Half Year 2026 Wilcon Depot Inc Earnings Call
Speaker #1: In-house brands dropped to 49.5% of total sales, down from 52.3% in the same period last year. Operating expenses, including lease-related costs. Interest expense increased by 12%, or $315 million year-on-year, to close at $2.937 billion.
Speaker #1: The biggest contributors to the increase were higher manpower expenses from salary adjustments; depreciation and amortization; and lease-related interest expenses from bulk renewals and new branch openings.
Speaker #1: Higher utility costs were due to increased power rates as well as taxes and licenses. Operating other income totaled $91 million, lower by 6.9% or $7 million year-on-year, due mainly to the decrease in the collection of supplier-related fees and customer charges, partly offset by higher rental income.
Speaker #1: Total other income, including interest income, totaled $1.04 million, increasing by 1.4%, or $1 million, over the same period last year. Net income for the quarter totaled $641 million, up 2.4%, or $15 million, year-on-year.
Speaker #1: For the first half of the year, our net sales for the period reached $18.98 billion, growing by 10.9% year-on-year, with comparable sales growth of 6.6%.
Speaker #1: Our gross profit margin reached 37.3%, and NEAT was ₱1.2 billion, up by 3.5% year-on-year. EBITDA margin was 12.7%, and EBIT margin was 8.2%.
Speaker #1: Contribution of exclusive and in-house brands at 50.5%. For the first half, the company opened a total of 5 new stores, 3 depots, and 2 DIWs, all located in Luzon, bringing the total number of branches to 109.
Speaker #1: On a per-format basis, sales from the depot format stores, which accounted for 96.3% of total net sales, increased by $1.789 billion, or 10.9%, from the same period last year, totaling $18.274 billion.
Speaker #1: The increase was driven by same-store sales growth of 6.6%, with the remaining contributed by less than 1 year sales. The smaller format do-it-well cons which includes the original Home Essentials stores recorded net sales of $607 million, marking a 67 million, or 12.4%, increase year-on-year, driven mainly almost equally by same-store sales growth of 6.1% and new store contribution.
Speaker #1: The remaining 0.5% of total net sales were accounted for by project sales or sales to major institutional accounts, which amounted to $96 million, with a $12 million, or 14.2%, year-on-year increase.
Speaker #1: Product categories performing better than average were paint and sundries, building materials, plumbing and sanitary wares, and appliances. All regions, including project sales, recorded positive comparable sales growth rates for the first half, resulting in an overall 6.6% comparable sales growth for the period.
Speaker #1: As earlier mentioned, the Depot recorded an SSG of 6.6%. The DIWs had a 6.1% SSSG, while project sales grew by 14.2%. Broken down by components, same-store sales growth was largely driven by a 4.9% increase in average ticket size, completely reversing the negative 4.6% contraction in the same period last year.
Speaker #1: While comparable transactions grew by 1.6%, gross profit for the first half of 2026 increased by $464 million, or 7%, to $7.077 billion from $6.613 billion in the first half of 2025.
Speaker #1: Lower-margin non-exclusive products' sales growth outperformed the sales growth of the exclusive and in-house brands, resulting in a decrease in the contribution of the latter to total net sales to 50.5%, from 52.3% during the same period last year.
Speaker #1: Operating expenses, including lease-related interest expense, rose 8%, or $423 million year-on-year, to close to $5.71 billion by the end of the half. The increase was mainly attributed to the rise in depreciation and amortization, manpower expenses, utilities, and trucking. The majority of the increase in expenses was recorded in the second quarter, largely driven by bulk lease renewals, annual salary adjustments, and rising utility rates.
Speaker #1: Operating other income was maintained at $194 million, as increases in rental income and supplier support and other fees were offset by the decrease in delivery fees and other customer charges.
Speaker #1: Total other income was up 5.2%, or $11 million, to total $224 million, due mainly to higher interest income. Net income reached $1.204 billion for the first half, up 3.5%, or $41 million year-on-year.
Speaker #1: WDI's total assets amounted to $41.6 billion as of June 30, 2026, up 2.7%, or $1.1 billion, over the end-2025 level, traced mainly to the increase in ROU assets and property, plant and equipment, partly offset by the decrease in inventories.
Speaker #1: Total liabilities amounting to $17.3 billion increased by 9.8%, or $1.5 billion, due mainly to lease liabilities. Correspondingly, this was driven by bulk lease renewals, which took effect on June 1, 2026.
Speaker #1: Total equity amounted to $24.4 billion, 1.8%, or $436 million, lower versus end-2025 due to the distribution of dividends. We continue to be bank debt-free, with the company's liabilities consisting mostly of trading payables and lease liabilities recognized under IFRS 16 guidelines.
