Chedraui at 0.5%. Not 140 surprisingly, Comerci will see the best results with net income higher by an estimated 15% (with a 3% gain in revenues and 6% in EBITDA), while Soriana will evidence the 120 weakest numbers with declines of 2% in revenues, 3% in EBITDA and 7% in Net 100
Income. For Walmex and Chedraui we expect to see in-between performance. 80 Notwithstanding Comerci’s and Chedraui’s relative outperformance in the quarter, we May-12 Aug-12 Nov-12 Feb-13 May-13 continue to recommend SELL for both based on their valuation, while we rate IPC Comerci Chedraui Soriana Walmex Walmex and Soriana BUYs based on their very attractive valuations and expected Source: Bloomberg much better operating performance in 2014.
Liverpool with 8% gain in SSS to Sanborns’ 1-2% increase. In the department store sector, we project that Liverpool will once again outshine Sanborns by a large Discretionary consumption margin with total revenues up 12% to Sanborns’ 2%, and net income up 16% to
Sanborns’ 2% decline. Liverpool’s SSS in the quarter will come in at 8% while we 220 expect Sanborns’ four retail segments combined will be in the 1-2% range. We rate 200
Liverpool BUY and Sanborns HOLD. 180
Alsea with expected 55% gain in net income. We expect very robust performance 160 from Alsea with very impressive gains of 18% in revenues, 27% in EBITDA and 55% 140 in net income, boosted by a projected 7% gain in SSS, restaurant openings and 120 acquisitions in 2Q/3Q. For Sports World, we projected a continued strong gain in 100 revenues of 24% due to new club openings in 2013 and maturation of clubs opened 80 May-12 Aug-12 Nov-12 Feb-13 May-13 in 2012. However, in terms of EBITDA and Net Income we project more moderate IPC Liverpool Alsea 15% gains due to higher operating expenses relative to revenues. We rate both Source: Bloomberg stocks BUYS.
Current Target Market Cap EPS PE Company Rating Upside Price Price (USD mn) 2014E 2015E 2014E 2015E Gustavo Ter an, CFA Beverages, Retail, Discretionary Walmex BUY 31.94 39.50 24% 42,830 1.45 1.62 22.1x 19.8x Consumption Soriana BUY 38.03 51.00 34% 5,313 2.17 2.45 18.0x 15.9x [email protected] Chedraui SELL 39.78 43.20 9% 2,778 1.62 1.89 24.2x 20.7x ℡ +52 (55) 1103 6600 x 1193 Comerci SELL 49.89 46.00 -8% 4,032 1.81 2.06 27.1x 23.8x David Foulkes Retail and Discretionary Consumption Liverpool BUY 141.29 168.00 19% 14,149 6.09 6.61 22.8x 21.0x [email protected] Gsanborns HOLD 24.35 30.00 23% 4,444 1.51 1.66 16.8x 15.3x ℡ +52 (55) 1103 6600 x 1836 Alsea BUY 39.44 52.00 32% 2,065 1.19 1.68 31.0x 20.9x Actinver Corporate Headquarters Sports BUY 19.48 24.00 23% 0.119 0.91 1.22 21.1x 15.7x Guillermo González Camarena 1200, Source: Actinver Piso 5, Centro de Ciudad Santa Fe México, D.F. 01210 1
Sales EBITDA Net Income 4Q13 4Q12 % Chg 4Q13 4Q12 % Chg 4Q13 4Q12 % Chg Self-service retailers Walmex 124,474 120,066 4% 13,100 13,661 -4% 7,630 8,371 -9% Soriana 28,518 29,206 -2% 2,033 2,087 -3% 1,033 1,106 -7% Chedraui 18,280 17,764 3% 1,088 1,092 0% 378 381 -1% Comerci 11,906 11,581 3% 945 892 6% 416 363 15% Total 183,178 178,617 3% 17,166 17,732 -3% 9,457 10,220 -7%
Source: Actinver
Self-service 4Q13E BUY WALMEX Negative. The company released its 2013 numbers on January 7th, reflecting a 3.5% sales growth in the 4Q, TP MP 39.50 mainly explained by Walmex’s sales floor expansion of 7% YoY in 2013, and 4% QoQ. However, 4Q same- store sales reached a negative 1.6% in Mexico affected by the weak consumer spending evidenced (Revenues +4%, EBITDA -4%, throughout 2013. On the positive side, Central America’s SSS grew 2.8% in the quarter. In terms of EBITDA Net Income -9%) we are projecting a drop of 4%, as a result of operating deleverage with net income down an estimated 9% in the quarter.
