El Puerto de Liverpool, S.A.B. de C.V.

Hello, everyone, and thank you for joining us for our third quarter 2025 conference call. Despite ongoing revenue growth, this quarter was once again driven by a combination of significant achievements and challenges.

We acknowledge that the economy is growing at a cautious pace. And during this period, customer activity has remained heavily focused on promotions.

We remain committed to factors within our control and are confident that our long-term strategy is headed in the right direction. I would like to mention the key achievements during this period, sustained top line growth, commercial margin showing a positive trend, excluding logistics expenses, inventory levels maintained under control and well positioned for the peak season and profitable expansion of the credit business.

Let's now review our results. In the third quarter, we achieved a consolidated revenue of 48.1 billion, up 4.4% compared to the same period last year.

This top line result reflects the diversified strength of the portfolio, where the Financial Services segment led with revenue growth of 15.7%. The Real Estate division also performed strongly, increasing 7.3%.

Retail revenue contributed to the result with 2.9% growth. In our commercial business, while some promotional efforts yielded positive results, overall, the outcome were mixed.

One of our core events, La Gran Barata delivered positive results, particularly at the start and closing, effectively clearing all inventory and setting the stage for margin improvement throughout the rest of the year. In contrast, the Back to School promotion faced headwinds, encountering a challenging environment marked by ongoing customer caution.

The Mid-Season sale delivered mixed results, but reaffirmed the success of our inventory clearance efforts. Throughout the quarter, the most successful categories were Sporting Shoes, Mattresses, Home Appliances, and Cosmetics.

Apparel across the board was somewhat below expectation. Despite the continued headwinds in the Mexican retail landscape, overall revenue achieved a 2.9% growth.

By banner, Liverpool achieved 1.9% same-store sales growth, a performance primarily driven by an increase in average ticket value. On the other hand, Suburbia's Same-Store-Sales increased by 4%, driven by a strong result during our [indiscernible] in July and August as well as throughout our Back to School campaign in August.

Turning to margin. The consolidated retail margin, excluding logistics, was down approximately 100 basis points year-over-year.

As previously indicated, despite this contraction, the trend is positive, especially considering that in the first half of the year, the margin had contracted by over 200 basis points. While we continue to engage in strong promotional activity to stimulate consumption and manage inventory levels, this improvement indicates a move toward a less aggressive promotions environment, a more favorable exchange rate and a more prudent inventory management.

Retail margin, including logistics, was 31%, representing a 223 basis point decline. This contraction reflects not only the margin pressure, but also onetime logistics expenses and overall increased logistics costs, which temporarily impact the result.

For further perspective, quarterly results include approximately $299 million in onetime expenses related to the transition to our new Arco Norte softline facility. The successful migration of the most complex portions of the operation, accounting for approximately 3/4 of total to the new site is now complete.

We expect to transition the remaining parts of the operation over the next few months. Inventory health remains a key strategic priority.

In the third quarter, we continued making progress in reducing overall inventory, which now reflects a 15.8% increase compared to last year. This increase is consistent across our 2 banners, both growing at approximately the same rate.

Although these levels are higher than overall sales growth, we are satisfied with the reduction of inventory, particularly in Suburbia and the current obsolescence levels. Our inventory position ensures we are well prepared to meet the merchandise needs for the peak season.

The strength of our unified commerce strategy is reflected in the performance of our digital channels, which continue to grow. Total GMV increased by 22% year-over-year.

This growth was broad-based. Liverpool achieved a digital share of 28%, an increase of 3.4 percentage points with its Pocket App user base growing almost 13%.

Suburbia experienced significant growth with GMV increasing by 35%, resulting in the digital share rising to 6.9%, a 158 basis point expansion and the app user base expanding by nearly 14%. In Marketplace, we achieved a robust sequential GMV increase of 28% year-over-year.

This growth highlights our successful efforts to expand the platform's reach and to better align with our core offerings, partially driven by a 36% increase in SKUs and an 18% rise in active sellers. We're encouraged by these results as they confirm the inflection point we identified in the second quarter, and we remain committed to sustaining this positive momentum.

