The newest owner of the Smart & Final retail cash and carry chain released their fiscal result for Q1.
Numbers were impressive even without the acquisition accretion. Non Smart & Final assets, 3 grocery and retail banners, (Chedraui in Mexico, El Super and Fiesta Mart in USA) posted a 22.2% EBITDA increase year over year, easily outpacing sales growth. Operating and net margins at each division rose, which serves to reduce fears, albeit a bit premature to make a definitive call, of inflationary pressures impeding bottom lines.
Rather, it appears that Chedraui is able to not only pass on price increases to consumers, but in fact is utilizing inflation as a pricing tailwind. Margins at Smart & Final were determined to be 7%, ahead of the El Fiesta TX banner that produced an EBITDA segmented number of 6.6%.
Consolidation of EBITDA results from Smart and Final ($73.4 million USD) and the extremely high margin real estate rental EBITDA in Q1 produce an overall net EBITDA result of $234 million USD in Q1, well in line with my forecast. Capex was $48.2 million USD for the quarter. Net earnings were $54 million USD, up 48.8% from the same quarter of 2021. All final Mexican peso denominated interest bearing debt was extinguished in Q1 so as to remove the need to hedge currencies. Management prefers to let the currency chips fall where they may.
It seems that Grupo Chedraui is doing their level best to obscure good financial results from the American public.
In the English quarterly release, the company didn’t bother to produce an EPS figure, which came in at $.055 US per share. That’s fine by me. Too many investors focus upon earnings per share numbers when I believe that EBITDA (and clean EBITDA, not something concocted in a smoky, badly ventilated basement and passed up to a harried CFO who merely wields a rubber stamp) provides more utility for investment models. It is a rare sign of composure and self awareness by a business when management won’t supply a basic retail metric required for pedestrian investment programs, the magic EPS number, in order to produce a hit on a “screening” criteria, which is then clicked on by lazy investors and pronounced to be an “unearthed” bargain.
Management of Chedraui seems disinterested in cultivating and placating a base of nervous investors who personally refuse to divide net earnings by the number of the shares outstanding themselves and choose, instead, to delegate net worth decisions based entirely upon faulty computer screens. Screening databases are so riddled with errors that they are wholly undeserving of the time wasted by retail investors to pull them up, let alone consider them as a source of wisdom.
Stock filters do not represent investment research; rather, they promote bias.
The entire purpose of a screener is to limit choice, which reduces profit potential via an aggregation and consolidation of investment capital into a largely preselected group of equities. I would be as happy to read, one day, that such programs were banned by the SEC, but failing that, individual companies, by withholding an easy to calculate metric, can simply step away from the hamster wheel.
Grupo Chedraui, by not providing an EPS line item on their fiscal report, and by further refusing to issue a line item footnote, in English language quarterly documents to indicate a share count outstanding, will NEVER appear on a stock screen.
Two full fiscal quarters from Smart & Final are under the belt of Chedraui; indications are promising.
I will leave it at that.
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