Fomento Económico Mexicano - Earnings Call - Q2 2025

Transcript

Speaker 1

Good day, ladies and gentlemen, and welcome to FEMSA's second quarter 2025 results conference call. Please note that this event is being recorded. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's prepared remarks. If you would like to ask a question, you might do so by pressing star one on your telephone keypad at any time. I will now turn the call over to your host for today, Juan Fonseca, Investor Relations. You may begin, sir.

Speaker 0

Thank you.

Speaker 3

Thank you. Good morning, everyone. Welcome to FEMSA's second quarter 2025 results conference call. Today, we are joined by Juan Carlos Guillermety, CEO of SPIN, formerly Digital FEMSA, Martín Arias, our CFO, and Jorge Collazo, who heads Coca-Cola FEMSA's investor relations team. This is the first time Juan Carlos joins us for a quarterly conference call as part of our ongoing efforts to provide more market access to our leadership team. The plan for today is for Juan Carlos to open the conversation with some background on SPIN, followed by a strategic discussion on where we are today in our digital endeavor, and just as importantly, where he sees SPIN going in the future. After his remarks, Martín will provide some detail on FEMSA's quarterly results. Finally, we will open the call for questions. Juan Carlos, please go ahead.

Speaker 2

Thank you, Juan. Good morning, everyone. It's a pleasure to be here today discussing and sharing with you some of the exciting progress that SPIN has been making and what we're trying to build. Thank you for your interest and for joining us this morning. Let me begin by providing some brief context into why and how SPIN came to be, not to make a trip down memory lane, but because so much of what SPIN does today and will do in the future leverages and enables OXXO and FEMSA's digital physical assets more broadly.

As most of you know, OXXO began developing a platform for basic cash payments and services many years ago, selling prepaid long-distance telephone cards and evolving over time by enabling its customers to solve an ever-growing number of needs, from utility bill payments to correspondent banking to e-commerce payment functionality, broadening the scope of its service offering along with the needs of its customers. More recently, as digital platforms in the market launched and evolved, it became increasingly clear that FEMSA had an opportunity, as well as a strategic need, to develop its own digital platform, not only to complement its physical cash-based functionalities but to evolve OXXO's broader value proposition and strengthen its role as the most convenient way to meet everyday needs. Looking into the future, convenience retail cannot be imagined without a seamless, integrated digital experience.

SPIN is one of the most important aspects of how we ensure that OXXO continues to deliver convenience across both physical and digital ecosystems while accessing new profit pools. Since our foundation in 2021, we have envisioned an omnichannel ecosystem centered on payments and rewards. While we always saw it as an integrated experience, we launched SPIN by OXXO, our digital wallet, and SPIN Premia, our rewards program, as independent, fast-to-market products focused on gaining early traction. We then saw the need to complement these assets with a B2B platform to expand our reach beyond OXXO, which led to the acquisition of NetPay. We also acquired a minority equity stake and eventually the assets of Conecta, which has served as the enabler for OXXO Pay, the e-commerce payment platform where consumers can pay for their e-commerce in cash or other means within the safety of the store.

Leveraging OXXO's capillarity and reputation as a reliable and trusted service provider and the commitment of our growing team of spinners, we have been able to consolidate a meaningful position in the market. Since inception, we have achieved the following major milestones. SPIN by OXXO has created more than 14.5 million SPIN by OXXO accounts, of which more than 9.4 million have been active in the last 56 days. We operate across the territory with strong penetration in nearly all municipalities. Our customer base is young and dynamic, with two-thirds under the age of 45 and more than 50% of our users are women. This is specifically relevant as women have historically been underserved by financial institutions. We continue to see strong adoption, repeat usage, and most importantly, growing trust from our customers.

Every month, 3.5 million users trust us to move their money through SPIN by OXXO, averaging more than 21 monthly transactions per monthly user, out of which 20% are related to OXXO, either cash-in, cash-out, or card purchases, showing it is a very useful payment method. In SPIN Premia, we have over 58 million SPIN accounts, of which 26.6 million have had transaction activity in the last 90 days. Currently, more than 20 million OXXO customers benefit from the SPIN Premia rewards program each month, with an average of more than seven monthly accumulation and redemption transactions per active user. As of the second quarter, almost 46% of OXXO sales were already identified through our loyalty and rewards program. Our ecosystem is complemented by our B2B initiative, which includes NetPay and OXXO Pay, which we refer to as SPIN Negocios.

It extends our platform beyond OXXO stores by offering electronic payment solutions and services to micro, small, and medium-sized merchants, both in their physical establishments and in e-commerce. Today, with SPIN Negocios, we reach almost 20,000 merchants and process almost MXN 12 billion on a monthly basis. SPIN is defining how consumers and businesses connect by creating faster, simpler, and more convenient ways to meet everyday needs. This gives us a meaningful opportunity to reach the 6 out of 10 Mexicans who remain underserved by traditional financial institutions. We aim to do so not only by expanding access but by reimagining convenience through a digital lens. Our team is excited and committed to simplify life by removing barriers and creating opportunities for all.

As we look ahead, SPIN is here to bring FEMSA's physical relevance into the digital space, and we're excited by the opportunity to leverage and enhance OXXO's unique value proposition to an increasingly digitized customer base. What differentiates SPIN is our unique ability to be where people truly are, physically and digitally, by combining accessible technology with trusted everyday touchpoints like OXXO. We have learned that our customers are looking for solutions that are neither purely digital nor purely in-store. By offering physical solutions or in-store digitally enabled solutions, we can maximize the value proposition delivered to our users. Cell phone top-ups are a great example. The user journey can be digital only, but sometimes when customers run out of data and can no longer perform the top-up transaction from their phone, making an in-store cash top-up can perfectly fit into the ecosystem for closed solutions.

Similarly, digitalized customers can transfer money to recipients who only accept cash. These interactions allow someone to make a peer-to-peer payment to a service provider via QR code, which can then be cashed out in the store. Likewise, customers can pay for their online purchases through OXXO Pay and complete the physical payment again in the store. The data generated through the ecosystem will allow us to better understand each customer's context, deliver more personalized services and products, and unlock two major opportunities for FEMSA. First. Evolve convenience by enhancing OXXO's value proposition through data and personalization, making everyday interactions more relevant and seamless. In the long term, this foundation will enable additional use cases such as retail media and expanded catalog, last-mile delivery, and other e-commerce features like click and collect.

Second, the opportunity to build financial services on top of payments and rewards, offering both savings and credit products tailored to our target segments. Related to this topic, we remain active towards upgrading our license and establishing a partnership to significantly improve our risk-reward profile. We can assure you that we will be cautious in testing and potentially rolling out these financial services, and we'll keep you updated as developments unfold. We promise no surprises. Touching briefly on the current economics of the business. SPIN's cash burn has been gradually improving as we continue to gain scale and cement best-in-class customer acquisition costs and cost to serve. From approximately MXN 4 billion a couple of years ago to a range today that is closer to MXN 3 billion per year for the core SPIN businesses.