Our focus on customer convenience has resulted in Click & Collect orders accounting for 40% of Liverpool orders, representing a 57 basis point increase in participation compared to the previous year. Furthermore, the speed of delivery also remains strong.

51% of Liverpool's digital orders were delivered within 48 hours, a similar share to last year. The availability of merchandise at the store closest to the customer's home has enabled us to offer seamless options, with same-store pickup and direct-to-home shipments reaching 38%.

This highlights our ability to efficiently serve customers through local inventory accessibility. The Financial Services segment continues to showcase its strength, reporting a strong revenue increase of 15.7% year-over-year.

This performance was primarily fueled by a 13.3% expansion in the credit portfolio as well as the 6.5% increase in credit customers, which now reached 8.2 million. The segment also benefited from higher card utilization.

Our own payment methods increased 200 basis points in Liverpool to 51% and 240 basis points in Suburbia to over 35%. Additionally, [indiscernible] purchases contributed to overall portfolio growth, increasing by 11%.

Turning to credit quality. The nonperforming loan rate closed the quarter at 4.4%, representing an increase of 34 basis points compared to last year.

This movement is in line with our projections as it reflects our deliberate strategy of gradual risk expansion. We continue to adopt a conservative stance this quarter, increasing our general coverage index by 63 basis points to 10.7% of the gross portfolio.

Our bad debt reserve remains solid, representing 2.4x the NPL balance, reinforcing the strength of our position against potential asset quality deterioration. This prudent resulted in a credit loss provision of $1.3 billion, a 30% increase, which was driven by portfolio growth, the slight rise in NPLs and the more conservative coverage approach.

To note, despite the higher reserves, the profit impact was offset by increased financial segment revenue, preserving our overall profitability margins. Based on our year-to-date results, we anticipate that credit loss provisions for the full year 2025 will be at the higher end of the previously communicated range of 30% to 35% compared to 2024.

This figure does not change our year-end NPL outlook, and we expect revenue growth will continue to offset the higher level of reserves. Our Real Estate division continues to perform strongly with revenue growing by 7.3%.

This growth was fueled by improvement lease spreads and the reactivation of operations at Galerías Acapulco, which was impacted by Hurricane Otis last year. Additionally, early revenue contributions from the major Galerías Metepec expansion began to materialize.

Customer traffic also reflected a positive trend with parking revenues rising as 3.9 million cars visited our shopping centers during the quarter, up 1.4% compared to the previous year. The quarter's overall profitability picture reflects a gross margin contraction of 110 basis points.

This result was led by a reduction in retail margin, although it was partially mitigated by the stronger contribution from the Financial Services segment's profitability. In Q3, operating expenses increased by 11.5%.

We continue to manage the persistent impact of minimum wage adjustments on both internal payroll and external labor-intensive services. Furthermore, the required increase in bad debt provisions aligned with our planned growth in the credit portfolio was a key factor contributing to the overall rise in expenses.

Given the points covered, EBITDA stood at 6.4 billion, representing a 14.8% decrease from the prior year. This resulted in an EBITDA margin of 13.3%, a contraction of 300 basis points compared to last year.

Based on our year-to-date results, we are adjusting our expected EBITDA margin for the full year 2025 to a revised range of 15.5% to 16.0%. For the May July quarter, Nordstrom soda net sales grew by 5%.

The adjusted EBITDA margin contracted by 10 basis points, reaching 9.9%. Net income for the period was $129 million.

For Q3, Liverpool's interest in Nordstrom reflects a contribution of MXN 1.1 billion. We continue reviewing the acquisition accounting entries under IFRS 3 and now expect to recognize the full effect of these entries along with our share of acquisition-related expenses in Q4.

Based on preliminary estimates of the fair value of assets acquired and other standard accounting adjustments in such transactions, we anticipate absorbing approximately $150 million in 2025. Since these are noncash items, these adjustments do not represent a material change to the expected profitability of this investment.

