Alvaro Garcia

Álvaro García asked for clarification on Eduardo Pizzuto's comment regarding more favorable sales expenses comps in the next quarter. He also inquired if the faster ramp-up of new stores is consistent across different regions, specifically comparing central Mexico to newer expansion regions.

Answer

CFO Eduardo Pizzuto clarified that the favorable sales expenses comparison is due to a portion of DNA expenses being recognized in Q4 2024 rather than Q3 2024. CEO K. Anthony Hatoum stated that faster ramp-ups are observed consistently across all geographies, store types, and locations, with no notable differences, as the company sells basic goods and maintains a balanced real estate strategy.

Álvaro García asked Eduardo Pizzuto to elaborate on his comment about more favorable comps on sales expenses next quarter. He also questioned K. Anthony Hatoum if the faster ramp-up of new stores is consistent across central Mexico versus newer regions and distribution centers.

Answer

Eduardo Pizzuto, CFO, Tiendas 3B, clarified that favorable comps on selling expenses are related to a portion of DNA recognized in Q4 2024 rather than Q3 2024, which will lead to a more favorable Q4 2025 number. K. Anthony Hatoum, Founder, Chairman, and CEO, Tiendas 3B, stated that faster ramp-ups are consistent across the board, with no notable geographical differences, as they sell basic goods and maintain a balanced real estate strategy.

Alvaro Garcia from BTG Pactual questioned the Q2 increase in RSUs and options under the 2024 equity plan, asking about the driver and full-year outlook. He also inquired if the brand's growing appeal to higher-income shoppers was a significant factor in recent performance.

Answer

CEO Anthony Hatoum explained that mid-year equity awards are exceptions, often for hiring key personnel, and that total annual awards are within market norms. On customer demographics, he acknowledged strong performance in higher-income areas but noted these stores are a small part of the base. He stressed the brand's value proposition appeals broadly across all socioeconomic levels, driving consistent success.

Alvaro Garcia from BTG Pactual asked about the increase in RSUs and options under the 2024 equity incentive plan during the quarter, questioning the driver behind it. He also inquired if the brand's growing resonance with higher-income customers was a significant factor in the company's strong performance.

Answer

CEO Anthony Hatoum stated that mid-year equity awards are exceptions, typically for key new hires, and the total annual awards remain within normal market parameters. On customer demographics, he acknowledged that while stores in higher-income areas see larger tickets and more frequent purchases, the company's value proposition appeals broadly across all socioeconomic levels, which is the fundamental driver of success.

Alvaro Garcia questioned the increase in RSUs and options under the 2024 equity incentive plan during the quarter. He also asked if the brand's resonance with higher-income cohorts was a significant driver of performance.

Answer

CEO Anthony Hatoum explained that mid-year equity awards are exceptions, typically for key new hires, and that total annual awards remain within market norms for a high-growth company. Regarding demographics, he noted that while the value proposition appeals to all socioeconomic levels, stores in higher-income neighborhoods remain a small portion of the total store base.

Alvaro Garcia from BTG Pactual asked about the timing of growth investments on sales expenses, particularly in Q1, and sought clarity on whether the quarter's high share-based compensation is the new normal.

Answer

CFO Eduardo Pizzuto clarified that higher sales expenses are due to the accelerating pace of store openings, where costs are incurred before revenues are fully realized. He also confirmed that the Q1 share-based compensation level should be considered the new run-rate for the year. Executive Kamal Hatoum added that share-based compensation is a crucial investment for driving performance and retaining talent.

Álvaro García from BTG Pactual asked about the company's long-term outlook for dividends, given its strong cash generation and lack of cash burn despite aggressive expansion. He also requested an update on the productivity of newer store vintages, referencing the 'spaghetti chart' that is typically updated annually.

Answer

Executive Kamal Hatoum responded that it is too early to discuss dividends but acknowledged that the business model will eventually generate significant excess cash, at which point dividends would be considered. Regarding store productivity, he confirmed that all vintages, including recent ones, continue to perform very solidly and follow the established strong trend, with a formal 'spaghetti chart' update planned for the Q4 report.

Alvaro Garcia asked about the 'fit-for-purpose' corporate restructuring and its impact on SG&A, specifically whether the typical $100 million guidance for corporate expenses would change. He also inquired about the significant sequential uptick in FEMSA's interest expense, excluding Coca-Cola FEMSA.