As an example of what we have done to reduce cash burn, we have implemented several initiatives such as renegotiating commercial terms with dealers and connecting directly to SPAY, which together have allowed us to reduce our cost to serve by 48% compared to last year. These actions are part of our broader effort to strengthen SPIN's financial sustainability. Additionally, it's important to note that we follow a conservative approach for cash burn accounting. A clear example are Premia-related expenses. While these costs are primarily reflected in SPIN's P&L, the vast majority of its current benefits of increased sales are captured at the OXXO business. Similarly, a significant portion of the benefits that SPIN by OXXO generates to FEMSA are not fully reflected in the SPIN cash burn. For example, SPIN by OXXO is the second-largest driver of OXXO's cash in activity, with more than 25% of total transactions.

Wrapping up, we would like to leave you with the message that we're uniquely positioned to help Mexico evolve towards financial inclusion. We want SPIN to earn the same level of relevance, trust, and customer love in the digital world that OXXO has earned in the physical one, with the intention not of replacing but complementing the store to create an omnichannel digital approach. Beyond offering a trusted platform for day-to-day needs, we're committed to driving financial inclusion. That means opening new opportunities and supporting our customers through financial education. We have been focused on bringing world-class capabilities and talent to SPIN, and our leadership and way of work has evolved to one of a consumer tech organization facing fast-paced change and challenges.

We're building something ambitious, something that matters, not only for us but for the next 100 years of FEMSA, and we believe we have everything it takes to get it done. With that, let me turn it over to Martín to discuss FEMSA's second-quarter results. Martín, please go ahead. Thank you, Juan Carlos. Good morning, everyone. Let me begin by discussing our consolidated results for the second quarter of 2025. During the quarter, we delivered total revenue growth of 6.3% despite a challenging environment in Mexico impacting both Proximity and Coca-Cola FEMSA, which was offset by solid top-line trends outside Mexico, currency tailwinds, and the consolidation of the OXXO USA operation. Operating income increased by only 0.2% year over year as the more challenging consumer environment in Mexico did not allow us to absorb the inflationary effects on our costs and expenses as effectively.

In addition, our operations were geared to a stronger consumer environment than the one that materialized. Thus, our costs and expenses ran a bit ahead of actual volume and traffic. While this impacted profitability, we remain confident in our ability to navigate short-term headwinds by maintaining strong operational discipline and leveraging the solid fundamentals of our business. Net consolidated income decreased by 64.3% to MXN 5.6 billion, driven mainly by, one, a non-cash foreign exchange loss of MXN 4.1 billion compared to a gain of MXN 6.1 billion last year, a swing of more than MXN 10 billion, related to FEMSA's US dollar-denominated cash position, which was negatively impacted by the sequential appreciation of the Mexican peso during the period. Number two, a lower interest income of MXN 2.1 billion compared to MXN 4.1 billion the previous year, reflecting lower interest rates.

Turning to our operating results and beginning with the Proximity Americas division. Overall, the division delivered mixed results this quarter, improving sequentially at the top-line level but still reflecting a challenging consumer environment in Mexico that was partially mitigated by robust performance in our other markets in LATAM. Bank store sales declined modestly by 0.4%, once again reflecting a combination of a solid average ticket growing 6.6%, offset by weaker traffic, which contracted 6.6% as well. It is worth noting that while same-store sales remained lackluster in Mexico, they grew nicely in OXXO LATAM, increasing in the high teens even after accounting for foreign currency tailwinds. While these operations are small in relative terms, these are promising results.

While we are encouraged by the team's ability to drive average ticket above inflation, leveraging our targeted promotional activities and the positive seasonal effect of larger baskets around Holy Week, the sustained weakness in traffic in Mexico is the clear focal point for our commercial initiatives as we start the second half of the year. As has been the case for several quarters now, the decline in average traffic was mainly attributable to a persistently weak consumer environment in Mexico, combined with atypically adverse weather conditions across the country. This hit some core convenience categories such as soft drinks, beer, and tobacco particularly hard. On this point, our data suggests these convenience categories may have lost competitiveness relative to others across channels during the quarter.

We believe this effect is not driven by SKU-level pricing but rather by the mix of presentations such as multi-serve returnable beverages, smaller snack presentations, and low-cost cigarette alternatives, which are currently available in other channels such as the traditional trade but not at OXXO. Total revenues for Proximity Americas grew 6.9%, or 2% on an organic and currency-neutral basis, mainly driven by the continued expansion of our network by 1,500 stores year on year, a strong performance in our LATAM markets, the consolidation of OXXO USA, as well as a favorable exchange rate. Gross margin remained stable at 44.1% and expanded by 120 basis points if we exclude the options outside Mexico. Operating income decreased by 2.8%, while operating margin decreased by 90 basis points to 9%. Operating expenses grew faster than revenues.

However, it is worth noting that selling expenses, the biggest component of our operating expenses, grew in line with our expansion of 6.3%, thus reflecting our continued efforts to offset labor cost increases with greater FTE efficiency in the stores through the use of data analytics and new, more flexible shift policies. On the expansion front, Proximity Americas added 334 net new stores in the quarter, in line with our plan. In the U.S., we continue to make progress in the conversion of DK stores into OXXOs, focusing currently on the Midland–Odessa and Lubbock metro areas in West Texas, where we have converted 40 stores as of the end of the second quarter. Later in the year, we will begin the process in El Paso, applying the learnings from the earlier conversions.

These involve not just rebranding but also the addition of several hundred SKUs, including our Adapti Coffee value proposition, and early results in terms of incremental sales are promising. We will continue to test true concepts and to tweak the overall value proposition, and we will keep you updated on developments. At Valora, during the quarter, we continued our accelerated store expansion, opening 23 new stores, and we remain on track to achieve a 30-40% growth rate in 2025. We continue optimizing our discount value proposition while scaling our private label strategy. Valora's same-store sales grew 8.9%, but they grew in the low teens if we exclude the convenience categories, reflecting the current consumer trends and consistent with the dynamics seen at OXXO.

In Europe, Valora delivered solid results as total revenues increased by 31.4% in pesos or 5.9% on a currency-neutral basis, driven by strong performance in our retail business in Switzerland, partially offset by lower sales in our B2B and B2C food service. We continue to focus on converting stores into the successful AVEX banner, which has proven to offer a compelling value proposition tailored to the evolving needs of consumers in the region. Originally launched in Switzerland, our AVEX format travels well across borders and presents an attractive opportunity for organic growth. Gross profits grew 25.6% in MXN or 1.2% currency-neutral, representing a dilution of 190 basis points compared to last year, due to the slowdown in our higher-margin B2C business as well as the impact of changes to the operating model with our retail operations.

