Chile And Peru Expansion And Digital Upgrades Will Unlock Opportunity

Key Takeaways

• Expansion through new stores, format innovation, and digital transformation is expected to capture demand and drive sustained revenue growth amid evolving consumer trends.
  
• Strategic focus on value formats, private labels, and optimized sourcing supports margin resilience and positions the company well against economic and market challenges.
  
• Aggressive expansion, cost pressures, and rising competition threaten SMU's ability to sustainably grow revenue and margins while increasing vulnerability to regional risks and market saturation.

Catalysts

Operates as a food retailer in Chile and Peru.

• Aggressive new store openings and format conversions across Chile and Peru are expected to capture demand from ongoing urbanization and population growth in Latin America, which should drive continued overall revenue expansion despite temporary same-store sales pressure from market saturation.
  
• Investment in private label product penetration and optimized sourcing via the recent trader acquisition supports higher gross margins and enhanced net earnings, benefiting from rising consumer focus on value, health, and premiumization in retail food purchasing.
  
• Accelerated rollout of digital transformation initiatives-such as self-checkouts, AI-driven demand planning, and advanced supply chain automation-positions SMU for sustained improvements in cost efficiency and operating leverage, with a direct positive effect on EBITDA margin and profitability.
  
• Strategic focus on discount and convenience formats (Super Diez, Alvi, Maxiahorro) aligns with persistent inflationary pressures and consumer shift towards value-driven retail channels, ensuring resilient sales volumes and protecting revenue and margin through economic cycles.
  
• Reallocation of capital from non-core real estate holdings to higher-return retail investments, together with robust balance sheet flexibility and low refinancing needs, enables SMU to fund future growth initiatives that will support long-term topline and earnings progression.

SMU Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SMU's revenue will grow by 7.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.5% today to 3.6% in 3 years time.
• Analysts expect earnings to reach CLP 125.4 billion (and earnings per share of CLP 18.05) by about August 2028, up from CLP 42.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.8x on those 2028 earnings, down from 22.4x today. This future PE is lower than the current PE for the CL Consumer Retailing industry at 27.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.7%, as per the Simply Wall St company report.

SMU Future Earnings Per Share Growth

Risks

• Aggressive store expansion by both SMU and competitors is leading to persistent negative same-store sales growth and cannibalization, which, while temporarily offset by new store openings, may suppress organic revenue growth and place ongoing pressure on top-line expansion in the long term. (Revenue)
  
• Strategic focus on profitability has caused intentional exclusion of low-margin and volume sales, resulting in declining overall revenues and a risk that the higher gross margins achieved are not structurally sustainable if competitive or market pressures force a return to more promotional activity or discounting. (Revenue, Gross Margin, Net Margins)
  
• The rapid conversion of stores and ongoing investments in efficiency initiatives to manage rising labor and electricity costs highlight structural cost pressures, and there is an ongoing risk that inflation in wages and utilities could outpace cost-saving measures over time, compressing net margins and overall earnings. (Net Margins/Earnings)
  
• Competitive intensity is increasing, particularly in the hard and soft discount segments with new entrants like Mass and potential expansion by PriceSmart, increasing price wars and promotional pressure, raising the risk that SMU's formats may struggle to maintain differentiation and leading to margin erosion or loss of market share. (Revenue, Net Margins)
  
• Heavy reliance on aggressive expansion in Chile and Northern Peru exposes SMU to region-specific economic, demographic, and regulatory risks, potentially limiting diversification and making future revenue growth vulnerable to local downturns, stagnant population growth, or adverse regulation in these markets. (Revenue)

Valuation

• The analysts have a consensus price target of CLP211.667 for SMU based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CLP3523.0 billion, earnings will come to CLP125.4 billion, and it would be trading on a PE ratio of 12.8x, assuming you use a discount rate of 9.7%.
  
• Given the current share price of CLP163.94, the analyst price target of CLP211.67 is 22.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.