BUY SORIANA TP MP 51.00 Negative. The company will post the weakest performance of the four retailers in SSS with an estimated contraction of 4% in the quarter. Therefore, we expect Soriana’s sales will decrease 2% with floor expansion of 3.7% in 2013 and 1.9% QoQ. As a result of the operating deleverage, we expect a 3% drop in EBITDA with (Revenues -2%, EBITDA -3%, a flat margin of 7.1%, explained by a gain of 60 bp in the gross margin offset by an equivalent increase in Net Income -7%) operating expenses in relation to sales. We believe the company’s net income will decline 7%.
SELL CHEDRAUI Negative. We estimate Chedraui’s consolidated sales will increase 3% in the quarter, driven mainly a 4.8% TP MP 43.20 annual floor expansion and slightly positive figures in SSS (+0.5%). We expect EBITDA to remain flat; however, due to poor SSS and aggressive pricing strategies we estimate a reduction of 20 bp in the EBITDA (Revenues 3%, EBITDA 0%, margin to 5.95% with net profit down 1%. We are lowering our 4Q13 results in EPS to MP 0.39 from MP 0.46 Net Income -1%) due to a lower projected EBITDA margin (5.95% vs. prior estimate of 6.38%).
SELL Neutral. Comerci’s total sales will gain an estimated 3% in the quarter boosted by the best performance in COMERCI SSS within grocery retailers (2.5%), and to a lower extent by an estimated 1.3% increase on floor area in TP MP 46.00 2013. We are projecting that EBITDA will grow 6% with a 20 basis point increase in the EBITDA margin boosted by a 50 basis point gain in the gross margin partially offset by increased operating expenses. For net income we expect a 15% increase, thus presenting the strongest results within the self-service sector largely (Revenues +3%, EBITDA +6%, due to its focus on higher income segments, less affected by the economic slowdown in 2013. Still we believe Net Income +15%) this situation will change in 2014 with lower segments benefiting from the higher economic growth.
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Department stores Liverpool 25,497 22,775 12% 5,793 5,079 14% 3,682 3,168 16% Gsanborns 12,966 12,704 2% 1,952 2,002 -2% 1,128 1,157 -3% Total 38,463 35,479 8% 7,746 7,081 9% 4,810 4,325 11%
Source: Actinver
Other discretionary consumer Alsea 4,288 3,628 18% 608 479 27% 206 132 55% Sports 242 196 24% 52 45 15% 19 16 15% Total 4,530 3,824 18% 660 525 26% 225 149 51%
Source: Actinver
Department stores 4Q13E
BUY Positive. We believe Liverpool will post very respectable quarterly results with SSS of 8% and total revenues LIVERPOOL TP MP 168.00 of 12%, helped in large measure by an extraordinary turnout in the month of November with SSS of 20% after an astonishing performance during EL Buen Fin weekend when SSS rocketed by 50%. We are projecting a 14% gain in EBITDA and a 16% increase in Net Income with the benefit of a 30 basis point gain in the (Revenues +12%, EBITDA +14%, EBITDA margin. Net Income +16%)
HOLD Negative. We expect GSanborns’ consolidated sales will increase a marginal 2%, due to poor SSS in all its GSANBORNS TP MP 30.00 formats. These weak results are explained as well by the company’s delayed expansion program with very few new stores in the first 9 months (only one net new Sears store, one Sanborns restaurant/retail store and 3 (Revenues 2%, EBITDA -2%, Ishop/Mixups). The company did significantly pick-up its expansion in the 4Q (one new Sears store and three Net Income -3%) Sanborns) but too late to help 4Q results. On the positive side, we expect an improvement in gross margin of 70 bp to 39% although higher expenses associated with store expansion will more than offset the higher gross margin resulting in a 70 basis point reduction in the EBITDA margin to 15.1%. In terms of net income we expect a reduction of 3% mainly as a result of a higher tax rate than in 2012 (34% vs. 32%).
Other discretionary consumer 4Q13E
BUY Positive. Once again Alsea will post the best results in the retail sector. We are expecting very strong gains ALSEA TP MP 52.00 in sales (18%), EBITDA (27%) and Net Income (55 %). The outstanding performance was made possible by strong estimated SSS (6% vs. average SSS of 8% in first three quarters of 2013), combined with the company’s organic and inorganic growth. The company grew an estimate 249 corporate units, including 97 units acquired in 2Q13 as part of the acquisition of the master franchise rights from Burger King International. (Revenues +18%, EBITDA +27%, Alsea also acquired 100% interests in Starbucks Chile and Argentina in 3Q13. The biggest issue with Alsea Net Income +55%) at present, of course, is the pending acquisition of the VIPS restaurant chain from Walmex, pending regulatory OK by Mexico’s Competition Commission (COFECO).