Answer

José Antonio Fernández Garza-Laguera, CEO of Fomento Económico Mexicano, explained the fit-for-purpose initiative for OXXO Mexico's overhead, expecting significant savings and room for investment in strategic projects. He plans a deeper look at overall company overhead as FEMSA CEO. Martin Arias, CFO of Fomento Económico Mexicano, clarified that the increase in interest expense was primarily due to higher financial expenses from IFRS lease accounting, partly driven by the consolidation of U.S. operations and organic growth of leases.

Alvaro Garcia from BTG Pactual inquired about the "fit-for-purpose" corporate restructuring initiatives, specifically regarding the expected reduction in SG&A, and sought clarification on the significant sequential increase in interest expense at the FEMSA level, excluding Coca-Cola FEMSA.

Answer

José Antonio Fernández Garza-Laguera, CEO of Fomento Económico Mexicano, explained that the initial "fit-for-purpose" program focuses on OXXO Mexico's overhead, aiming for significant savings while investing in key projects like food and services. He plans a deeper look at overall company overhead as he transitions to CEO. Martin Arias, CFO, clarified that the increase in interest expense was primarily due to an increase in financial expense associated with IFRS lease accounting, largely driven by the consolidation of the U.S. business.

Alvaro Garcia from BTG Pactual inquired about the cultural integration of the tech-focused Spin division within the broader, more profitability-driven FEMSA organization, and the strategy for aggressively pursuing revenue growth versus minimizing cash burn.

Answer

Juan Carlos Guillermety, CEO of Spin, stated that Spin operates with the autonomy to build an agile, consumer-tech culture while collaborating closely with OXXO. He emphasized that investment is crucial to achieve scale before full monetization. CFO Martín Yániz added that FEMSA is implementing joint KPIs to align the divisions and uses a conservative accounting method for Spin's cash burn, which doesn't capture the full sales uplift it generates for OXXO.

Alvaro Garcia inquired about the cultural fit of the growth-oriented FEMSA Digital (Spin) within the broader, profitability-focused FEMSA, and its strategy regarding aggressive growth versus managing cash burn.

Answer

Juan Carlos Guillermety, CEO of Spin, stated that Spin operates with an autonomous, agile tech culture while collaborating closely with OXXO, focusing on investment for scale to enable future monetization. CFO Martín Yániz added that FEMSA is implementing joint KPIs to align the divisions and uses a conservative accounting method for Spin's cash burn, which doesn't credit it for incremental OXXO sales.

Alvaro Garcia requested more color on the 'OXXO Nichos' format and its higher ROICs, and also asked for early learnings and challenges from the Spin pilot program with Coca-Cola FEMSA.

Answer

Jose Antonio Fernández, CEO of the Proximity and Health Division, described OXXO Nichos as stores in controlled environments like factories, which benefit from lower CapEx and rent, leading to faster maturity and high profitability. CFO Martin Arias Yaniz shared key learnings from the Spin pilot, including the value of KOF's salesforce, the importance of Premia points as a differentiator, the need for instant fund crediting for merchants, and the critical role of training mom-and-pop owners.

Alvaro Garcia from BTG Pactual questioned the sequential increase in 'other expenses' shown in the net debt reconciliation, asking if it signaled a change in guidance for the cash burn at the Digital and Corporate divisions.

Answer

CFO Martin Arias Yaniz broke down the figure, attributing the bulk of it to the previously guided cash burn at Digital FEMSA (around $200-$250M) and non-reimbursable corporate expenses (around $100M). Executive Juan Fonseca added that the comparison is also affected by the recent divestment of EBITDA-positive businesses, such as Solistica and Imbera, which were previously included in that 'other' category.

Alvaro Garcia from BTG Pactual asked about the outlook for beef prices in Brazil for the second half of the year, traffic trends in Argentina relative to 2023, and the nature of Francisco Staton's new role as Chief Strategy Officer.

Answer

CFO Mariano Tannenbaum indicated that significant further beef cost pressures are not expected in H2, and a strengthening Brazilian real could be a tailwind. CEO Luis Raganato described Argentina's business as very solid, harvesting market share gains from 2024. He also explained that Francisco Staton's new role will leverage his broad experience to focus on long-term strategy and 'tomorrow's business'.