We have also reviewed our forecast for 2025 dividends from Nordstrom, and we now expect to receive approximately $9 million during the remainder of the year. We anticipate returning to the pre-acquisition dividend per share level in 2026.

Additionally, during August and September, Nordstrom Inc. distributed dividends amounting to approximately $376 million to its parent company, which in turn repaid in full and loan issued by a subsidiary of Liverpool at the transaction closing.

As of September 30, the cash associated with this operation is reflected in Liverpool's books. In terms of nonoperating items, higher financial expenses resulted from the $1 billion bond offering completed in January as well as a reduction in our cash position due to the Nordstrom transaction.

This negative effect was offset by the previously mentioned $1.1 billion positive contribution from our participation in Nordstrom. The bottom line result shows a consolidated net profit after tax of $4 billion, representing a 10.5% reduction year-over-year.

Turning to CapEx. Our cumulative investment reached $6.7 billion, a 19% decrease compared to 2024.

This decline is mainly due to the previous year acquisition of the Altama Tampico shopping mall. Our investment program has been primarily directed towards modernizing our logistics infrastructure and executing renovations across our existing store footprint.

Operating cash flow resulted in a positive $4.3 billion. Our balance sheet demonstrates sustained financial strength, concluding the quarter with $10.1 billion in available cash and a robust leverage of 0.8x net debt to EBITDA.

Now let me provide a brief update on some of our most important projects. In our new softline logistics facility at Arco Norte, the migration of the most complex portions of the operation, approximately 3/4 of the total operation to the new site is now complete.

The migration of cross-dock local suppliers has been finalized with all sorters and equipment now functioning as expected. In the coming months, we will finalize the remaining capabilities [indiscernible] and transfer all important merchandise and a few other operations to the new facility, virtually completing the overall migration process.

For reference, our former distribution center in [indiscernible] will continue operating as a last mile hub for the north of Mexico City. This year marks the 100th anniversary of our credit business, making us pioneers of the formal credit cards in Mexico since 1925.

Over the years, our offerings have expanded to include insurance and investment funds, reflecting Liverpool's resilience and our customers' loyalty. I thank our dedicated teams for their ongoing commitment and our customers for choosing Liverpool's cards as their preferred payment network, allowing us to celebrate the century together.

To note this milestone, we introduced a special commemorative card featuring our historic store in downtown Mexico City. The Financial Services division remains a vital part of our ecosystem, significantly contributing to our financial performance.

On August 21, we marked an important milestone with the inauguration of the Galerías Metepec expansion, effectively doubling the property's footprint to nearly 98,000 square meters and positioning it as one of the largest malls in Mexico. This $2.8 billion investment not only secures one of our largest assets, but also reinforces our commitment to the economic and social development of the community, projected to attract 20 million visitors per year.

This quarter, we celebrated the 45th anniversary of Perisur, one of our group's first shopping centers and an iconic destination in Mexico City. Over the years, it has welcomed more than 200 million visitors across 3 generations, underscoring the long-term value and ongoing market relevance of our assets.

We remain committed to continuously enhancing Perisur and creating unparalleled shopping destinations. We expanded our partnership with a Walt Disney Company to open standalone Disney Stores in Mexico.

We launched the first 2 Disney Stores boutiques in Latin America located in Perisur and Galerías Metepec. This move strengthens Liverpool's strategy and will complement the existing Disney corners within our stores by introducing items exclusive to Disney parks and a more extensive Star Wars lineup.

This quarter, we added 7 new Liverpool Express units, increasing the total number of these high-efficiency locations to 59. We opened 7 Livestore boutiques across Mexico City, Estado de México, Querétaro, Yucatán, and Tabasco.

Livestore function as a tech hub, offering the complete Apple product catalog backed by high-quality service from certified tech support. We are actively strengthening our commercial portfolio by integrating Fabletics into our ecosystem through a rapid rollout of 4 new stores.

This move capitalizes on the high-growth athleisure category by offering unique world-class fashion to the Mexican market. We are pleased to announce that we have successfully concluded the proceedings related to the end of our strategic alliance with BYD.

