Héctor Maya López

Héctor Moya López asked if approximately $1.5 billion of excess cash is being set aside for M&A, and whether FEMSA's M&A appetite in the U.S. has changed due to political uncertainty or immigration policies affecting traffic near the Mexican border. He also questioned how long it would take to adapt the U.S. value proposition to enable a more aggressive growth path.

Answer

CEO José Antonio Fernández Garza-Lagüera clarified that the money is not exclusively for inorganic M&A, as FEMSA is evaluating various opportunities. He stated that FEMSA is not concerned about traffic in Texas due to immigration and maintains a long-term view for the U.S., focusing on refining its value proposition in regions like El Paso, Midland, and Odessa. He noted that while FEMSA is looking at small chains, it remains cautious due to sellers' 'outrageous' valuation expectations. CFO Martín Arias Yániz added that FEMSA's interest in M&A has not diminished, but they have been unable to find an entry point with the right risk/reward.

Héctor Moya López asked about the allocation of excess cash, specifically if $1.5 billion is set aside for M&A, and how FEMSA's appetite for M&A in the U.S. has changed due to political uncertainty or immigration policies. He also inquired about the timeline needed to refine OXXO USA's value proposition before aggressive expansion.

Answer

CEO José Antonio Fernández Garza-Lagüera clarified that excess cash is not exclusively for M&A but for various opportunities, and FEMSA is cautious about seller expectations for multiples in the U.S. He stated no concern about traffic in Texas due to immigration, focusing on refining the value proposition in the El Paso, Midland, and Odessa regions before aggressive growth. CFO Martín Arias Yániz added that FEMSA's interest in the U.S. has not diminished but they haven't found an entry point with the right risk/reward.

Héctor Maya asked for an update on FEMSA's banking license ambitions in Mexico, the role of Spin by OXXO and Spin Premia, and what innovations could significantly impact Spin by OXXO's competitiveness against other fintechs in the next two years.

Answer

José Antonio Fernández Garza-Laguera, CEO of Fomento Económico Mexicano, stated that FEMSA would defer presenting its banking license for about a year, choosing to focus more on the credit aspect of Spin by OXXO first. He mentioned a planned deployment of $20-30 million next year for credit initiatives to gain better visibility on data utilization before pursuing the full license. Juan Fonseca, Head of Investor Relations, deferred a more detailed outlook on Spin by OXXO innovation to February.

Héctor Maya from Scotiabank asked for an update on FEMSA's banking license ambitions in Mexico, the strategic role of Spin by OXXO and Spin Premia, and how innovation in these digital platforms will enable competition against other accelerating fintech solutions.

Answer

José Antonio Fernández Garza-Laguera, CEO of Fomento Económico Mexicano, stated that the banking license application is deferred for about a year, with a current focus on credit capabilities and data utilization before proceeding. He mentioned a planned deployment of $20-30 million next year for testing new credit initiatives. He deferred a more detailed outlook on Spin by OXXO's competitive strategy and innovation to the February call, as he is still in the re-onboarding phase for that specific business.

Héctor Maya López asked for an expansion on the initiatives for more affordable brands at OXXO, questioning if it's a short-term tactic or a longer-term strategy, and also inquired about the timeline to finalize the U.S. value proposition.

Answer

Jose Antonio Fernández, CEO of the Proximity and Health Division, detailed the affordability strategy, which includes partnering with suppliers on value brands, reintroducing returnable packaging for beverages, and running promotions on core offerings like Andatti coffee. He clarified this is a key strategic response to the current macro context. Regarding the U.S., he estimated that they should be able to establish a winning value proposition within the next two years.

Héctor Maya López of Scotiabank inquired about FEMSA's U.S. growth strategy, particularly the emphasis on organic growth versus acquisitions, and asked for details on the financial services strategy, including the monetization of Spin and plans for a potential bank license.

Answer

CFO Martin Arias Yaniz outlined the U.S. strategy, which involves experimenting with OXXO formats and prioritizing profitability over rapid scale, with a focus on organic growth and small, bolt-on acquisitions under $1.5 billion. On financial services, he detailed plans to grow correspondent banking and remittances while building the Spin digital ecosystem. He confirmed FEMSA will apply for a banking license to have the optionality to offer financial services, but will be cautious and experimental with credit, possibly seeking a partner.

Héctor Maya López from Scotiabank requested an update on FEMSA's M&A strategy for the U.S. convenience store market, focusing on timing, potential store formats, and the approach to gasoline sales.

