Fomento Económico Mexicano, S.A.B. de C.V. (FMX) Earnings

Management highlights

Consolidated Company Performance - Total consolidated revenue grew 9.3% YoY, operating income grew 7.2% YoY. Excluding OXXO Brazil and currency effects, revenue grew 10.1% and operating income grew 11.7% YoY, reflecting positive operating leverage. - Net consolidated income was 9.2 billion pesos, up 64.9% YoY, driven by lower foreign exchange losses, improved associate results, partially offset by higher income tax provisions. - Capital expenditure totaled 8.9 billion pesos (3.8% of total revenue, down 3.6% YoY). Net debt to EBITDA decreased to 1.15x from 1.24x quarter over quarter, within unchanged leverage targets. - A $300 million accelerated share repurchase program was completed in the quarter, with total planned 2026-2027 capital distributions reaching ~41 billion pesos. The corporate reorganization and cost savings plan remains on track, and SPIN continues to narrow its losses as cost reduction initiatives progress. OXXO Mexico Strategic Update - OXXO Mexico delivered strong performance, with the first positive traffic growth in 8 quarters. ~60% of the Q2 uplift came from the World Cup, with remaining growth driven by customer-centric strategic adjustments rolled out in H2 2025. - The strategy is built on four pillars: (1) Core impulse categories: Refreshed price architecture, optimized assortments with lower-cost alternatives to regain competitiveness; (2) Prepared food and coffee: Improved product quality, simplified pricing, better in-store execution, with early pilot results showing strong growth; (3) Daily replenishment grocery: Restructure assortments, rework price architecture, evaluate private label to capture low market share opportunity; (4) Digital and services (via SPIN): Expand beyond in-store payments with a new focus on monetization, especially credit. VARA Update - VARA, FEMSA's discount proximity format, is a high-potential long-term growth asset, outperforming expectations in new regions. 112 net new stores were opened in Q2, a quarterly record, with double-digit same-store sales growth. Private label is a core growth driver and key differentiator, with new store cohorts showing faster maturation and improving unit economics. OXXO Latin America (Colombia and Brazil) Update - OXXO Colombia now has a proven value proposition after a year of model refinement, with 30% YoY revenue growth driven by same-store sales. Food contributes double-digit revenue, and the company expects to accelerate unit growth, targeting 700 total stores by end-2026. - OXXo Brazil ended Q2 with ~640 stores, with each new cohort outperforming prior groups. The focus remains on refining fundamentals and building operational infrastructure before accelerating expansion, also targeting 700 total stores by end-2026. SPIN Digital Update - SPIN grew monthly active users 22% YoY, and is among the top participants in the SPAY payment system by transaction volume. The platform is shifting from user growth to monetization, with credit identified as a core strategic opportunity. - A partnership with QED Investors was announced to develop the lending platform, with a disciplined 'low and grow' scaling approach to manage credit risk. Initial small pilots have produced strong customer response and high-quality underwriting insights from OXXO's customer data.

Guidance

- Management expects temporary World Cup tailwinds to fade in H2 2026, leading to more normalized performance for OXXO Mexico, with mid-single-digit same-store sales growth the most likely baseline outcome, driven by underlying strategic momentum despite a continued sluggish consumer environment in core Mexico markets. - Both OXXO Colombia and OXXO Brazil are projected to reach 700 total stores by the end of 2026, with accelerated unit growth planned for Colombia after successful model refinement. - VARA's record Q2 store opening pace is expected to improve in coming quarters, as the format continues to outperform expectations across new regions. - SPIN's losses are expected to continue declining gradually as cost reduction initiatives progress, moving the platform toward long-term profitability. - FEMSA's corporate cost savings and reorganization initiative remains on track to deliver expected efficiency gains, with leverage maintained at comfortable levels aligned with the unchanged 1.15-1.25x net debt to EBITDA target range.