Valora reported a 54.4% increase in operating income, 24% on a currency-neutral basis, accompanied by a 70 basis point improvement in operating margin. This result reflects continued progress in cost discipline and operational efficiency across the business. Now, let me walk you through the performance of our health division. Total revenues increased 15.6% in MXN, with the same-store sales growing 13.1%, mostly explained by strong top-line performance in Colombia and Ecuador, supported by favorable FX dynamics. On a currency-neutral basis, total revenues grew 6.7%. The growth in revenues occurred despite the continued challenging environment in Mexico, which saw same-store sales decline and the closure of 432 underperforming stores versus the same quarter in 2024. Operating income rose 5.7% but declined 5.2% on a currency-neutral basis, resulting in an operating margin dilution of 30 basis points to 3.8%.

This performance of operating income reflects one-time restructuring charges in Mexico and in Chile. The new management team has been in place for over 100 days and is well advanced in its diagnostic process, and they are taking some decisive actions to improve profitability. In addition to the closure of 432 underperforming stores in Mexico in the last 12 months, the team has executed a significant overhead reduction, which is reflected in the operating expenses. For its part, Colombia retail continued to show solid momentum driven by robust same-store sales growth, new store openings, and improved mix towards retail versus institutional, while Ecuador delivered a strong set of results as it focused on expense control and revitalizing existing formats. Finally, Chile's sales remained positive, but profits were flat due to overhead restructuring charges, which put pressure on margins.

At OXXO Gas, same-station sales increased by 4.9%, and total revenues grew by 0.6%, reflecting growth in retail volume offset by a decline in the wholesale business. Gross margin stood at 12.6% and operating margin at 4.7%, as we continue to look for further efficiencies and savings to support profitability in areas like labor and other selling expenses. Now moving to Coca-Cola FEMSA. During the quarter, revenues increased 5% in the face of adverse weather conditions and a tougher demand environment, particularly in Mexico and Central America, where volumes declined by nearly 10%, while lower operating leverage put pressure on profitability. Despite these temporary headwinds, Coca-Cola FEMSA remained well-positioned to execute its strategy, leveraging recent investments to increase production and distribution capacity, along with a diverse brand portfolio to meet evolving consumer demands.

For a detailed analysis of their results, you can access the webcast of their earnings call held last Wednesday. Before we close, let me give you a brief recap on capital allocation and our outlook for the second half of the year. As part of the FEMSA forward plan, we successfully completed the divestiture of the bulk of our remaining logistics business on July 1. In terms of capital deployment, our top priority remains in investing and growing our core operations, which includes an ongoing multi-year investment plan across all business units to support long-term growth. Regarding shareholder remuneration, we remain on track with our commitment to deploy MXN 66 billion, approximately $3.2 billion, between March 2025 and March 2026, through a combination of ordinary and extraordinary dividends, as well as share repurchases.

As of the end of July 2025, we have executed approximately $374 million in share buybacks, including repurchases in the local market and a $250 million accelerated share repurchase program, or ASR, which concluded last week. Additionally, we have paid out two out of the four installments of ordinary and extraordinary dividends for the year, totaling nearly $1.2 billion. As of the second quarter, we reached a leverage ratio of 0.93 times, excluding Coca-Cola FEMSA, and have deployed $1.6 billion in extraordinary returns, representing half of the $3.2 billion commitment announced earlier this year. As we look ahead, we remain confident in the strength and resilience of our diversified portfolio, and we are maintaining our expectations for stable full-year operating margins at Proximity Americas. Last Wednesday, Coca-Cola FEMSA shared a similar message, maintaining their long-term perspectives unchanged, so we are directionally in sync.

As we look at the next couple of quarters, we remain cautiously optimistic for the second half of the year, acknowledging potential volatility amid the soft macroeconomic environment. Beyond that, we believe our continued focus on operational discipline, strategic investments, and rigorous capital allocation positions us well to navigate the evolving consumer environment and deliver sustainable growth ahead. Finally, regarding our management succession, and as José Antonio mentioned during the February call, FEMSA's board of directors appointed a special committee for this purpose. The committee is currently working on this process, and we expect to have more news for you later in the year. With that, we are ready to open the call for questions. Thank you, ladies and gentlemen. We will start now the Q&A session.

If you would like to ask a question, please press star one now on the telephone keypad, and to withdraw your question, please press star two. The first question comes from the line of Ben Theurer calling from Barclays. Please go ahead. Yeah, good morning, and thank you very much for taking my question. Wanted to take the opportunity to dig a little bit more into some of the comments you made in the opening and talking a little bit about Spin and the opportunities here, and particularly how you think to bring this back into Proximity Americas and into hopefully trying to see some sort of a recovery. As you have seen the business evolving over the last couple of years from the early stages to now, and obviously you are showing progress here on still acquiring new customers with them actually using as well the platform.

What would you say are the missing pieces in order to really make the most out of Spin and Spin Premia as it relates to really boosting again maybe some of that traffic or some of that recovery of the proximity stores, particularly in Mexico? That would be my question. We are going to take a couple of seconds. We will be on mute for a little bit. Thank you for the question. I would like to first highlight that in terms of where we see the future from an OXXO perspective, we are already well underway in leveraging the data that comes from our Premia rewards program to accelerate our retail media efforts. The early results are quite promising as we have more data on our customers and we continue to penetrate further our base.

Our expectation is that how we can personalize and customize our offers is going to continue to improve, allowing us to drive higher commercial income. On the Spin side of things, we are very early in our monetization journey as we are currently only starting to explore financial services, including savings and credit products. We launched our first personal loans earlier in the year, and are very excited about the prospects of how this can evolve in the future, but recognize that we are going to be doing so in a very careful manner and taking time to progress our financial services value proposition. Lastly, I would highlight that we have interest in moving all of our Spin products beyond OXXO, beyond proximity and health, to have a much wider value proposition.

We are also quite early in that journey that will start primarily focused on payments and rewards and evolve into financial services as well. I think I would also add, Ben, this is Juan. I mean, if you just look at the tender, this figure that we have been reporting of what percentage of OXXO sales are going through the program, through the Premia program, that is a number that goes up by one or two percentage points per month, right? I mean, we were discussing among ourselves, we gave you a figure today of, I think, 45.8, almost 46, but the reality is that June was already at 47, right? I am sure three months from now, we are going to be talking somewhere in the 50s. I think we are still very much in the early stages of people.