Thank you for your continued support as we move forward. Regarding credit agencies, on August 11, Standard & Poor's reaffirmed Liverpool's rating at BBB for foreign currency, maintaining a Stable Outlook.

On October 15, S&P also reaffirmed the company's rating on its national scale at mxAAA/mxA-1+ with a Stable Outlook. With respect to rankings, Liverpool made notable progress in Expansión Magazine's Empresas Responsables 2025 Ranking, ranking 53rd overall.

The biggest leap was in the Social component, rising from 79th to 17th place, validating our investment in people and policies. This underscores how our focus on social impact supports sustainability and performance.

Finally, Liverpool has continuously ranked in the top 10 of Merco Empresas Mexico from 2020 to 2025, highlighting strong market perception. In 2025, it secured 9th place out of 200 companies, reaffirming the effectiveness of our long-term strategy and our strong position in the Mexican business landscape.

As we wrap up, our focus is now on executing for the fourth quarter. This involves sustaining strong top line growth, further improvement of commercial margins, executing a strategic promotional calendar, leveraging a healthy inventory position and driving profitable expansion in our credit business.

The ongoing evolution of our unified commerce strategy, combining digital acceleration, fulfillment efficiency and our expanded store footprint remains a key driver of our future success. We appreciate your engagement and time this morning.

With that, we have concluded our formal remarks and are now ready to take your questions.

This is [Axel Gieseke] or Antonio Hernandez from Actinver. Just a couple of quick questions.

The first one regarding margins. The retail margin, excluding logistics improved, but consolidated margin contracted around 220 basis points.

To what extent do you see logistics cost as structural versus temporary transition issues from Arco Norte? Do you anticipate regaining the lost margin points in the fourth quarter?

Or will 2026 be the real inflection point? And given the year-to-date performance, do you still expect to be in line with the full year guidance?

[indiscernible] Thank you for your questions. Let me talk about margin first.

We're seeing is that excluding logistics, margin improved to a reduction of 100 basis points. That even though it's lower than last year, it's an improvement versus the first semester.

And we expect to continue to be below last year, but with closing the gap during the fourth quarter. Now on the logistics side, excluding depreciation, we expect to return to free move levels somewhere in 2026.

During this year, our expectation is to be focused on the moving of the operation from the previous site to the new site. It is a really complex project.

So the focus is to get the new site going and to focus on synergies throughout 2026. Now talking about the year-to-date performance for the full year.

We expect to hit most of our guidance. However, as I said earlier, we are reducing our EBITDA margin guidance from a range of 16% to 16.5% to a new range of 15.5% to 16%.

Hi. This is Alex with Morgan Stanley.

Two quick questions from our side. Perhaps starting with the logistics.

I think in the beginning of the year, you sort of guided for a MXN 1.2 billion one-off expenses related to the migration to the Arco Norte. And so far this year, we have seen you book around like MXN 500 million in the second quarter and third quarter accumulated.

So just curious to hear if you have like an updated number or around this MXN 1.2 billion for the full year or we should see another MXN 700 million concentrated in the fourth quarter? And the second question here around the inventory levels.

I mean, it's been many quarters since we have seen this -- the inventory year-over-year growth outpaced your retail sales growth. So just curious to hear from you when we should expect to see a more in line, if you will, inventory growth with your retail sales?

Thank you, Alexandre. Let me talk about logistics first.

As you correctly pointed out, the cumulative onetime expenses are in the range of MXN 500 million. And given that, that's been below our expectation, we now expect to recognize onetime expenses in the range of MXN 900 million to MXN 1 billion.

Now talking about the inventory, we are glad to see that the effort to clear out older inventory has been paying off. If you remember, last quarter, Liverpool was at 20% and Suburbia at 40%.

So both banners being around 16% now is definitely a positive sign. And keep in mind that we decided to accelerate some holiday shipments because last year, some merchandise arrived at the stores very close to Christmas.

And that has limited our ability to push for further reductions. By year-end, we expect to narrow the gap between inventory and sales growth.