Speaker #1: Our first half APEX amounted to $1.2 billion for the first half, mostly spent on new stores, warehouses, and renovation of old stores. Here is our margin trend over the years.
Speaker #1: Our dividend history: we have given out our highest dividend this year so far. We are committed to consistently giving out dividends every year, and these are our key growth strategies.
Speaker #1: We're scaling our store network intentionally. This means higher potential markets—doubling. While doubling down—sorry, this means entering high potential markets while doubling down on current locations with the strongest upside, to drive long-term value.
Speaker #1: We're optimizing our product mix and building deep brand equity. As we grow, we are continuously refining our customer touchpoints to make every interaction seamless, efficient, and highly impactful.
Speaker #1: And we want to grow where it counts and protect what works. We’re systematically and gradually diversifying away from our over-reliance on legacy volume. We are currently piloting high-demand, high-relevance product lines to steadily shift our mix.
Speaker #1: This phased approach allows us to test and validate alignment with evolving consumer preferences before scaling across our network. While this phased approach may create a temporary margin squeeze as we build out our operational advantage, we expect it to deliver significantly improved long-term return on investments.
Speaker #1: By strengthening our brand and making our digital and physical shops easier to use, we're building a business that doesn't just get bigger—it gets better.
Speaker #1: Thank you. And now, may I turn you back over to Jean for the Q&A.
Speaker #2: Thank you for that, Lorraine. And now we're opening the call to your questions. Kay Nadine, you can unmute yourself.
Speaker #3: Hi, good afternoon. Thanks for the opportunity. So my first question is mostly on first on the top line, growth in the second quarter. It's up 13% year-on-year, and also 7% quarter on quarter.
Speaker #3: If you could just share any color on what helps sales to still increase quarter-on-quarter despite the weaker GDP we've seen and also the oil-led inflation due to the Middle East.
Speaker #3: And have you observed that customers are making advanced purchases in anticipation of price hikes?
Speaker #4: So I mentioned that a lot of the sales was driven by paints as well. So we have a bit of an upshoot from that.
Speaker #4: That's one source of our sales. The other is we see normalizing trends in terms of construction and I we also don't but we don't see panic buying, the hoarding buying, because they're anticipating a price increase.
Speaker #4: It's more of a normal, normal need to buy more because the summer season is about to end—which already did. So a bit of a normal... I think it's more of a normal, normal... what do you call that?
Speaker #4: Habit or normal cycle of our contractor customers. So I think the trend is they're not— I think maybe they've gotten used to, okay, this is the price now.
Speaker #4: This is the way it’s priced in. So, the ones that maybe have held back have pushed forward, because we’re seeing quite a few new builds.
Speaker #4: So, they've gotten used to the high price of gasoline, and subsequently, of course, the price of steel and other products. So, what we've seen is just a continuation.
Speaker #4: And sometimes, it's also like getting over the initial shock of, okay, it's so expensive, but now we're going to keep going on.
Speaker #4: And also, by and large, I feel that it's not the same everywhere. I just met with our stores in some regions; they don't really see it, as they weren't shopping.
Speaker #4: They just kept going. In some regions, they kind of held back a little bit. They kind of paused, and then started resuming again. So it's kind of uneven all over the Philippines.
Speaker #4: But by and large, we're seeing quite a few new builds and some renovations, depending on the area. It's just that we have a lot of paints.
Speaker #4: How are we going to explain that? The paint is a quick and easy way of renovating or giving a facelift to their homes.
Speaker #4: But yeah, I think it's a combination. Like, we have those that just want to do a simple facelift, and there are those that really want to invest in renovating or building a new home.
Speaker #4: Yeah. So that's kind of what we've been observing in the market.
Speaker #3: I mean, I'm just a follow-up. So if you look at the indications for third quarter so far, do you think do you see that sales momentum continued into the third quarter?
Speaker #3: And what you mentioned in the increase in paints, was that the sole driver for the drop in the contribution of the in-house and exclusives in Q2?
Speaker #4: I think our in-house and exclusives are steady. It's just that the paint kind of overtook it. So the way I look at it is there's steady growth, volume-wise, for our core products. There is volume growth for our core products.
Speaker #4: And then paints is like, okay, because we sell, we have product, we have inventory, we have the right price. So they decided to buy the paints as an add-on when they shop in our stores.
Speaker #4: I guess that's—yeah, that's what contributed to the lower margin. But at the same time, it's an add-on to our sales, because if we didn't have that, then the top-line sales would be lower.
Speaker #4: They would buy the paints elsewhere, if that explains it. But I believe that our growth, there's still volume growth for our core product lines.
Speaker #3: But.
Speaker #2: But if you're talking about whether it would carry, I mean, the 8% definitely will not carry into the third quarter because we have a higher base.
