Management’s Discussion and Analysis

Since the start of the health emergency Grupo Sanborns implemented various prevention and mitigation measures to preserve the health of its customers, collaborators, providers and the public in general. From March 31 to June 15 of 2020 all the Sears and Saks Fifth Avenue stores were temporarily closed. Sanborns temporarily closed 96 Sanborns stores and 22 Sanborns Cafés. The rest of the Sanborns stores stayed open and continued to provide essential products and services in the pharmacy and telecommunications departments. Most of the iShop stores stayed open while complying with the health measures, depending on the city and the restrictions imposed in the commercial centers. The Dax stores continued to operate, since they are self-service stores. The Loreto and Plaza Inbursa commercial centers closed temporarily, leaving only the restaurant service open, under the option of serving take-out pre-prepared meals and drinks. Sales and services continued through the digital stores.

Because of the health crisis the reception of credit card payments was by digital means, and other means were implemented in bank branches and through cashiers in some sales points. These fundamental procedures were instrumental in the preservation of our liquidity.

Due to the temporary closure of stores, Grupo Sanborns sales decreased by 25.7%, for a total of $39,613 million pesos in 2020.

During 2020, operations were optimized with the permanent closure of 11 Sanborns stores, the three Central America stores stores and the Saks Fifth Avenue store in Plaza Carso, which was replaced by the new Sanborns Home & Fashion format. Towards the end of December a Sears department store in the city of Monterrey was closed. Three iShop stores were opened during the year: the Alameda Otay store in Tijuana and the Koral Center store in Los Cabos, both in the State of Baja California, and the Playa del Carmen store in Quintana Roo.

The credit portfolio totaled $10,176 million pesos. The extending of controlled credit and the forbearance towards debtors continued in place. 69 thousand new cardholders were added, to reach a total of 4.48 million cards outstanding. The percentage of non-performing loans of more than 90 days rose from 3.6% in 2019 to 5.2% in 2020.

The operating income diminished by 64.2% to $1,681 million pesos. This was due to the closure of the physical stores because of the pandemic and to the greater participation of electronics and technology items in the mix of products. The operating expenses decreased by 15.9%. The principal savings were observed in the sales expenses related to rentals, a lower consumption of energy and a lower payment of banking commissions. In the administration expenses, savings were realized from the lower expansion expenses and payment of fees. Additionally, lower depreciation, advertising and promotion expenses were observed.

The EBITDA for 2020 was $2,041 million pesos. Not considered for its calculation were the following: Other Net Income in the amount of $1,470 MM, consisting of -$45 MM in the devaluation of investment property, $1,489 MM in the valuation of labor obligations from the change in the employees’ pension plan, and $26 MM from the reversion of depreciation. The EBITDA margin was 5.2%.

The financial results represented an expense of $472 million pesos, which was greater than the $377 million pesos recorded in 2019. It included a loss from the fluctuation of the Exchange rate, versus a gain for the same concept in 2019.

The net controlling gain of Grupo Sanborns totaled $727 million pesos, compared to $2,949 million pesos in 2019.

The Group’s capital investments totaled $467 million pesos versus 2019, which included the expansion realized during the first quarter of the year. On December 31 of 2020 we had 439 units with a sales floor space of one million two hundred thousand square meters.

On June 30 of 2020 Sanborn Hermanos, S. A. de C.V., merged the Sanborns Café format (Integral Administration of Alimentos, S. A. de C. V.), Dax stores (Comercializadora Dax, S. A. de C. V.), Saks Fifth Avenue stores (Operadora de Tiendas Internacionales, S. A. de C. V.), as well as their respective services companies.

On July 31 of 2020, Sanborn Hermanos, S. A. de C. V. merged with its subsidiary Comercializadora de Tiendas Internacionales, S.A de C.V.; Promotora Musical, S.A. de C.V. merged with its subsidiary Paden, S.A. de C.V., and Sears Operadora México, S.A. de C.V. merged with its subsidiary Secorh, S.A. de C.V.

On November 30 of 2020,, S.A. de C.V. merged the subsidiary Holding, S.A. de C.V. and the subsidiary Empresa de Personal, S.A. de C.V.

Thanks to all these optimization measures Grupo Sanborns was debt free on 31 December, 2020. Its cash position was $3,991 million pesos, compared to $1,690 at the end of December of 2019. This increase of $2,300 million pesos in cash was the result of a good management of working capital, with a reduction of 15.8% in the inventories account and a reduction of 3.7% in provider and other short-term accounts payable.


Patrick Slim Domit

Chief Executive Officer of Grupo Sanborns, S.A.B. de C.V.