And even though inventory will be -- what we expect to be higher than sales growth, we want to avoid putting pressure on next year's margins.

I'm sorry. Can you hear me now?

Yes, we can.

Okay. Sorry about that.

So this is [Melissa Whelan] from Bank of America. I just wanted to ask first if you could provide an update on Nordstrom.

So both the operating trends for Nordstrom and Rack as well as some of the tariff mitigation strategy you have in place? And then if you could also just confirm the accounting impact you expect related to the investment.

I think you mentioned both some acquisition costs as well as fair value adjustments. So I just want to understand again the total amount and if this is a balance sheet adjustment or it's something that's going to be flowing through the equity income line.

And then I also was going to ask about the tariffs on Liverpool and Suburbia, both your exposure, sort of timing of impacts and perhaps opportunities to mitigate those.

Thank you, Melissa. Let me talk about Nordstrom first.

We're really pleased with the Nordstrom -- with how Nordstrom has performed with sales up 5%, which is above our expectation and especially considering coming from a mature market. So overall, we are happy with the trends that we're seeing in that business.

Now talking about the accounting adjustments that we will be recognizing in the short term. We are finalizing the fair value of the acquired assets and other accounting adjustments that are standard in this type of transactions, and we intend to recognize those next quarter.

The preliminary figures suggest that we will record around [$115] million related to adjustments, related to the fair value -- the recognition of the fair value of the acquired assets, plus about $40 million for acquisition-related expenses. Both of those will flow through our P&L through accounting equity method.

And lastly, talking about tariffs, we've been closely monitoring the recent situation. It's still very early, and it's very hard to quantify exactly how it will affect us.

But we think for reference, one of the biggest impacts will be in low-priced shoes, especially in Suburbia. So the tariffs themselves are concerned, but in that particular category, there is an additional issue regarding something that is called estimated reference price of over $22 per pair.

And we believe it's almost impossible to pass on those tariffs through pricing because it entails a very significant price adjustment. So we are exploring all of our options and are watching closely what Congress ultimately approves.

And once we have a clear picture, we'll be able to decide on any adjustments to our pricing strategy.

And when it comes to sourcing, how much of your imports or your merchandise is coming from countries where Mexico does not have a trade agreement?

We import around 15% of our inventory directly and about 80% of those comes from Asia. And if you consider the imports that are done by our vendors and we purchase imported goods from their Mexican subsidiary, that represents 40% to 50% of the total inventory.

So as the Mexican government imposes tariffs on those, there could be a combination of increased cost. So as you can imagine, both our vendors and us are assessing our sourcing options to try to mitigate the impact.

I just wanted to follow up on some comments you made at the beginning of the call where you referred to the ability to maintain less -- a little bit less of a promotional stance and seeing a better FX backdrop. And I was wondering if that was primarily related to your own inventory levels or also something that you're seeing overall in the marketplace?

And perhaps if you could just comment a little bit of what you're seeing in terms of consumer backdrop in terms of demand across different categories and the formats as you're heading into the fourth quarter and how that's impacting your sort of pricing strategies aside from some of the comments that you've already made around specific tariff situations, et cetera. And then, yes, just regarding Nordstrom, sorry to go back to it, but it would just be incredibly helpful if you could sort of lay out a little bit from the Board level, anything that you can share in terms of how we should think about the outlook there, both into year-end and into next year.

It just -- it's unfortunately, it's relevant enough for -- I mean, fortunately, it's relevant enough to your overall results. But unfortunately, I think there's quite limited disclosure available for us as analysts right now.

So anything additional that you can provide in terms of the strategic forward and growth strategies, growth drivers would be incredibly helpful.

Thank you, Irma. Let me talk about promotions first.

We are referring specifically to our own promotions with our own inventory. Actually, what we have seen in the overall market is that all retailers are having a very robust promotional activity.