Speaker #2: We were already positive SSG, so third quarter last year. So that's one. Number two, it's very difficult to say because, you know, those of us living here in the Philippines—you must have noticed that I think it's been, what, two, three weeks that it has been raining nonstop.
Speaker #2: So naturally, and which we also expected, there has been a slowdown, especially from the last week of July until today. So I'm not sure if we'll be able to catch up that 8% growth.
Speaker #2: But nonetheless, if on an absolute amount, like quarter-on-quarter, there's still growth, I think we would still be okay with that. We'll try to hold on to that little earnings growth that we have.
Speaker #2: Because well, most of our of our expenses are fixed, right? So you know, in terms of absolute amount, regardless, you know, if it's 8% or 4% SSG, if the the OPEX remains kind of fixed, now that the the minimum wage has been deferred, I think, we're we're we're still okay.
Speaker #2: And we're expecting that after all this rain, you know, there would be a surge because those that are doing projects will have to catch up.
Speaker #3: Lorraine, last on ticket size. I think the 5% increase in ticket size you've seen in Q2—can you share if this is price hike driven, or do you think that consumers are now purchasing bigger baskets organically?
Speaker #4: It's more about volume. We didn't really increase prices that much—not very much. It's really more about volume, so we're seeing that our volumes are higher.
Speaker #4: There's definitely some price increase, but not broadly — yeah, very selective. Not everywhere.
Speaker #3: Sorry, last question is on OPEX. I mean, if you can share what were the exact or specific measures that led to the slower-than-top-line growth for OPEX?
Speaker #3: And should we expect that for the full year?
Speaker #4: We were doing more optimization on the processes of the stores, like where we could, you know, leverage IT more, and then give more efficiencies to the people, like we have tablets.
Speaker #4: So, our salespeople can use the tablet to do the sales and things like that. We were not cutting, but rather we're revising the schedule, let's say, of our store warehouses.
Speaker #4: So instead of, like, a full day's store a full day's shift, we would have have it because we thought the data was we could actually squeeze in the deliveries half a shift for half a shift.
Speaker #4: So that helped us save some hours, which we could put into other functions in the stores. And subsequently, we didn't need as much manpower hours per store.
Speaker #4: And so we were able to kind of disperse the manpower more. So that's one of the things that we did. Maybe, I think the supply chain actually—
Speaker #2: The utilities—it would have been so much higher if we actually, SSG-wise, in terms of consumption, we've consumed less despite the super hot summer.
Speaker #2: It's just that the rates were really, you know, increased really too.
Speaker #4: I saw that, yeah. Our kilowatt-hour consumption was actually lower—I saw that. But unfortunately, the rate is higher, yeah. Those are the things that we've been saving.
Speaker #2: Even the supplies management—even that, you know, even down to the littlest things. And we've always thought that we've always been prudent, so there's always room for improvement.
Speaker #3: That helps. Thank you, Jean Lorraine.
Speaker #2: Thanks. Carissa.
Speaker #3: Hi, good afternoon, Jean and Lorraine. I just wanted to check on two things. On the same store sales growth, it seems like what you explained about the recovery in same store sales growth is because of a normalization in the construction activities of residential customers.
Speaker #3: So, do you think it is safe to assume that this type of demand is sustainable throughout the year moving forward? And if you can share, like, a same store sales growth guidance for the year.
Speaker #2: Well, we're—we're okay. So our original target is really to meet, you know, SSG. We're now at 6.6. That should, you know, maybe offer a bit because of the high risk.
Speaker #2: But I think we can still do the mid single digits. Actually, we were not supposed to, but anyway, we have been trying.
Speaker #2: Okay, so our inventory days have gone down to, like, 7.2 or 7.3 months. So, with just a little bit more push, it will be in the six-month territory.
Speaker #2: But I think that's one of the more one of the, like, major reasons why our in-house brands wasn't able to, like, capitalize on, you know, on on on on the surge this second quarter.
Speaker #2: Because we've actually run out of stock of our especially of our past what do you call that? The fast-moving our fast-moving items. Because we we call this week week again, our source sourcing strategy and, you know, trying to, like, make it shorter.
Speaker #2: But, you know, you know, we the the supply chain management of of, you know, of of an archipelagic and even competing, right? So it led to some delays of the arrival of of our orders.
Speaker #2: So the feedback that we got from the stores is that, you know, quite a number of their leaves—they lost them because the stock did not arrive.
Speaker #2: So we'll work—we're going to tweak it further—and we'll see if we can still, you know, push the trajectory upwards, especially of our in-house brands.
Speaker #3: Thanks, Jean. This was a follow-up or in connection relating that to the margins. So do you think there's room for margins to improve in the second half of the year, given that maybe sales contribution of paints could come off because of the weather conditions?