Alvaro Garcia questioned whether the company would adjust its pricing strategy in Brazil to pass on higher beef costs and asked about the level of promotional pressure in the market.

Answer

CFO Mariano Tannenbaum responded that the company will remain cautious, increasing prices in line with inflation to protect customer traffic, which is their core long-term strategy. COO Luis Raganato added that they will not reduce promotional activity, as offering a compelling value proposition is key to navigating the current environment of reduced consumer purchasing power in Brazil.

Alvaro Garcia from BTG Pactual asked a strategic question about the taste profile and success drivers of Coke Zero in Mexico. He also sought clarification on whether the quarter's higher interest expense included any one-off items or if it represents a new run-rate.

Answer

CEO Iain Craig García attributed Coke Zero's success in Mexico to the comprehensive implementation of a 'five-pillar' global playbook, including price, promotion, and placement, rather than just taste improvements. CFO Gerardo Cruz Celaya confirmed there were no one-offs in the interest expense, stating the higher level is a fair run-rate reflecting new debt and higher rates in Brazil.

Alvaro Garcia of BTG Pactual asked about the evolution of Coke Zero's taste profile and consumer perception in Mexico, and whether the quarter's higher interest expense included one-offs or represented a new run rate.

Answer

CEO Iain Craig García attributed Coke Zero's success in Mexico to the full implementation of a multi-faceted commercial strategy, which he called the 'Brazil playbook,' rather than just taste profile changes. CFO Gerardo Cruz Celaya confirmed there were no one-off effects in interest expense and that the current level is a fair run rate, driven by new debt, higher rates in Brazil, and lower interest income.

Alvaro Garcia asked for an update on the potential integration of FEMSA's Spin with the Juntos+ platform in Mexico and inquired about the full-year outlook for key cost of goods sold (COGS) components like sweeteners and PET.

Answer

CEO Ian Marcel Craig García stated that learnings from the Spin pilot in Puebla are being processed, with a decision on a potential scaled rollout expected later in the year. CFO Gerardo Celaya provided a positive outlook for COGS, expecting a continued benign environment for sweeteners and lower PET prices for the remainder of the year, noting the company is actively hedging to lock in favorable rates.

Alvaro Garcia of BTG Pactual inquired about the new $90 million freight savings target, including regional breakdowns, and asked about the drivers of operating leverage in Mexico, particularly the role of digital initiatives amidst rising labor costs.

Answer

CEO Ian Marcel Craig García noted that the most significant operating leverage in Mexico is expected in 2026 with new manufacturing capacity. CFO Gerardo Celaya detailed the $90 million in 2025 supply chain savings, with approximately $50M from Mexico, $18M from Brazil, and $28M from the rest of Latin America, driven by efficiencies in production and logistics.

Asked about the strong volume growth in Colombia and for clarification on whether stable market share in Argentina was by volume or value, suggesting a potential pricing strategy.

Answer

The executive confirmed strong volume growth (50%) and positive year-to-date EBITDA in Colombia. For Argentina, he stated that volume and value share are aligned and that the company prefers to keep prices in line with inflation rather than cutting them to protect volume, as price recovery is difficult.

Alvaro Garcia from BTG Pactual questioned the drivers behind the strong volume growth in the Colombia joint venture and sought clarity on whether the stable market share in Argentina was based on volume or value.

Answer

CEO Patricio Jottar Nasrallah explained that Colombian volumes grew significantly, leading to market share gains and positive year-to-date EBITDA. Regarding Argentina, he clarified that both volume and value market shares are moving in the same direction. He detailed a strategy of pricing slightly ahead of inflation over a two-year period ('23-'24) rather than cutting prices to chase volume in a contracting market.

Alvaro Garcia from BTG Pactual asked about the drivers behind strong volume growth in the Colombia joint venture and sought clarity on Argentina's market share performance, questioning if it was volume or value-based and the strategy regarding pricing versus volume.

Answer

CEO Patricio Jottar Nasrallah stated that Colombia volumes grew significantly, leading to market share gains and positive year-to-date EBITDA. For Argentina, he clarified that market share in both volume and value moved in the same direction. He explained their pricing strategy aims to keep pace with inflation over the medium term, noting prices were ahead of inflation in 2023 but slightly behind in 2024, and affirmed they would not sacrifice price to chase volume.