Embracing this and to having it impact their habits, right, in terms of going to OXXO more frequently and choosing OXXO versus other alternatives because it gives you those rewards, and then how this feeds through the engagement on whether you're using your physical card or your app, and then the kind of the broader purpose of Spin as an ecosystem. I still think, I mean, the growth rates, this thing has only been around for a couple of years, right, a little bit more than a couple of years. The slope of that curve is really remarkable. I do think there's a lot more to come in terms of just people, again, internalizing that if you do this transaction at OXXO versus elsewhere, it gives you these benefits that you didn't have not that long ago. Can I just quickly follow up on that?

With that tender going up, are you seeing better traffic data with the ones that are signed up for Spin/Spin Premia than traffic data with the customers that aren't signed up? Is there something that potentially can help you recovering the traffic as we move into the coming quarters and then into 2026? In fact, we do, because that 47% of sales tends to favor heavy users. In other words, the percentage of users that represent that 47% is a lower percentage. What that indicates to you is it drives loyalty and engagement with people. People are obviously choosing to go more to the store more frequently to buy more things driven to the point. The value proposition of that program is still going to experience significant improvement in terms of customization, in terms of the types of promotions you offer.

As we refine the data, we improve the data, we learn more how to use the data without obviously overwhelming the consumer. I think there's also a kind of a double-click you can do on the tender number, because the number we give you is a percentage of sales, but we're increasingly tracking and incentivizing the number of transactions, which would kind of connect with traffic more directly. Of course, there's a second click, which has, or a third click in this case, that has to do with services transactions, right? Those give you a lot of information that it's very different what you can glean from a transaction of somebody buying a Coke as opposed to somebody paying their bills. There's still a lot of room to keep improving that data acquisition and processing and then implementation within the Spin ecosystem. Perfect. Thank you very much.

I'll pass it on. The next question comes from the line of Alvaro Garcia calling from BTG. Please go ahead. Hi. Thanks for the space for questions. My question is for Juan Carlos, given he's on the line, as much as I'd love to ask about OXXO. On culture, sort of other FEMSA subsidiaries very much focused on profitability. You've had the benefit of sort of being isolated from that mentality for some time now at FEMSA Digital. How do you feel about FEMSA Digital fitting within OXXO to really leverage that physical footprint? This is obviously in the context of potentially leaning into. Sort of it's a second question within digital, which is. How you feel about. Not burning cash necessarily, but being a lot more aggressive when it comes to leaning into specific revenue streams like NetPay, like Credit, like Merchant Acquiring, etc. Thank you.

Thanks for the question. Generally, we're excited. I think the environment inside of FEMSA is one where we have the independence and the autonomy to drive a differentiated culture within Spin than the rest of FEMSA. It's a culture that is much more consumer tech focused, where we have a strong emphasis in agility and rapid iteration testing. Based on customer needs and demand. Hence, we've been able to develop our own culture within Spin. Now, I recognize that our right to play starts from the assets that we have within FEMSA, more specifically with the capillarity that we have with OXXO and the significant footprint and customer presence across the OXXO platforms, which requires a tremendous amount of collaboration between our teams.

Although it is a challenge given the differences around culture, the reality is that we have strong alignment both at the board as well as at the management level that we need to evolve our thinking towards digital. Hence, this is a strategic imperative for the company. There is a tremendous amount of focus from the OXXO team in working together with Spin as we evolve our value prop. On your question related to cash burn and our ability to be more aggressive on the growth side and not necessarily as focused on profitability, you're absolutely right. Within Spin, we recognize that for us to be a relevant digital platform, we have to have the scale, the massive penetration within Mexico, and the frequency of use.

That requires us investing in the business to be able to drive that stickiness that ultimately will enable us to drive two big opportunities, as we mentioned earlier in our remarks. The first one being evolving OXXO's convenience value proposition into digital with a much more digital value prop that leverages both their existing physical footprint but our Spin digital ecosystem. Then two, driving financial services both for savings and credit, where we see a significant monetization opportunity, and we're very early in that journey of deploying credit. I would complement just two small points. One, it's an issue of alignment between the two organizations.

We hope to, by the end of this year, so that it applies next year, we come up with a system of joint P&Ls and joint KPIs where key executives that need to cooperate in OXXO and in Spin will be receiving their bonuses or a significant portion of their bonuses tied to the same exact objective. We hope that will align interests and will align efforts a lot more. Number two, and out of fairness to Spin, we are quite conservative in how we measure the cash burn of Spin. As Juan Carlos mentioned, if you think about Premia, the percentage increase in sales that you would have to believe to make Premia, just Premia, a break-even business, is very low, very, very low single digits.

In other words, if we just take the incremental sales multiplied times the gross margin, thinking that having 47% of your sales tied to Premia has to be driving incremental sales, then Premia, there is no doubt that Premia today is profitable. The problem is we wanted to avoid measurements such as that because they can then justify any number of things with regards to just spending more and more and more. We purposely, for purposes of the P&L and cash burn of Spin, said, "No, no, no. I just want to know the cost that you're spending and the points that you sell to OXXO." Incremental sales do not get included into your P&L, but we well know that this is driving a significant amount of incremental sales. Thank you. Thanks, Ivan. The next question comes from the line of Thiago Bortoluci calling from Goldman Sachs. Please go ahead.

Yes. Hi. Good morning, everyone. Thank you very much for taking our questions. I would like to explore more the same-store sales dynamics at OXXO Mexico, right? Now, it's been roughly the fourth quarter in a row that we are discussing traffic and what is happening there, what are the pressures, and when will it inflect. Obviously, there are a lot of moving parts, weather, macro that comes from the elections. One thing that caught our attention this quarter was in the beginning of the presentation in Martín's prepared remarks. He said some loss of competitiveness versus other channels and other points of sales, number one. In the opening remarks on the press release, I see a focus from management to work on assortment. It's not like we've been increasing the prices on an SKU-like to SKU-like basis. Again, I think the best example is, for example, beer.

Before, you were buying one-way glass presentations, or you were buying cans. Now, because you have a little bit less money in your pocket because of the economy, and when you have some friends over, you're going to buy the one-liter returnable beer package and share it with a group of friends. If OXXO does not have that package of presentation, then in effect, it is at a competitive disadvantage. That second part, we believe, is generally addressable. We are working on that, both in beverages as well as snacking with smaller presentations, as well as lower-priced tobacco products. An example is, we are seeing it with BADA as well. If you sparse out BADA and you strip out convenience categories, and you just leave the categories that go head-to-head with other similar discount channels, you can clearly see that we are doing fine on the non-convenience categories.