Speaker #3: Plus, as you mentioned, the stock arrival of the private label products could come in, so you can sell more of those. So, can that lift up your margins in the second half?
Speaker #2: Yeah, definitely. Because, you know, we haven't been in this sub-50% level for a long, long time—I think pre-pandemic. So, yeah.
Speaker #4: So it was a confluence of the stock kind of ran out, and then the paints stock we were stocking we were stocking a lot of paints, and then there was demand.
Speaker #4: We had good prices. And then we were actually pushing, I mean, for, I mean, nation—or our salespeople, we were pushing them to, like, we were supporting them with good prices.
Speaker #4: And then we were supporting them with promoting the product. So Medrol kind of slightly unanticipated that the demand would be so much higher.
Speaker #4: But because paint is locally available, I mean, it's much faster to restock, right? So, versus the in-house. So that was a bit of a hiccup.
Speaker #4: But it's normalized now. So, I guess to answer your question, we're anticipating good sales because the stock has, more or less, most of them have arrived already.
Speaker #4: And hopefully, the margins will improve because our in-house would contribute more.
Speaker #3: Thanks, Lorraine and Jean. That's all from me.
Speaker #2: Yes.
Speaker #5: Hi. Hi, Jean. Hi, Lorraine. Just two questions from me. The first one: can you comment a little bit on the promotional activities or discounts you have been doing so far this year?
Speaker #5: And was that one of the reasons, if you have been doing it a little bit more aggressively compared to last year, was that one of the factors that lowered your—
Speaker #5: Since?
Speaker #4: We did do some because we also wanted to, with the intent to lower the inventory days, right? So, for some products, we did some bundling.
Speaker #4: So, we were bundling product lines, and we were a little aggressive also on pricing on some product lines. So, both locally sourced and our in-house brands, we were both working to manage better pricing for the market because primarily we were looking to increase market share.
Speaker #4: That's—that's basically what we were... want to lose market share. Yeah.
Speaker #5: And what's the promotional strategy going forward in the second half? Do you think you're going to maintain that strategy you've been doing so far, or, given the demand that you're seeing, will there be changes?
Speaker #5: Can you maybe cut a little bit on that so the operating margin can improve?
Speaker #2: Well, like, for paints, we will probably—we will most likely be going up to increasing our prices, since we've been able to create demand, and we also have the stock.
Speaker #2: Sometimes it's not about the price. Sometimes it's about availability, because paints as a product—you need it when people buy it; they need it immediately.
Speaker #2: They can't really wait. So, I think one of the things we've been talking about with pricing is for us to do some increases to help with the margins.
Speaker #2: In terms of promotions and bundling, it's something that we we have as part of our regular promotions. But because we're flushing out kind of product lines that were a bit that are a bit slower moving and replacing them at faster moving products, we probably won't be doing as much.
Speaker #2: Our promotions, that lowers margin. And I think, what else? What are we doing? I think promotions going forward, we will probably be leveraging more loyalty, like our loyalty card.
Speaker #2: We have our ABCDE card, which gives discounts for our professional customers. And then we have the Overseas Filipino Workers, the OWWA. And then we have our normal loyalty card for points.
Speaker #2: So that's something we want to push forward more, rather than straight-out bundling big discounts. That's what we've been talking about with Marketing at this time.
Speaker #5: Got it, thank you. And my second question is on forex. As we have seen so far, the peso has been weaker compared to last year, while I think your main exclusive and in-house brands are—
Speaker #5: Mostly imported from China. So how should we think about the FX impact going forward as you restock your inventories? And then, would you be considering more price increases in the second half, aside from paints?
Speaker #2: Yes, but I don't know how to predict the R&D. Well, we generally pass on, so it really just depends on the timing of the arrivals of the stock.
Speaker #2: I kind of noticed, though, that for June, we have a slightly higher gross profit margin versus May and April—and especially for our own products.
Speaker #2: So I said maybe that was the time when we did price increases, even for our own products. So we do adjust, because I think the stocks began arriving around late June, July.
Speaker #2: So
Speaker #5: And just to clarify a bit, so under this supply chain and global certainty, right, do you think you have an advantage in securing inventories compared to the smaller players?
Speaker #2: Well, that's that's what we have been doing, especially since 2021 with the supply with the supply chain crisis. But as you saw, it resulted really in but it was a combination, right?
Speaker #2: Weak demand and then what's this? Weak demand and then higher merchandise inventory orders. Just to secure the the stock, right? So so we've seen so the the impact of that or the ramification of that is, of course, you will have a slower or higher inventory days so we're trying to still find a balance.
