What: Falabella reports confidence in limited trade war exposure and continued growth potential, as company approaches key decisions on controlling pact and investment grade recovery.

Why it is important: The company's strategic positioning demonstrates how retail conglomerates can balance multiple challenges simultaneously: geopolitical risks, corporate governance transitions, and financial restructuring.

Falabella's management expresses confidence in the company's resilience against US-China trade tensions, citing limited direct exposure due to its concentrated operations in Chile, Peru, and Colombia, which account for 94% of sales. While acknowledging potential indirect risks such as inflation and economic recession, the company maintains that its regional focus provides significant protection against global trade disruptions. This stance comes as Falabella navigates multiple strategic transitions, having achieved an eightfold increase in profits to USD 482 million in 2024. The company's recovery trajectory is evidenced by improved financial metrics, including an enhanced EBITDA margin of 11.6% in Q3 2024, though it continues to work toward regaining its lost investment grade status. The retailer simultaneously faces a crucial governance decision as its controlling pact, currently split between the Solari group (35%) and Cuneo-Del Río group (30%), approaches its July 2025 renewal deadline. This transition is further complicated by emerging stakeholders, including Tomás Müller's growing 5.5% stake.

IADS Notes: Falabella's optimistic outlook for 2025 builds upon a remarkable transformation that began after losing its investment grade rating in November 2023. The company's eightfold profit increase to USD 482 million in 2024, along with its best quarterly performance in three years (USD 97 million in Q3 2024), demonstrates the success of its strategic initiatives. This financial recovery has been accompanied by significant deleveraging, with the debt ratio improving from 8.6x to 4.7x, leading to Fitch's outlook upgrade to 'Stable' in November 2024. While the company maintains its focus on regaining investment grade status, it faces additional strategic considerations, including the July 2025 deadline for its controlling pact renewal, which currently balances the interests of the Solari group (35%) and Cuneo-Del Río group (30%). The emergence of new stakeholders like Tomás Müller (5.5%) adds complexity to this governance transition. Despite these challenges, Falabella's limited exposure to US-China trade tensions, due to its concentrated operations in Chile, Peru, and Colombia, positions the company favorably for continued recovery, though management remains vigilant about potential indirect impacts such as inflation and regional economic pressures.

Falabella is confident in limited trade war exposure