On the convenience categories, the consumer is simply being more conservative and more cautious. In addition to the weather issues, which central, anybody who is in Mexico City knows that the last quarter was particularly cold for the time of the year, and in other parts of Mexico, more rain. We have to react to that, and there is a laundry list, a very, very, very long list of initiatives that is being triggered by the OXXO team around beer, soft drinks, packaging formats, our coffee value proposition, more promotional activity with our supplier partners that we hope during the second half of the year will help improve this issue with the traffic. That makes sense. Thank you very much, Martín. If I may follow up, now it is more on health and also Grupo OXXO in Brazil.

I know in health you have been very vocal on rationalizing the portfolio and you have been closing stores over the last few quarters. This quarter, we also saw some net closures in Brazil, right? Where would you say FEMSA is in terms of optimizing the portfolio, and how should we think about net unit growth across these two divisions going forward? Thank you very much. Hey, Thiago, let me take the first crack at this, and then Martín can complement. I think the two are in very, very, very different situations, right? On the one hand, in health, you are talking about Mexico specifically, which is going through a pretty major surgery. There are different things that are being analyzed by the team in terms of how to move forward.

Clearly, the national strategy and entering into some parts of the country where the brand was not well known and trying to compete head-to-head with some of the incumbents has not turned out to be the right strategy. The 400-plus closures in Mexico and restructurings, we are going to talk a lot more going forward about how. There are some really cool ideas, I think, internally that we are thinking about how we could disrupt this industry or do things differently. That is one thing. In Brazil, we closed a few stores of the earlier cohort. We continue to kind of learn about what works and what does not in Brazil. The growth in Brazil should be at about 20% for the foreseeable future. We are super bullish about Brazil. I just want to be clear that the fact that we closed a lot of stores in Mexico helps.

A few stores in Grupo OXXO have nothing to do with each other in terms of the causality of what's going on there. You know what? I would like to go back to your first question. I specifically asked the OXXO team before this call to run an analysis for stores that were near hard discount channels and to give me a sensitivity whether there was a decline in sales, same-store sales in those stores. The difference is really very small. It's very, very, very small. I would characterize it as 1%. When you look at the categories, I also asked them to help me map all the categories of a hard discount, which I know is the subject of a lot of comments that we get.

If you ask somebody to map out the categories that are in a hard discount store versus in an OXXO, the overlap is probably in the 20% range. In other words, the consumer occasion of going to buy a coffee, of going to pay financial services, of buying Coca-Cola product or buying Heineken or Molino product as you walk down the street, of buying a quick snack because you're hungry or accessing to buy some bread for a quick snack, those occasions are significantly different than the one that's being offered in the hard discount models. We think it competes head-to-head in BADA, without a doubt. With regards to OXXO, we do believe that the formats will continue to exist, coexist, with relatively contained overlap.

I wanted to address that because that's the subject of a lot of questions, particularly one gets and commentary that we see in the analysis that's published. That's helpful. Martín, Juan, thank you very much, guys. Thanks, Thiago. The next question comes from the line of Rodrigo Alcantara calling from UBS. Please go ahead. Hi. Thanks. Good morning, and thanks for taking my question, Martín, Juan. I want to take the discussion Proximity Americas just bought on the OpEx side, right? On one hand, selling expenses, I mean, was really, really impressive, the achievements that we saw, right, when you guys decelerating the pace of OpEx growth. I mean, you mentioned there about the initiatives to have a more efficient labor usage, right?

My question on the OpEx side related to labor is, is it fair to assume this runway that we saw this quarter to project this going forward, which again was quite impressive, the efficiencies that you achieved on the labor front? How would you say, in relation to the 40-hour working week, how compliant would you say you are currently right now to comply with that new regulation as a result of these changes that you have implemented? And my question on the, and the other question for the OpEx side would be on the G&A, the administrative expenses, where we continue to see this line growing considerably. You give some explanations in the press release, right? Just curious on, I mean, really what's driving here.

I mean, are you hiring more people, or what is driving the G&A, and when can we expect some sort of leverage or stabilization in this line? That would be my question. Thank you very much. Sure. A couple of quick things. Let me start with your compliance question. Look, we're always trying to get a little bit ahead of the curve because, as you know, OXXO is a very big ship. It is not a ship that moves on a dime, and it's not moved from one quarter to another. Changes require changes in the operation, systems, culture, and so on. Today, we are not compliant with the 40 hours, because it's not the law. We have been running experiments in certain plazas, certain areas, at 45 hours and at 40 hours to see how we would change our operations.

Those plans are producing very valuable insights of how you want to use dynamic shifts. In other words, not everybody in a store has to be at the store the same amount of time. You can start the day with less people if it's a slow breakfast store, and then bring in more people during lunch when you have a lot of activity if it's a store in a downtown business district. In the evenings, also, you can move down. You can move people so that they work a total of 40 hours or 45 hours or 43 hours, wherever the labor reform ends up. You could ask them to work a little bit more certain days and a little bit less other days or give them more days off so that you use them. There are a lot of learnings that are being developed as we speak.

When the law is passed and we have greater clarity, we will be in a position to roll out that as quickly as possible. With regards to the issue of administrative expenses, this is a focus of the OXXO management team. We hope over the next couple of quarters to give you a little bit more insight on that. I think they are very sensitive to, one, they need to prioritize their transformational initiatives. The growth in that has been driven in many cases, has been driven by the issue of thinking about transformational initiatives. The instruction that has come from FEMSA is we need to prioritize. In times like this, we need to focus and have them very clear. We can postpone some of them for some period of time. Number three, that number's a little bit impacted, also, remember, by the OXXO USA incorporation into the.

Consolidation of Proximity Americas. The number is a little dirty relative to that. There, we are having to build out an overhead. Remember, this was a carve-out of a business. You will probably be seeing a little bit of that impact and a little bit of that effect. We would expect to see that improve during the second half and certainly during the beginning of next year. Again, understanding this is a big organization, and we need to be thoughtful on changes that we make. Finally, as to the trend on labor expenses, the government will continue to likely increase minimum wage. I think the number that they are targeting is 12%. We are going to continue to battle with that percentage.

Again, it is very hard for me to predict to you where the physical limits of the savings that we can drive through this issue of use of technology and more variable shift policies. I can assure you we will leave no rock unturned. I am not in a position right now to give you a guidance as to how much more we can extract from that. I do think that there is more that we can extract, but it is hard to tell you where the limit is. No, yeah, for sure. Absolutely. Thank you, Martín, for the detailed answers. The next question comes from the line of Ricardo Alves calling from Morgan Stanley. Please go ahead. Hi, everyone. Thanks so much for the call and for the opportunity to ask you questions. First question on net income.