Speaker #2: But actually, with now the 7.3, I could really understand why our in-house brands was really slow to grow and and like one of the major reasons would be the stock outs because we've had this 6 point something when when we had had what?
Speaker #5: 40 stores?
Speaker #2: 40. No. Let's just say 50 stores. And then double that and we're just right in that, you know, in that in that story. So so I think we really I don't know if if I mean more investment in, you know, supply chain management systems more advanced.
Speaker #2: I don't know if there's any available could really help that. I mean, knowing that we're in we're archipelago and our our infrastructure is not does not really lend to help you with, you know, high efficiency moving of products.
Speaker #5: Got it. Okay, that's awesome. Thank you very much.
Speaker #2: Thanks.
Speaker #3: I have some questions from the chat. So, there are questions in the chat. Yeah. Maybe you—where do you see high potential markets to expand into?
Speaker #2: There are still some markets that we can grow in. Cebu is still a good market for us. Yeah, we only have three stores. We only have three stores in Cebu.
Speaker #2: Davao is still a good market. We also only have three stores in Davao. We're actually going to expand there, and still in some areas of Luzon.
Speaker #2: Actually, there's still a few markets. Obviously, not as big as Metro Manila, not as big as the key cities, but still areas where we can grow either Adipo or DIW, which would augment another depot.
Speaker #2: So that's still there's still some areas where we can grow. The price increase. Let me just so I I checked you know, we have this analysis, you know, new stores, old store.
Speaker #2: And as of June 13, our new stores, meaning stores that are less than one year old, they are they are doing like they are already in in they're positive net income.
Speaker #2: And in fact, their net profit margin is not very far off. Considering that they're less than one year old, it's not very far off from the old stores' net profit margin.
Speaker #2: So, you know, there is still—I mean, there is really no hard, compelling reason for us to just stop expanding. Because our new stores are doing okay, for new stores.
Speaker #2: It's just that our previously really high-margin or high-earning stores, like the Metro Manila stores, have kind of gone down considerably these past few years.
Speaker #2: For the second question, can you give an average for the price increases you implemented? I think the last—what was the last time?
Speaker #2: Actually, I think it was five times. Yeah, the average is five percent.
Speaker #3: Question. Can you comment on consumer appetite for whole products despite macro regulations?
Speaker #2: I mean, anecdotally, the contractors the major regular contractors that we have as clients all over, they're generally generally they generally have full plates. Yeah.
Speaker #2: Projects. There are some that have stopped. Possibly because of the flood control, issues. But significantly, most of the contractors that we survey I mean, it's a formal survey, but they by and large have projects that are ongoing.
Speaker #2: And with very few downtrading. Yes. Yes. But yeah. Yeah. There are some that are downtrading, and then of course they'll always say it depends on the client's budget.
Speaker #2: The client has a a lower budget then they'll have to they'll have to compromise on the products that they buy. So they down trade so they won't buy the premium.
Speaker #2: They'll buy the lower quality products at a lower price. So, I would say that based on market penetration and market surveys of our stores, there are projects that are ongoing.
Speaker #2: And so far, so good. Though there would be maybe, I don't know, maybe 5 to 10 percent—if I were to, based on conversations with our stores, there may be 5 or 10 percent that maybe they don't have any project at this point in time, or they're in between projects.
Speaker #2: Yeah. Then another one is SSSG guidance. I think you mentioned the 8 percent, as I mentioned earlier. It's not that I'm saying it now. Is that sustainable?
Speaker #2: Because it I mean, admittedly, it was really helped also by the prior year we had a negative 6 point something SSG. So but for the third quarter, we will be we will be comparing it to a positive four, I think, plus percent.
Speaker #2: So, but on an absolute amount, I think we should be okay. Yeah.
Speaker #3: I think Priya?
Speaker #2: Yes, Priya.
Speaker #4: Hi. Before I ask my question, I'm sorry if some of this is a repeat. I got cut off in the middle. My first question is about the margins.
Speaker #4: You know, if I look at your long-term margin chart, I think at the GPM level we are almost at, you know, 2021 levels. Now, while I understand that in this quarter it's mainly because it's paints and, you know, more volume-driven growth than high margin.
Speaker #4: How do we see that going forward? Do we expect more margin pressure, or do you think the new normal is around these levels?
Speaker #2: I think we should be able to push for a new—our implementing programs, and we mentioned earlier that we've actually kind of changed our sorting strategy, such that we've run out of stocks of fast-moving items.
Speaker #2: In many of our stores, so that contributed to the slower growth. I mean, there was still positive SSG, right? Even in-house, right?
Speaker #2: But it’s really not as high as the non-exclusive products—even especially competing. I mean, paints, we don’t have an in-house brand to compete with that.
