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In 2016, sales at Grupo Sanborns grew 7.2% to reach Ps. 47,594 million, representing Ps. 3,181 million more than the previous year. The increase was due to the good performance of all formats where Sears, Sanborns and Promusa stores contributed with 51.6%, 26.7% y 15.2% of sales, respectively.

Economic outlook

During 2016, the global financial environment was impacted by a number of significant factors, including the volatility at the financial markets and the referendum in the United Kingdom to decide on the convenience of leaving the European Union. Likewise, the strengthening of the value of the U.S. dollar against other currencies and the Mexican peso, because of the presidential elections in that country, was part of the events that characterized the year.

In the year, the U.S. economy expanded 1.6% mainly driven by a 5.77% growth in durable goods consumption. Nonetheless, private investment decreased 1.55%. Similarly, the benchmark interest rate in the United States increased by 25 basis points, which was mainly due to the high level of employment and inflation rate in comparison with the Federal Reserve target. As a result, the country’s monetary policy suffered an adjustment.

In Mexico, the country’s Gross Domestic Product (GDP) grew by 2.3%, a marginally lower rate than that registered in 2015. Furthermore, formal employment expanded 4.10%. In particular, the tertiary sector of the economy offset the zero growth observed in the secondary sector, which was a result of both lower oil production and the moderate growth shown by the manufacturing industry. Regarding the behavior of domestic consumption in Mexico, the indicator was positively driven by a greater historical flow of remittances to the country, lower interest rates and the presence of higher real salaries and wages. The inflation rate stood at 3.4%, driven mainly by a higher price of electric energy and fuels, as well as by the devaluation of the Mexican peso against other currencies towards the end of the year.

The Mexican currency suffered a devaluation of 18% during the year, registering a high volatility derived from the uncertainty produced by the presidential election in the United States of America, with potential impact on the North American Free Trade Agreement. This situation contributed favorably to a significant reduction of the trade deficit of our country in the last months of 2016. Additionally, Banco de México modified the monetary policy by raising the benchmark interest rate five times along the year, from 3.25% to 5.75%.

The surplus in Banco de México’s monetary reserves, as well as the convenience of monetizing public assets, jointly with the country’s solid export industry, tourism, the domestic sector and other competitive advantages, allowed Mexico to strengthen in the face of new international challenges. Similarly, economic growth in the United States is expected to increase the demand for goods and employment in Mexico, positively affecting the growth rate of the domestic economy.

Grupo Sanborns

Due to the mentioned events regarding the economic scenario, the year 2016 represented a series of challenges. Despite this, our annual sales increased 7.2% to Ps. 47,594 million. On the other hand, profitability improved having observed an increase of 34.9% and 13.4% in the operating profit and EBITDA, respectively. This was mainly due to the contribution to sales of all commercial formats of Grupo Sanborns, noting that a special attention was given to the categories of products with higher gross margin, customer service, and responsible handling of expenses. Likewise, the development of domestic suppliers and maintaining a sound credit portfolio contributed to better returns. An important event that took place in the year was the acquisition of 14% of the shares that Sears U.S. had of Sears Operadora Mexico, S.A. de C.V. and Inmuebles SROM, S.A. de C.V., from which an extraordinary gain for Grupo Sanborns was generated. As a consequence of the transaction, we now control a 99% economic interest of Sears Mexico.

We continue to execute business strategies in each store format. In this regard, sales at Sears rose 7.7%, reflecting the strong performance of various categories, along with the effectiveness of the attractive consumer promotions implemented. In particular, the credit portfolio grew 10.9% to reach Ps. 12 billion, while the productivity of the sales financing portfolio improved.

As for Sanborns stores, sales expanded 0.6% in the year which were mainly driven by the launch of fashion brands at stores, boosting credit card base, and offering new types of dishes based on regional Mexican cuisine at the restaurants.

An aspect to highlight is the lack of comparability in sales of both formats since the register of the sale of telephony products and services in the first nine months of the year changed.

As for Promotora Musical, annual sales grew 13.1%, which is mainly explained by the launch of new technology models and the change of the commercial image that took place at some stores. We continued to implement a better mix of products in the MixUp stores, a strategy that allowed us to maintain the positive contribution to sales.

During 2016, our expansion plan proved to be the period in which the largest number of stores have opened since 2012, which is 17 units. Out of these, six corresponded to Sears, seven to Sanborns and four to iShop stores. Openings included the Sears store in Atizapán and Sanborns Palmas, an iconic destination, registering great acceptance by our consumers. We have also completed the expansion of a distribution center and the renovation and expansion works of some of our most dynamic units, including Sears Oaxaca, Angelópolis in Puebla, and the transformation of Sanborns Perinorte. By the end of 2016, we had one million 186 thousand square meters of commercial space, thus representing a 6.4% expansion against the previous year.

Sales at Other Formats grew 20.0% in the year. This mainly derived from the convenient performance of the Dax and Saks Fifth Avenue stores in the period. Likewise, ClaroShop.com contributed to the observed growth after a year of operations. Diverse initiatives have taken place at the e-commerce site’s logistics and delivery of products by offering a unique experience to online customers.

Profitability at Grupo Sanborns improved during 2016. In this regard, operating profit expanded 34.9%. This growth is a consequence of the recognition of the extraordinary item connected to the acquisition of 14.0% of Sears Operadora México’ shares as previously mentioned. Without considering this extraordinary effect, during the period, EBITDA of Grupo Sanborns would have increased by 13.4%. Moreover, net income grew 44.5% in the year and net income per share stood at Ps. 1.94, a figure that compares with Ps. 1.33 recorded in 2015.

Grupo Sanborns’ financial situation remains healthy. At the end of the period, total assets were Ps. 45,185 million, while total liabilities stood at Ps. 14,233 million. Stockholders’ equity was Ps. 30,951 million.

Grupo Sanborns currently maintains a healthy financial structure that will enable it to face future growth, including value creation for our shareholders. In this respect, the net cash flow generated by operating activities was Ps. 3,495 million. Moreover, the Company’s net debt was negative by Ps. 1,714 million. At this regard, the ratio net debt to LTM EBITDA radio was (0.26) times. Grupo Sanborns paid an ordinary dividend of Ps. 0.86 in two exhibitions, which took place in May and December 2016. The dividend came from the balance of the Net Tax Income Account. On its own, Capex totaled Ps. 2,905 million in the year.

With regard to sustainability, the Carlos Slim Foundation executed programs in various fields, thus demonstrating the high sense of social responsibility that it maintains under a scope of efficiency and opportunity. In this regard, the foundation participated in education, employment, health, nutrition, social justice, and culture, as well as human development, natural disasters, economic development, and environmental protection and conservation. The foundation’s actions contributed to improving the quality of life of the population, thus promoting the formation of human capital, as well as generating opportunities for the integral development of people and communities.

We are motivated to continue improving the results achieved in 2016. Once again, I thank our customers and suppliers for their support, as well as to all our employees who make up our Group. Their effort, commitment and dedication were key elements for Grupo Sanborns’ success in 2016.


Mr. Carlos Slim Domit

Chairman of the Board of Directors
of Grupo Sanborns, S.A.B. de C.V.