2018 Annual Report

Management’s Discussion and Analysis

In 2018 Grupo Sanborns sales increased by 4.0% to a total of $51.755 billion pesos. Sears, Sanborns, Promusa and other formats contributed with 50.0%, 24.0%, 19.0% and 7.0% of the sales, respectively Consolidated same store sales grew by 3.6% during the year.

The credit portfolio remained stable at $12.920 billion pesos at the end of the year, with a growth of 0.2% compared to 2017. This small growth was the result of greater caution in the approval of new credit accounts, in order to maintain a positive balance in the credit portfolio. Two hundred and fifteen thousand new cardholders were added, for a total of 4.16 million cards. The number of non-performing loans was 4.4%, very similar to the previous year.

The operating profit for the year decreased by 7.0% to a total of $4.796 billion pesos. This was due to greater sales of big-ticket items such as furniture, technology and electronics in the mix of products, coupled with an increase of 4.9% in operating expenses, which, in turn, was due to (i) the closure of unprofitable stores during the year, (ii) the opening of two new Sears-Sanborns combined stores, as well as (iii) the increase in unrecoverable credit and reserve accounts.

The EBITDA for 2018 was $5.971 billion pesos, with a profit margin of 11.5%.

In regard to the Comprehensive Financial Result (CFR), this was positive by $101 million pesos, and greater than for 2017 by 75.8%, as a result of the higher net interest earned.

The net controlling profit of Grupo Sanborn decreased by 10.7% in 2018 to a total of $3.535 billion pesos, compared to $3.958 billion pesos in 2017.

0
thousand new cardholders
of all the formats.

In 2018, the expansion plan included the opening of four Sanborns stores, four Sears stores, nine iShop stores and one MixUp store, of which two are combined Sears-Sanborns stores. Included is the reopening of all the formats previously mentioned in the Galerias Coapa Shopping Center. Additionally, the remodeling and expansion of the Sears Perisur and Centro Histórico stores in Mexico City was concluded. The capital expenditures of the Group totaled $1.418 billion pesos. Investments were realized in the distribution center and in the readjustment of departments, both in the Sears as well as in the Sanborns stores, to focus in categories of greater profitability. We now have 441 units with a commercial floor space of 1,235,000 square meters and two shopping centers.

Grupo Sanborns was free of debt on December 31, 2018, while its cash on hand was $2.478 billion pesos, compared to $1.925 billion pesos at the end of December of 2017. This increase of $553 million pesos was due, among other reasons, to the increase in working capital and payables to suppliers.

Sincerely yours,

 

Patrick Slim Domit
Chief Executive Officer
Grupo Sanborns, S.A.B. de C.V.