Speaker #2: But, like, we have legitimately very good in-house brands that have trumped the other non-exclusive brands in the past years. But this time, we were, quote-unquote, defeated because we didn't have that stock.
Speaker #2: So we're changing it back. So hopefully, you know, the like the the food traffic that we were able to pull back and and like just this offering our own brands.
Speaker #2: We can catch up, you know, the lag and improve our margins. Because for the second quarter, the in-house exclusive brands only contributed 49.5.
Speaker #2: And I think we we were we haven't been in that level since 2019. So you know, we're we're expecting that margins will will improve.
Speaker #4: Okay. And on the cost front, you know, there were quite a few utilities, et cetera, and those costs have gone up. Some of your lease rentals have also, I think, been renegotiated.
Speaker #4: Do you think most of the cost escalation has been captured in Q2, or, you know, are we going to see another bump in H2?
Speaker #2: Yes, because for the bulk renewals, those only started on June 1, so it's not yet the full impact. But the impact would be more on the lease interest.
Speaker #2: Lease related interest rates. Because what we did because before, right, all these maybe almost 40 leases, had uniform three-year terms now with distributed and with distributed lease and some are you know a couple or so I think are 15-year converted to 15-year leases.
Speaker #2: And then 5 years, 10 years. So the depreciation part would be less in the early years, right? So there.
Speaker #4: Okay.
Speaker #2: Full, yeah. Full impact will be on the third quarter, but it's not as high as, you know, if we had maintained the term into a flat three years for all.
Speaker #4: Okay. Okay. On the you know, my last question is more macro. You know, are we you said most of your contractors are having projects and it's just a 5 to 10 percent, you know, those they seem to be a little low on work, et cetera.
Speaker #4: Which is a very good idea that we have. But I'm just trying to understand—you know, most of the property players have, really, quite bad numbers in the Philippines.
Speaker #4: Especially in the construction part of it, it's only rentals that are doing well. So, are we seeing a prolonged downturn in the construction space now?
Speaker #4: You know, I just want to understand if this is another 6 to 8 quarters of slow construction that we are looking at, or do you think this is closer to the end of the cycle?
Speaker #2: Well, in terms of developers, they're now expanding outside Metro Manila, where they will develop exclusive subdivisions or townships. SM is now going into townships, like in Santa Rosa in Laguna.
Speaker #2: Ayala is also doing townships, Santa Lucia. They're all doing subdivisions. And actually, it's a bit of a good thing for us, because the way they will do it is they will develop a subdivision or an area for residential.
Speaker #2: And they will sell the property or the lots, and the lots are developed and built by the homeowner. So if you buy a property there, you will hire a contractor.
Speaker #2: You will hire an architect. And those those are those are our customers. If if they had been pushing to develop more vertical, they wouldn't really be our customers because they would well, they would still be, but not as not as not as widespread because normally it would be in Manila, Cebu, and Davao very, very concentrated.
Speaker #2: But what I'm seeing now, because the developers—their thrust now is to develop horizontal residential and even commercial areas—that would actually be good for us.
Speaker #2: It's really, I suppose, a matter of whether there is a market. But I would also suppose that these big developers would have done their market research, and that there would be a market where they're developing their horizontal projects.
Speaker #2: So all the big names, that's actually what they're doing now. They're no longer doing verticals, or at least they're doing less of that.
Speaker #4: Okay. Thank you. Thank you very much.
Speaker #2: Thank you.
Speaker #1: Hi, Jean and Lorraine. Thanks for the presentation. I just looked at the cash flows against the P&L, and it's actually got a nice pickup there.
Speaker #1: Mainly because you got the inventories down. So was that a sort of conscious thing, or was it just the way things worked out with the supply chain problems, with the Iran war, and so on?
Speaker #1: So, I noticed you mentioned you were running out of some inventories. What was the strategy going forward? I mean, are you going to continue to push for better cash flows?
Speaker #1: I think inventories were too high in past years. We just try and fine-tune it so you don't run out of things. You're going to something like that.
Speaker #1: So just just as some thoughts on that. I know we payables are down, but, you know, that's probably just reducing the, you know, any financing on that, I guess.
Speaker #1: Or you get some discount from suppliers.
Speaker #2: Well, well, well, the strategy was really to manage the days' inventory because we’ve been working to lower it down to hopefully a six-month level, seeing how that would be more realistic.
Speaker #2: And at the same time, we wanted to optimize the mix in the stores, so we were reducing some product lines that were a bit bloated, I guess you could say.
Speaker #2: And we wanted to go more into more focused product lines and categories, such as building materials and electrical—so some things. So we kind of redirected from certain categories and brands and SKUs to certain other categories, brands, and SKUs.