Answer

CFO Martin Arias Yaniz reiterated FEMSA's conviction in the U.S. opportunity, targeting the 'southern belt' region. He acknowledged the market's differences, such as larger stores and the prevalence of fuel, but noted FEMSA's experience with OXXO Gas. The strategy is to start with smaller acquisitions (under $1.5B) to learn the market and test value propositions, including a potential focus on the Hispanic consumer. Executive Juan Fonseca emphasized that the approach will be deliberate and prudent.

Héctor Maya inquired about Tiendas 3B's confidence in maintaining its strong same-store sales growth pace into next year, particularly as older stores mature. He also asked for insight into the decision process for commercial margin savings, specifically how the company decides to allocate savings between retaining them for margin improvement and passing them on to consumers through lower prices.

Answer

CEO K. Anthony Hatoum explained that real savings from scale and efficiencies are allocated based on product-by-product elasticity testing, optimizing for volumes and dollar margin. He noted that while quarter-to-quarter volatility exists, the long-term trend is natural margin improvement. Hatoum expressed high confidence that same-store sales will remain strong for the next couple of years, driven by significant product improvements in the pipeline.

Héctor Maya asked about Tiendas 3B's confidence in maintaining its strong same-store sales pace next year, especially as older stores mature. He also requested guidance on the decision process for commercial margin savings, specifically how much is retained as margin versus passed on to consumers through price investments.

Answer

K. Anthony Hatoum, Founder, Chairman, and CEO, Tiendas 3B, explained that real savings are generated from scale and efficiencies. The decision to allocate savings to margin or price is made on a product-by-product basis, driven by elasticity testing of approximately 60 products at any given time, optimizing for volumes and dollar margin. He stated that while quarter-to-quarter volatility exists, the long-term trend is for margins to improve. He expressed high confidence in maintaining strong same-store sales for the next couple of years due to significant product improvements in the pipeline.

Héctor Maya from Scotiabank asked about the sustainability of the current high same-store sales growth through 2025 and if the company might allocate a formal marketing budget in the future to build brand awareness.

Answer

CEO Anthony Hatoum expressed confidence in continued healthy same-store sales, seeing no signs of a slowdown, but did not provide a specific forecast. Regarding marketing, he stated that word-of-mouth and organic social media are currently the most effective drivers. While not ruling out future marketing spend, he noted the difficulty in linking it directly to sales, believing the value proposition itself is the best marketing tool.

Héctor Maya from Scotiabank questioned the sustainability of the high same-store sales growth and asked if the company would consider allocating a formal marketing budget in the future to enhance brand awareness among those unfamiliar with the format.

Answer

CEO Anthony Hatoum expressed confidence that same-store sales would remain healthy, seeing no signs of a slowdown, though he did not provide a specific forecast. Regarding marketing, he stated that word-of-mouth and organic social media have been their most effective tools. While not ruling out formal marketing, he noted the difficulty in linking such spending directly to sales increases, believing the value proposition itself is the primary growth driver.

Héctor Maya López from Scotiabank inquired about how conversations with suppliers are evolving in the current tariff context and how potential efficiency savings are split between the company and its partners.

Answer

Executive Kamal Hatoum explained that planning with private label suppliers is done years in advance, so efficiency gains from scale are already factored in and shared fairly. He noted that price increases from tariffs or devaluation have historically been passed on to consumers, a scenario from which Tiendas 3B's resilient model can benefit.

Héctor Maya López from Scotiabank asked for clarification on the drivers behind the year-over-year increase in cost of goods sold (COGS) and for more details on technology investments and their expected impact on sales and efficiency.

Answer

Interim CEO Robert Price attributed the slight gross margin compression to aggressive pricing on export items to drive sales and potential currency headwinds in high-growth markets like Colombia. For technology, Mr. Price described a 'catch-up phase' of investment in back-office systems, a new Toshiba ELERA point-of-sale system, and enhancing the online business. He emphasized these are foundational investments for future efficiency, with full benefits not expected in fiscal 2025, and highlighted the strategic importance of new regional distribution centers.

Héctor Maya López of Scotiabank asked for an update on the consumer environment in Colombia, including private label trends, and inquired about which 2025 initiatives management is most excited about.

Answer

Executive Michael McCleary noted that PriceSmart's acceptance in Colombia continues to grow, though the recent weakening of the peso could pose a challenge for imported goods. In response to the second question, management expressed excitement for several 2025 initiatives, highlighting technology investments like a new point-of-sale system, club remodels and expansions, improved non-food merchandising, and the development of in-country distribution centers to lower costs and improve efficiency. The strength of the senior management team was also cited as a key positive factor.