So what I'm referring to is that given that we ended last year with a very high inventory position throughout the first quarter and part of the second quarter, we had to increase our overall promotion calendar in order to reduce inventory, and we are happy with the inventory results. If you recall, at the end of the year and then on the first and second quarters, we have very large increases in inventory growth.

And by the end of this quarter, we feel confident that it's finally under control and that we have enough merchandise to -- going into the holiday season. But as an overall industry, I think there's a lot of promotions going with a lot of our peers.

Now talking about the consumer backdrop. We've seen that customers are really focused on promotions.

So we need to be great at product availability and keeping customer satisfaction high. As I mentioned, our promotions were mixed.

So some of them resonated well. But overall, we have -- when we have smaller discounts, sales came in below what we expected.

And talking about Nordstrom, we are happy with how the business is performing. If you remember last quarter, I said that we were expecting a contribution in our books of around $210 million.

Those $210 million already included the acquisition-related expenses. However, they did not include the accounting adjustments related to fair value of acquired assets and those type of things.

Those $150 million would have to be subtracted to the $210 million that I mentioned last quarter. And looking forward to 2026, at this moment, we are not providing a guidance either for Liverpool nor Nordstrom.

Hi, team. This is Nicolas Rodrigues from Citi.

And my first question is about credit portfolio that remains strong. And how should we think that evolving towards 2026?

And how comfortable you are with further uptick in NPL? And the second question is about real estate.

And regarding the real estate segment growth, could you please provide more color about magnitude of the traffic increase? And could you elaborate a little more about these other factors that affect the results on real estate segment?

Okay. Let me talk about credit first.

We feel very comfortable with the current NPL levels. As we have explained, we have a deliberate strategy to take on higher risk and the intention is to return to our pre-pandemic levels.

So for reference, even though the current quarter is about 30 basis points above last year, if you go back to the third quarter of 2019, NPLs were 6%. So we think that we still have room to grow or to absorb NPLs in the sense that it helps us in 2 ways.

The larger -- the portfolio, the larger the credit business, which helps our overall Financial Services division. But considering that 50% of our sales are done with our own credit cards, it also helps the retail business.

And that's why we have this deliberate strategy to take on additional credit and absorb higher risk. And as you can imagine, that's counterbalanced with very strict administrative measures with the proper customer segments, and that's why we are having a very conservative stand on overall coverage, and that's why our P&L reflects a 30% increase in credit reserves.

Now going to real estate, I didn't quite follow. Can you please repeat the question?

It's about how magnitude of the traffic increase. And if you could talk more about the other factors that affect real estate growth?

You mean overall traffic increase?

Yes.

Well, we have seen some traffic increase. And we think that with projects like our Galerías Metepec, it's a very significant investment.

And now that shopping mall has increased its size almost 100%. So the larger the shopping malls, it provides more opportunities to welcome visitors.

So we feel very good about overall traffic. For instance, just on the parking spaces, we have seen a significant increase on the usage of overall parking space.

And I think the factors that affect the overall shopping centers, I mean, the shopping centers activity is a reflection of the overall health of the consumer. So when the consumer health is good and the economy is doing well, then traffic tends to increase and the other way around.

And I think from our perspective, we want to provide experiences and places that provide a good shopping experience to entice customers to come into our shopping centers and have a good time.

Just a quick one on my side. Can you comment on the trend you saw between ticket and traffic on Same-Store-Sales during the quarter?

And also September seemed to be kind of weak. Are you seeing a sequential pickup on sensor sales in October?

In the case of Liverpool, the increase was mostly related to ticket instead of traffic. And in the case of Suburbia, it was a combination.

For perspective, price increases in the third quarter are about 10% -- I mean, prices are about 10% higher than they were at the end of last year. Now talking about October, October kicked off a bit slow.

Our [indiscernible] event in the first week of October was flat compared to last year. So it's pretty clear that shoppers are focusing on price and maybe even waiting for some of the big events that happened in Mexico throughout November and December.

However, even with this slow start, we had another promotion event last weekend that performed much better. So we're feeling cautiously optimistic.

Thank you for your time. We look forward to speaking with you during our next call.

Have a great day.