Considering your operations were relatively in line with what we expected, at least, but as it pertains to the bottom line, we saw a big miss relative to what we expected. We saw higher taxes and significantly lower equity income, I believe, from MXN 90 million in the first quarter to almost MXN 800 million in the second quarter. Probably, I would assume that most of that could be related to OXXO Brazil. Can you just share more details on what is driving this volatility below the line, just so that we have a better basis to model the second half of the year as it relates mainly to equity income, the equity income line, and then also taxes? Because effective taxes were also higher than expected. That is my first question on EPS. The second question is actually a follow-up on OXXO Mexico.

We share the view that the second half could be better in terms of traffic and same-store sales, but we are lacking evidence of that yet. I think that some of the discussions that we had with you guys, with senior management, as it relates to all the initiatives that you are taking to improve traffic, I think that that discussion is very timely. It is very important. It is very helpful. It is not very clear to us where. What do you think is going to move the needle most into the second half? Can you go into the qualitative examples of the biggest initiatives that you're taking? Is it the new proposition with the tobacco companies? Is it the soft drinks initiatives that you're taking, retail media?

What do you think is going to really move the needle for us to see a second half that is better, for us to see a rebound? Also, that we can have better visibility into the key drivers to see the light at the end of the tunnel, if you will? I don't know. Maybe July was better. Maybe that could be an evidence. Those are my questions. Thank you so much. Let me start with a below-the-line question. The single most important reason for the decline in net income is one thing, which is a MXN 10 billion swing caused by foreign exchange losses and our US dollar excess cash balances. That just happened to be that it was a very good year last quarter, the second quarter of 2024. Here, it was worse because the pace of decline.

In that way, it's a little not tricky, particularly difficult to understand, but the balance sheet items are impacted quarter on quarter with FX moves quarter on quarter, while P&Ls are moving really with year-to-year FX movements. If you back that MXN 10 billion out, that explains most of it. Without a doubt, if you believe that the exchange rate is going to remain stable, that number should tend towards zero. If you believe the peso will devalue, you will see again periods where we have very good profits. I would tell you below the line, that is the thing that's moving. The second thing is the issue of taxes. I'm sure somebody will ask about this. We explain it in quite a bit of detail in the press release.

The taxes, in a period where our pre-tax income has been impacted by this loss, tend to magnify two things in a relative marginal tax rate perspective, which is, one, the non-deductible expenses part of labor. As you know, in Mexico, you cannot deduct 100% of labor expenses because a portion of labor expense doesn't pay income tax. The government is taking the position, well, if employees are not paying income tax on this part of their compensation, they only allow you to deduct, and I'm going to say, approximately 50% of that portion of your labor expense, which the employee doesn't pay. As our operations have continued to grow and the labor expense has grown, so has the non-deductible amount. That is unlikely to change. There is a second part, which is the spend losses.

The spend losses, because of where they're located within our corporate structure, at this point. We cannot deduct them, and we are not accruing or adding to our tax assets from the future application of those losses to profits from the SPIN business. Simply as a conservative, prudent accounting matter, we no longer do that. Remember that in Mexico, accumulated losses only last 10 years. They do not last into infinity. Therefore, at some point, you have to make a judgment of whether you will be using those losses within the remaining life of those losses before they expire. That second item is really non-cash if you think about it, because if you are removing the losses from SPIN, you just do not have a tax shield on it. It increases your relative tax rate.

The tax rate on the remaining businesses, which generate the profits of the business, does not have that 40% marginal tax rate that you saw. It is a tax rate much more in the 35% range. Also reminding you that we have operations that pay higher taxes than the Mexico tax rate. The number you are seeing is consolidating. Costa Brazil has a higher marginal tax rate than Costa Mexico. There are some other countries in South America where the tax rate is above 30%. That is as to this issue of what is happening below the line. If you can remind me of your second question. If there was more evidence or to be optimistic about the second half, talk a little bit about July. I would like to talk a little bit about July.

Martín always gives me a little bit of a hard time because I look for the green shoots. I mean, if the month of July ended today, same-store sales are positive in the low single digits, for whatever that is worth. Certainly, I think on the other part of that question, in terms of some of the stuff that is being done, that rotation in and out of larger presentations, returnables, kind of changes to the price package, those have happened over time several times, right? I mean, in my tenure, I have seen it happen probably two, three times where the consumer begins to ask for those multi-serve presentations in both beer and soft drinks, where returnable mix goes up. Eventually things get better and people do not want to deal with the hassle of returnables, and then you go back to the single-serves, one ways.

I think we are kind of in the middle of that. Obviously, we are in this process where more of the SKUs at OXXO are going to resemble some of those SKUs at the mom-and-pop, where you can kind of do the sharing that Martín was talking about in the multi-serves and the returnables. There are also these two big external factors, right? The weather. Again, if you look at Coca-Cola FEMSA's numbers and other people that have reported, they all seem to converge on how beverages and convenience categories suffered during the quarter. And then just the overall health of the Mexican consumer and whether construction activity picks up a little bit in the second half, which is something we all hope and expect will happen. It has a lot to do with permitting and kind of government policy.

I mean, I do not know, Martín, if you have more on that. Yeah. Again, some of these things are outside of control, the economy and weather. I would suspect you guys have a view on this, particularly on the economy. I assume not on the weather. Implementing many of these commercial activities, you do not just flip a switch when you want to introduce returnable packaging into the OXXO system. You have to develop the systems for recollecting the bottles and cases and the M&L account for them. As a boss of mine used to say, the most expensive packaging in the world is a returnable package that does not return. That has to be accounted for, and we need to adjust. We need to negotiate with our suppliers. As you can imagine, some suppliers want to save certain packaging presentations for certain channels.

That is where it is important that OXXO uses its commercial muscle to demand sort of legal treatment in terms of packaging. Till now, positive. There are also some commercial negotiations with some very, very, very important suppliers that are being finished as we speak, which should give us an uplift. I prefer not to identify them. There are some important categories where we have made some very important negotiations in terms of promotions, commercial income, the margin as a retailer that we are going to be able to keep on them that should flow through towards the second half that you do not see today in the first half. Also, we had been planning for the labor reform to occur this year. We are pretty confident it is not going to happen this year.

I think the government has been very sensitive to the fact that in the current economic environment, reducing work hours is likely to be somewhat recessionary. I think that is going to give us some breathing room with regards to things that we had otherwise planned for this year. Martín, Juan, thank you. Thanks again. Thanks, Ricardo. Next question comes from the line of Bob Ford, calling from Bank of America. Please go ahead. Thank you. Good morning, Juan. Juan Carlos, Martín. Thanks for taking my question. Juan Carlos, how do you think about the sustainability of SPIN's consumer fee-based revenue, and how do you see that evolving over time, if at all? Can you talk a little bit about your deal with Mercado Pago? How should we think about the fee income and traffic generation with Mercado Pago versus other correspondent banking agreements?

