Q2 2024 Earnings Summary
- Robust Store Expansion: The company is on pace to open 380–420 new stores in 2024, having already added 121 net new stores in Q2 2024 and 215 since the beginning of the year, which supports a strong growth narrative.
- Improving Operational Efficiency & Margins: Enhanced gross margins—improving by 60% to 16.7% in Q2 2024—driven by better supplier terms and scaling benefits, indicate continued margin improvement potential through cost efficiency.
- Sustained Sales Momentum: Solid Same-Store Sales growth, even in mature stores and despite seasonal challenges, underscores the underlying demand strength and the effectiveness of a dynamic pricing strategy, bolstering the business model for future growth.
- Lumpy Store Expansion: The inherent variability in store openings—with roughly 40% of the 121 new stores in Q2 being backloaded—raises concerns that future quarters might experience slower openings, potentially impacting revenue growth consistency and operational performance.
- Rising Operational Costs: Significant increases in administrative expenses (up 45.8%), driven by heavy investments in IT and talent, could pressure margins if efficiency gains do not materialize as projections assume.
- Currency and Cost Pressures: The reliance on dollarized inputs exposes the company to foreign exchange volatility; while short-term cost pass-through is expected, a sustained peso depreciation could eventually lead to higher costs and margin erosion.
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Margin Dynamics
Q: Is gross margin the new normal?
A: Management explained that while improved supplier terms and scale pushed margins up (with a 60% improvement to 16.7%), the gross margin will continue to fluctuate as pricing benefits are passed to customers or reinvested, so it isn’t a permanent new normal. -
Store ROI
Q: Will ROI per new store remain robust?
A: Management emphasized that each new store, returning roughly MXN 2 million with about a 12-month payback, is expected to perform even better over time as the brand strengthens and the value proposition improves, supporting sustained returns. -
Store Openings
Q: Is store expansion meeting guidance?
A: Management confirmed that despite the lumpy nature of real estate, they remain on track to open between 380 to 420 stores in 2024, having already added 121 net new stores this quarter—with around 40% of these launched in the final month—demonstrating healthy growth. -
FX Exposure
Q: Will FX-related investments remain stable?
A: Management indicated that the company will continue holding approximately USD 170 million in overseas cash equivalents for the rest of the year, helping to buffer against short-term currency volatility. -
Geographical Expansion
Q: Any plans for further geographic growth?
A: Management noted that while there are already outlets in the state of Jalisco (though not specifically in Guadalajara), their expansion strategy remains measured, ensuring regional growth is sustainable amid competitive pressures. -
COGS Composition
Q: What is the import share of merchandise costs?
A: Management stated that most raw material inputs are heavily dollarized—reflecting a reliance on imported components—whereas domestic costs are mainly linked to labor, though they did not provide precise percentages.