BUY Positive. We expect SW to deliver strong quarterly results with net revenues up 24% and net income 15%. SPORTS TP MP 24.00 The top line growth is explained by clubs with less than 18 months of operations (5 clubs opened in 2013 and 10 in 2012). In terms of EBITDA and Net Income we expect more moderate 15% gains due to higher operating expenses related to the company’s expansion plan. (Revenues +24%, EBITDA +15%, Net Income +15%)
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Investment Strategy & Research
Ernesto O’Farrill Director (52) 55 1103-6645 [email protected]
Research
(52) 55 1103-6600 Ismael Capistran Head of Equity Research [email protected] x1487
(52) 55 1103-6600 Martín Lara Telecoms, Media & Financials [email protected] x1840
(52) 55 1103-6600 Ramón Ortiz Cement, Concessions & Construction [email protected] x1835
(52) 55 1103-6600 Pablo Duarte Real Estate, Hotels [email protected] x4334 (52) 55 1103-6600 Federico Robinson Conglomerates, Industrial & Mining [email protected] x4127 (52) 55 1103-6600 Gustavo Terán , CFA Beverages & Retail [email protected] x1193
Michel Gálvez Fixed Income (52) 55 1103 -6641 [email protected]
(52) 55 1103-6600 Jaime Ascencio Economic & Markets [email protected] x5032
(52) 55 1103 -6600 Roberto Galván Technical Analysis [email protected] x5039
Sales & Trading
Gerardo Román Head of Trading (52) 55 1103-6690 [email protected]
Julie Roberts US Institutional Sales (210) 298 - 5371 [email protected]
María Antonia US Institutional Sales (52) 55 1103-6796 [email protected] Gutiérrez
Salomón Saba US Institutional Sales (52) 55 1103-6710 [email protected]
Tulio Chávez Institutional Sales (52) 55 1103-6762 [email protected]
Luis Javier Basurto Institutional Sales (52) 55 1103-6742 [email protected]
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Disclaimer
Analyst Certification for the following Analysts: Ismael Capistran Martín Lara Ramón Ortiz Federico Robinson Gustavo Terán, CFA Michel Gálvez Jaime Ascencio Roberto Galván
The analyst(s) responsible for this report, certifies(y) that the opinion(s) on any of the securities or issuers mentioned in this document, as well as any views or forecasts expressed herein accurately reflect their personal view(s). No part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this document. Any of the business units of Grupo Actinver or its affiliates may seek to do business with any company discussed in this research document. Any past or potential future compensation received by Grupo Actinver or any of its affiliates from any issuer mentioned in this report has not had and will not have any effect our analysts’ compensation. However, as for any other employee of Grupo Actinver and its affiliates, our analysts’ compensation is affected by the overall profitability of Grupo Actinver and its affiliates.
Guide to our Rating Methodology Total Expected Return on any security under coverage includes dividends and/or other forms of wealth distribution expected to be implemented by the issuers, in addition to the expected stock price appreciation or depreciation over the next twelve months based on our analysts’ price targets. Analysts uses a wide variety of methods to calculate price targets that, among others, include Discounted Cash Flow models, models based on expected risk-adjusted multiples, Sum-of-Parts valuation techniques, break-up scenarios and relative valuation models. Changes in our price targets and/or our recommendations. Companies under coverage are under constant surveillance and as a result of such surveillance our analysts update their models resulting in potential changes to their price targets. Changes in general business conditions potentially affecting either the cost of capital and/or growth prospects of all companies under coverage, or a given industry, or a group of industries are typical triggers for revisions to our price targets and/or recommendations. Other micro- and macroeconomic events could materially affect the overall prospects of an individual company under coverage and, as a result, such event-driven factors could lead to changes in our price targets and/or recommendation of the company affected. Even if our overall expectations for a given company under coverage have not materially changed, our recommendations are subject to revision if the stock price has changed significantly, as it will affect total expected return. Terms such as "price targets, our price targets, total expected return, analyst's price targets” or any other similar phrase are used in this document as complementary to our recommendation or as a condition that could change in our point of view and, according to article 188 of Securities Market Act, do not imply in any way that Actinver, its agents, or its related companies are in any form providing assurance or guarantee, nor assuming any responsibility for the risks associated with any investment in the discussed securities. Recommendations for companies, both in the Índice de Precios y Cotizaciones (IPyC) Index and also not belonging to the index. We have three possible recommendations: a) BUY, b) HOLD or c) SELL. A stock classified as BUY is expected to yield at least 15% within the next 12 months. A stock rated as HOLD are expected to yield between 5% and 14% within the next 12 months. A stock rated as SELL is expected to yield less than 5% within the next 12 months.
Rating Distribution as of June 26, 2013
BUY: 42%
HOLD: 24%
SELL: 34%
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