Speaker #2: But in that process, it's a bit of a trial and error. So that's why there was a bit of there was a bit of right sizing in terms of the SKUs and then the volume of inventory.
Speaker #2: And at the same time, we're trying to figure out, or keep our eyes on the prize. We want to maintain six months at that level.
Speaker #2: So, the upside was we have a bit more cash flow. And so, because we've been able to figure more cash flow, we could experiment a little bit more in terms of product mix in the categories where we want to be stronger.
Speaker #2: Because there would be product mix or product categories where certain competitors would be stronger in, that we wanted to, you know, work into.
Speaker #2: Like, for example, appliances. We wanted to do a little bit more—appliances, kitchen appliances, for example. So that's something we're looking at as well to further develop.
Speaker #2: So, I hope that answered the question in a very clear manner.
Speaker #1: Yeah, sounds like a good plan. I guess the other one I just have for you is, you know, low GDP growth—we're only at 2.3 or something.
Speaker #1: How's that sort of affecting your plans to sell? I mean, is is construction sort of having a rebound? Anyway, or or is the sort of low growth kind of impacting as well?
Speaker #1: And then secondly, how do you feel things are going in terms of if you've got, say, your sales as a kind of, quote-unquote, modern offline channel? You've got the mom and pops, the, you know, the small shops in town, hardware shops. And then you've got online competition. I suppose even the other one is the kind of direct-from-China type thing.
Speaker #1: So, how do you feel that's going? I mean, are you winning at least in some areas? Losing?
Speaker #2: Yes. You you were mentioning we do win some. So we do have clients that purchase online. So there have been there have been contractors that have that have bought certain products from us.
Speaker #2: And then some things they've bought online, or I mean, sorry, imported themselves. So there's been some win-backs, because it is not without its risks, importing.
Speaker #2: Our bureaucracy notwithstanding, what's happened is that sometimes they've had problems with the products they imported or they've imported too little, and they've needed to augment.
Speaker #2: And so, they can't exactly augment by the container, right? They'd have to buy, like, small quantities. So that's a bit of a headache. And then sometimes it's the wrong thing, or it's not the right shade or in the right color.
Speaker #2: So, there are all these other things that are happening. So, what we've been doing is we've been more aggressively pushing to—you know, we could work on certain pricing, or we could work on certain volumes.
Speaker #2: And we've had a few wins, which has resulted in them buying more from us—not just the things that they would import, but also all the other product lines that we carry.
Speaker #2: So that's for the direct importers. The other one is online. Online sales. So by and large, we have we have a very small like Shopee, Lazada shop, like online.
Speaker #2: So, it's been a trial and error for us as well. And we noticed, really, that the market is more for very cheap, lower-ticket size market.
Speaker #2: And whenever we try to put in a higher-quality product, usually people will want to come to the store. I mean, you know, if you spend this much money, you might as well come in and take a look at the product.
Speaker #2: So we've seen that ticket sizes are really, really low for these kinds of online shops like Temu, and so we don't see that to be a big volume driver for quality.
Speaker #2: The quality products that are a bit higher in price and and usually are are thrust is to have like a complete package when you when you buy from us.
Speaker #2: But we're still looking to see how we can move forward, especially for maintenance products. Online, so that it's more convenient for people to just buy online and then have it shipped to them.
Speaker #2: So I would say that for maintenance and small items, we may be losing market share online in that aspect. But for big-ticket items—like tile and sanitary things—that you really have to think about and take a while to make a decision on, it takes more consideration.
Speaker #2: I think that's something where we have an advantage offline, like in physical stores. And in terms of mom-and-pop shops, those are normally found especially in the non-key cities, or the secondary cities and things like that.
Speaker #2: So, their value proposition is, one, low price. Second, we give you terms, you know, credit terms. They would normally stock products that are fast-moving so that they can have quick turnover because the margin is low.
Speaker #2: And that they are giving terms. So they need to have like quick turnover but at the same time something that they that that that like it's contractors will just naturally buy and buy as as volume because again, margin is low and then they're their cash is tied to to credit.
Speaker #2: And so that's something that we don't offer. We don't offer credit, but we offer variety in product, and we offer as well legitimacy—if that's the right word—legitimate products.
Speaker #2: We don't sell fakes, so that's kind of an advantage for us. As I mentioned earlier, the market is down trading.
Speaker #2: So when they down trade, they normally go to the hardware stores. Because that's that's their their value proposition, low price. Basic product lines or lower lower quality fast get it out of the door fast.
Speaker #2: So that's the part where we kind of lose market share there. What else? Sorry, did I get all of that—your questions?
Speaker #1: Oh, yes. I've got one other interesting one for you, and I guess that'll probably have to do because we're kind of getting to the end of the hour.