Is the deal limited to cash in and out, or does it encompass pickup, returns, or other services? Thank you. Thank you. I'll start with the second part of your question, which is the deal with Mercado Pago. There, I would highlight that we're committed to continuing to open our infrastructure to all players in Mexico. We see an opportunity to continue to grow our ecosystem, and hence, we view the deal with Mercado Pago, similar to many of the other fintechs that are now part of our network, as an enabler of consumer choice and ensuring that we have a robust offering as customers access the store. It's primarily related to both cash in and cash out.

There are currently some pilots around pickup and drop-off that we are doing with Mercado Libre, where we are excited about the prospects of how that can evolve into a digital solution over time, enabling our customers to be able to purchase on Mercado Libre and hence pick up and drop off, depending on their needs, directly in the store. Those are still very early stage. However, we do think that that's going to be something that could be relevant down the line, especially as we continue to evolve our own digital ecosystem. As it relates to your first question on fees and how we see an increased electronification of cash, the reality is that that is an ongoing trend.

Having said that, our correspondent banking fees continue to be quite strong, and hence, through SPIN, we see an opportunity to parlay our position in physical cash into the digital ecosystem. And there, monetization is going to come from the opportunities that we see in financial services, primarily around credit, which we're early in our build-out. Very helpful. Thank you so much. Yeah. The only thing I would add, one of the things that has surprised me and proves the power of the platform of OXXO, is every time a new fintech player gains access to OXXO, they put out press releases sort of almost describing it as new strategic partnerships that we're developing. And the reality, they're being managed by all the other people who access our payment platform.

There's nothing special or unique about what Mercado Libre is doing within our OXXO stores as compared to what any other traditional financial institution or other e-commerce businesses. For us, it's sort of business as usual to bring in and to give access to more players that gives more optionality to our customers. You guys are special and unique, and I think that's why they're excited about the distribution. But thank you. You can say that. I won't. But thank you. The next question comes from the line of Antonio Hernández Velez Leija, calling from Activo. Please go ahead. Hi. Good morning. Thanks for taking my question. Two quick ones, actually. The third one, do you get to see any improvement? Actually, from a weather perspective, you mentioned this, and as you connected, it was already quite expected.

If you could exclude the weather impact on traffic and some sort of sales out of the quarterly performance, I have a comment for those. Thanks. Traffic times weather is the question. That is what the team is focused on. Further evidence that this is weather-driven is the fact that Coca-Cola FEMSA also had a very complicated Mexico. When you look back at April and May of last year and how hot it was during those months relative to these years, in addition to the issues of the election and the economy and so on. Again, Coca-Cola FEMSA's market share numbers are rock solid. They are doing well. There is no indication that there is a competitiveness issue at Coca-Cola FEMSA. They also had a very, very complicated second quarter in terms of volume.

Again, weather impacts the consumption of beverages more than people realize, not only the temperature but the rain. The more it rains, the less people go out, and so the less they buy single one-way servings. At the margin, it impacts, for example, somebody was telling me about other companies that are more in the coffee business and why their safeguard sales were better than ours. They say, "When it is cold, people drink coffee more than they will drink a cold beer." Again, it sounds anecdotal, but it actually does happen in the real world. Okay. Thanks. Appreciate the call. Just quick follow-up. Having said that, how does that play out with your openings expectations for both OXXO and BARA? How does that play out? Are you maybe accelerating a little bit the opening space or just business as usual on that side? Thanks.

If I understood correctly, the question has to do with whether this performance is impacting our plans for opening stores in OXXO and BARA. With regards to BARA, I would say it does not. The reality is we are on a long journey here to expand that value proposition. There are very few, if any, changes on that. On OXXO, at least for the time being, again, no major changes. I do think, and this is more of a trend that we have been seeing over the last year, year and a half, not particularly pushed by the recent performance, which is we are seeing a larger percentage of the stores we are opening being OXXO nichos, which is, again, stores that are in closed "secure" environments. Inside universities, hospitals, plants, office buildings, etc.

We are seeing the percentage of that increasing as a percentage of the stores that we are opening because we see a very unique opportunity to position ourselves in that market, and we want to try to capture as much of that market as we can because we think it is very strategic and very valuable. There is a lot of demand for it. In some of our. Nicho stores, the feedback we get from the HR of some of the factories in which we've opened this is that it actually reduces, there's a correlation between opening the OXXO nicho and the rotation and absenteeism that people see within the factory because people were missing work to be able to execute financial services. They're being able to execute them inside their workplaces now in a very safe environment.

For the time being, we may revisit that in the second half of the year to slow down maybe some of the expansion, if it makes sense. For the time being, we're going to continue to open at the pace that we've been guiding to in Mexico, which is 1,000-1,100 stores net additions. Perfect. Appreciate the call. I am reserved. Thank you. The next question is from Ulises Argote calling from Santander. Please go ahead. Hey, guys. Thanks for the space for a question. I had one maybe to get a follow-up there related to BARA. On the release, you said there's some weakness there on the convenience categories, right? Could you share some additional follow-up on how much is convenient there from the mix in BARA? You put some numbers there on the release, and thanks for that. Any additional follow-up is obviously appreciated.

A segue into the second part of the question would be, how do you see this into the future, right? Is the focus there to further expand on risk and categories in BARA, or are you kind of already comfortable with the current mix? Thank you. Hey, Ulises. It's Juan. The mix of convenience within BARA is around 30%. It's not insignificant. We continue to see value in the BARA customers being able to buy the national brands for beverages, certainly Coke and the big beer brands.

However, having said that, if you ask me, kind of read the tea leaves or look into the future, certainly, the focus internally is put on the private label part of things and on at least doubling the mix of private label and really continue to move the value prop towards more of a harder discount, which then would mean that convenience component would weigh less, right? As we go from somewhere in the 20s where the private label is right now into hopefully the 30s and the 40s and beyond, I would expect the relevance of convenience to come down. That's just directional. I don't really have, I don't think we have visibility into what the number will look like five years from now. No, that's perfect to take a look at. Thank you. Thank you very much. Thanks, Ulises.

The next question comes from the line of Carlos Laboy calling from HSBC. Please go ahead. Yes. Hello. Juancarlos, I was hoping that you could speak to your interactions with the board of directors, with their level of support. How their skill and their understanding of the firm's changing digital needs, how it's evolving. Thank you for the question. Interaction with the board has been great. I'm very excited about the commitment that they have behind the SPIN efforts. If anything, they're looking for us to be much faster in our deployment and execution and really looking for the synergies that come from providing a value prop that has the mix of the physical assets on the OXXO side with SPIN digital value prop.

