What: Falabella experienced a significant downturn in its financial performance in 2023, with a sharp decline in both revenue and profits.

Why it is important: As a major player in the retail sector, Falabella's financial health is indicative of broader market trends and challenges. The company's efforts to rebound in the fourth quarter highlight strategic adjustments aimed at navigating a tough consumer environment and improving operational efficiency.

Falabella, a leading retailer, faced a challenging year in 2023, concluding with a substantial 65% drop in profits to US$69 million and an 8.5% decrease in consolidated income. Despite these setbacks, the fourth quarter showed signs of recovery, with a net profit of US$80 million, nearly ten times higher than the same period in the previous year. This improvement was attributed to a strategic focus on customer-centric initiatives, margin enhancements, and selective investments.

Throughout the year, Falabella's EBITDA fell by 21.2% to US$740 million, although the fourth quarter saw a 30% increase to US$333 million. Operational efficiencies were evident in the reduction of expenses by 8% and a 21% decrease in inventory levels compared to 2022. The company also reported a slight increase in its workforce in the last quarter, reversing a trend of decreasing staff numbers.

By business line, the home improvement sector, represented by Sodimac, experienced the most significant revenue decline, while supermarkets showed resilience with only a 2.3% drop. Sodimac itself reported a loss of nearly US$50 million for the year.

Falabella's digital and physical ecosystem continued to evolve, with Banco Falabella adding 700,000 new users and the marketplace growing by 7%. The company's leverage ratio improved from a peak of 8.6 times in June to 6.5 times by the end of the year, although it remained slightly higher than the previous year's ratio.

Despite the downturn, Falabella's management remains focused on improving results and winning over customers, with plans for continued investment in its omnichannel strategy and digital expansion. The company's investment plan for 2024 is set at US$508 million, reflecting a cautious approach in a still uncertain market environment.

Falabella rebounds in the fourth quarter, but closes 2023 with a sharp drop in revenue and profits