Speaker #1: You know, if you go to your superstores, you'll notice that maybe up to a third of the whole area is taken up with tiles.
Speaker #1: But I was wondering, I imagine that you're not generating a third of your profit from tiles. So, you know, that leaves the question—you could leave it as is, and maybe tiles is a kind of important thing to get people in the store.
Speaker #1: Then you can sell them some sanitary ware or electrical items, you know. So I'm just wondering, is it still a good idea to have a third of the store's area taken up with tiles?
Speaker #1: I mean, you actually have to walk a long way through tiles to get to, say, furniture or something.
Speaker #2: Actually, we did. Yeah, we did get the most profit from tiles for the longest time, except in this, like, recent—maybe couple of years.
Speaker #2: I mean, even if you include the cost of money—because we stock tiles a lot, right?—and it's not all our fast-moving stock.
Speaker #2: I mean, not all sizes and not all colors are fast moving. But it has the highest GP margin for us. So I think the allocation of that much area is justified.
Speaker #2: But of course, we we we've observed, right, the changes in the behavior of of the buyers, of the market. And that's why in like especially in our newer stores, yeah, yeah, I think the tile allocation is not that, you know, it's not that much.
Speaker #2: And even in our newly renovated store, the second biggest store here in the district, the tiles got smaller. Yeah, the area got smaller.
Speaker #2: The area, the tiles area got smaller. It before it was like 30%. Even even up to in 2022, it was 32% of our sales.
Speaker #2: And it had the highest in the had the highest GP margin. But now it's down to 26, 25, 20% contribution. And yeah, we are gradually shrinking the the allocate the allocation of the tiles in in in the stores.
Speaker #1: Yeah. Because I was just thinking that anybody who goes in a store—the ones I know—you actually have a pretty long walk if you just want to go and pick up a packet of stuff or some batteries.
Speaker #1: We go through all the tiles. So, you know, yeah, we were...
Speaker #2: We're slowly going through our own stores. And our current layout now has you move forward, you know, some of the, or many of the racking systems.
Speaker #2: Yep. Side by side with the tiles. And some tiles, we move, you know, all the way to the back. Yeah. But we can't really do it all at the same time.
Speaker #2: Yeah, not all at the same time. So, two stores, when they open, they already have a new look and that new layout. And then the old stores, we're gradually renovating each.
Speaker #1: Right. Thanks. Yeah. And the only final thing—I mean, there's nothing much you can do about it apart from get the profits up, really.
Speaker #1: But do you ever think about your share price and the fact that, you know, you were trading nicely at 25, 30 pesos, and now you're down at five and change?
Speaker #1: You know, I suppose just maintaining a good dividend and then just getting the profits up is going to be the one to, you know, get that going again.
Speaker #1: Or you're not thinking about anything else?
Speaker #2: We do, especially when we go around the office and, you know, many of our employees also work with construction.
Speaker #1: Oh.
Speaker #2: From IPO, and they're asking me every day, 'When? When?'
Speaker #1: Yeah, I guess it's a general problem with the Philippine market—just undervalued and underappreciated, perhaps. Yeah. Okay. Well, thank you so much.
Speaker #2: Okay. Thank you.
Speaker #1: Good luck for the rest of the year.
Speaker #2: Thanks. Thank you. So I think we'll have oh, we have over the time, but just to answer. Yeah. The couple can you share the competitive landscape in the home improvement sector so far in the first half?
Speaker #2: Are there any changes in Wilcon's market leadership? I think we're still the leaders. I mean, we get the information, but many of our competitors are not, you know, listed, and so it's more difficult to get data.
Speaker #2: But yeah, I think we're still the the leaders. Still the same. We as Lorraine mentioned earlier, I think especially for direct imports, we've we've gained back, you know, some customers or market share that we lost from them, especially after the the Iran war because it's more difficult to, you know, arrange for shipment and then the high cost of of shipping oil prices.
Speaker #2: So yeah, more of the same between soft and hard categories. So we would have, as I mentioned, I think 25% for tiles, and then the soft category is very small.
Speaker #2: Yeah, because we have that middle category, right, where the paints belong—the hardware and tools, electrical and lighting. So the hard category should be: the tiles, 30; plumbing, 35; so tiles should be 25, 47 plus 12.
Speaker #2: So, still 6%, because our building materials—the contribution for building materials—has gone up to almost 13%. So, if we have, okay, tiles and plumbing and sanitary ware has gone down to 47%, plus the 13% of—so we're still at 60% for the hard categories.
Speaker #2: Okay, so we're a bit over time. For the questions I missed in the chat box, please just email us and we'll get back to you as soon as possible.
Speaker #2: Thank you again, and see you in our next earnings call. Thank you.