In terms of the expertise on the board, there's been significant changes, and I'll let maybe Martín and Juan talk to them over the course of the last couple of years. We do have a number of board members that are quite well-versed in the digital arena, having gone through transformations on their own, both by within big tech companies in the U.S.

and driving those value props across different markets, as well as through traditional retail and moving towards a more digital offering that have been quite helpful and vocal in the needs and the strategic imperative for us to move quickly in terms of the two big opportunities that we've highlighted, which is enhancing the value prop of OXXO, driving a better convenience value prop through digital, as well as the opportunity that we have in financial services and involving our current cash-based correspondent banking into a broader set of offerings that moves us beyond payments and rewards into savings and credit. There are two people in particular who have been now on the board for a year and a half, two years. It would be Guilou Thomas and Daniela Leya. Both of them, in previous jobs, have had involvement in digital businesses.

And in one case, one is now very involved in media business. The areas of focus of the questions and the challenges that they do on the board are around the cooperation of OXXO and SPIN and how do we make sure that those two organizations cooperate better. That has been I mentioned already previously that we're looking to have joint P&Ls going forward between executives who share responsibilities. Number two, I think they and other members of the board who are less in the digital world have urged caution with regards to the credit part of the business. That's why, as you can see in all our calls, we try to transmit the cautiousness with which we will be approaching the credit part of the monetization strategy around this and the continued promise of no surprises.

We will keep everybody abreast of what we're doing in this regard and that the bets are very contained and small now as we build up capabilities. We continue to explore, if possible, trying to find partners for some or all of the financial services part of the offering that we're trying to develop. I would add those two comments to what Juan Carlos just mentioned. Yeah. I would just, to finalize. The board is not static, right? Just as FEMSA, we've gone through the whole FEMSA Forward process, and our mix of core businesses, obviously, has changed over the past decade. Too has changed the composition of the board, right?

I think that it connects with the efforts of José Antonio in reducing the size of the board, but also in getting new blood and new talent and new experience into it that is fully consistent with the challenges that the company is looking at and really the DNA of the company today as opposed to what it was 10, 20, 30, 50 years ago. Maybe one final point on my end, which getting perhaps to read between the lines of the question of, "Do we have the right expertise in the digital arena around our board and our management team?" I would like to highlight that also the recent changes in administration in OXXO Mexico have been quite positive.

Carlos Arroyos, in addition to the team, having led the digital efforts at Choco and then also having been intimately involved with the transformation in Walmart in Central America, has created a different type of discourse for us at SPIN as we think about our collaboration efforts between OXXO Mexico and SPIN in a very positive manner that is allowing us to gain momentum across our teams and have much better alignment behind the strategic vision that we're trying to deploy. This is all really helpful insight. Thank you. Thank you, Carlos. There is a follow-up question coming from Ricardo Alves calling from Morgan Stanley. Please go ahead. Thanks for the follow-up, guys. My line was cut, so I'm sorry if this was asked. Quick question for Martín on capital allocation. We did see the conclusion of the ASR program.

Based on what's been announced, I think that you made reference to that in your preliminary remarks, that would imply perhaps another ASR. I just wanted to see if you have any expectations around that. I'm not sure, for instance, what was your perception with the execution of the last ASR relative to your preliminary expectations? As it pertains to local buybacks, we've been following how active the company is on that front this year. I think that that's appreciated. That needs to be acknowledged. I just wanted to have your latest thoughts on if we could expect a resumption of that now that the second quarter is behind us. Thanks again for the follow-up, guys. No problem. Just real quick. Again, our commitment is returning $900 million of buybacks from March 2025 to March 2026. We're about 40% there.

We're like at $375 million, I think, is the number between the local market purchases and the ASR. Number two, again, this is what people should expect. They should expect during windows where we can trade executing the local markets and launching ASRs. We can't do this outside the windows. That's number one. Number two, sometimes we have to close windows because we have material nonpublic information about deals or things that are happening. And I can't communicate when a window has been opened or closed. It's just simply I am unable to announce that. So don't expect us to be operating in every single window. Don't expect us to announce everything that we're doing simply because it's impossible for me. You should be focused on the MXN 900 million March to March as our target. Obviously, it will always depend on market conditions.

That really should be what people are focusing on. March to March and MXN 900 million more than anything that happens or doesn't happen from one quarter to another. I would just add, Ricardo, I mean, at the end of the day, we're kind of halfway the three-year timeframe that we provided to get to the two times. We're at 0.93. I think that number changed more in the last three months than it had before. We're almost at the halfway mark if we think about kind of that North Star of 2X. I think, again, that's what the market should be. Assume that we are going to move towards that target as much as we can with all the caveats that Martín just mentioned. Much appreciated again, Juan and Martín. Thank you, Ricardo. Thank you. The last question comes from the line of Emiliano Hernandez calling from JBM.

Please go ahead. Hi, everyone. Thanks for the space. Most of my questions have already been asked, but maybe. Can you hear me there? You cut off a little bit, but can you restate the question? Yes. I was wondering if maybe you can share over in Europe. Sales look very resilient to the quarter. I don't know if you can comment on how you're seeing the consumer dynamics there and anything you can share on the strategy you have mentioned in the past to reduce the banners and plan to start with the organic expansion. I understood the question. This is Europe, right? Consumer demand and expansion. I mean, one thing. One message. Thank you, Emiliano.

One message that we've certainly shared on the European operation is that obviously, the nature of the organic growth in Europe is a little bit different from what we have in our LatAm market, for sure, in terms of the abundance of corners where it would make sense to set up, in the case of Europe, an AVEX store, is not as plentiful. What we've seen is very successful by the Valora team, transactions where they will work with an operator of gas stations, where Valora, because of their high level of execution and the level of recognition that they have through the AVEX brand and beyond, they're asked to come and operate the stores for those gas stations.

That is something that you should expect to continue. There is another route which involves, for example, the stores in Germany that are the Deutsche Bahn in the train stations, the Deutsche Bahn by the DB banner that are going to be converted into AVEX stores. That is an upgrade. The point I am trying to make is a lot of the new stores that we will have or the converted upgraded stores that we will have will be on existing stores, whether somebody else that was running in the gas stations or groups of stores like the ones that we will convert in the Deutsche Bahn stations, more than just greenfield, build a store from scratch. Although there is certainly a thesis that in the outskirts of certain cities, there are white-label mom-and-pops that are definitely convertible and upgradable into one of our banners.

That is what I would comment on the organic growth. I do not know, Martín, if you—nothing to add. I do not know if hopefully that is helpful. There are no further questions, so I will hand it back to your host to conclude today's conference. Thank you, everyone, for your time and your interest in FEMSA. As always, Pam and Alex and myself are always available for follow-ups. Have a great week. Thank you, guys. Thank you for joining today's conference. You may now disconnect.