Segment performance

1. OXXO Mexico: Total revenue grew 11.8% YoY, driven by 9.5% same-store sales growth (2% traffic growth, 7.4% average ticket growth), with 253 net new store openings. After isolating temporary World Cup effects, underlying traffic grew 1% and average ticket grew 6.2%. Gross margin was 44.8% (down 70 bps YoY due to price rationalization and lower price point SKU mix). Operating income grew 12.3% YoY, with operating margin expanding 10 bps to 10%. It contributed ~24% of FEMSA's total Q2 2026 revenue. 2. Americas and Mobility: Total revenues reached 28 billion pesos, up 7.4% YoY (11.6% currency-neutral). Merchandise gross margin increased 40 bps to 27.3% of revenue, while fuel gross margin decreased 130 bps to 10.9%. Operating income was 80 million pesos, with an operating margin of 0.3%. It contributed ~30% of total consolidated revenue. 3. Proximity (Europe): Total revenues were 14.5 billion pesos, up 3.2% currency-neutral YoY. Gross margin was 40.2% after accounting for an accounting reclassification of distribution expenses, with a 40 bps expansion on a comparable basis. Operating income was 638 million pesos, flat YoY on a comparable currency-adjusted basis, with an operating margin of 4.4% (down 20 bps YoY). It contributed ~15% of total consolidated revenue. 4. Health Division: Total revenues were 22.3 billion pesos, up 2.2% YoY (4.8% currency-neutral). Gross margin was 26.6% (down 310 bps, 60 bps contraction on a comparable accounting basis). Operating income was 346 million pesos (down 57.7% YoY), with an operating margin of 1.5%. Excluding a 408 million peso non-cash credit provision, operating income fell 7.9% YoY. It contributed ~23% of total consolidated revenue. 5. Coca-Cola FEMSA: Delivered sequential recovery, with a weak consumer environment and excise tax impacts in Mexico offset by strong performance in South America. Brazil and Colombia achieved record volumes, driving double-digit operating income growth in the region, while Coca-Cola FEMSA gained market share across most operating territories.

Risks & headwinds

- The consumer environment remains sluggish, particularly in FEMSA's core Mexico market, which could pressure top-line growth and limit margin expansion despite strategic adjustments. - Credit operations for SPIN are inherently high-risk, even with a disciplined scaling approach and experienced partner QED Investors, presenting potential downside risk to profitability if underperformance occurs. - Payments services are at risk of commoditization over time as cash usage gradually declines, requiring SPIN to pivot successfully to new monetization streams like credit to maintain value. - Colombia's healthcare system faces ongoing uncertainty and risk of EPS (health insurer) insolvency, leading FEMSA to record a 408 million peso non-cash credit provision for exposure to EPS Sanitas, with further potential write-downs possible if counterparty risks materialize. - Labor costs in Mexico are rising, and increased staffing for improved in-store service could increase SG&A expenses in the near term, pressuring margins until traffic gains offset higher labor costs. - Currency headwinds and continued consolidation of losses at OXXO Brazil pressure consolidated results, with profitability in Brazil still multiple years out as the business refines its model.

Analyst Q&A

• Q: What is the roadmap for the SPIN credit ecosystem with the new QED partnership, and how will balance sheet exposure be managed?

  A: The partnership is in very early stages, and QED brings deep, proven experience in sub-prime credit development for similar ecosystems globally. Management is very impressed with the strength of credit quality correlations from OXXO's proprietary customer data, and will follow a disciplined 'low and grow' scaling model to manage inherent credit risk. The firm has unified physical and digital payments under one organization to improve user experience, and may pursue off-balance sheet funding or a banking license long-term as the credit portfolio scales, with no material impact to current financials.

• Q: What adjustments have been made to price pack architecture and assortment to compete with informal markets, and how does this strategy balance gross margin and long-term profitability?

  A: Over time, OXXO became complacent on pricing and margin in core categories, prioritizing short-term gross margin over competitiveness, particularly as consumers shifted to more value-focused purchases. The firm is adjusting by adding low price point SKUs and value packs in core categories like tobacco, soft drinks, and beer, simplifying overcomplicated assortments, and negotiating better terms from suppliers to support competitive pricing. The strategy prioritizes long-term operating income growth over gross margin maximization, and management expects that growing traffic, relevance, and market share will deliver higher overall profitability over time, even if gross margin fluctuates in the near term.

• Q: What is the current pricing gap vs competitors, what is the addressable opportunity in daily replenishment grocery, and what is the timeline to profitability for OXXO Brazil?

  A: In core impulse categories, OXXO already has a balanced competitive price point, leveraging convenience strengths like cold product to justify small price differentials, with no plans for further price cuts beyond adding new value brands. In daily replenishment pantry categories, where OXXO has low market share, the firm will price aggressively to compete with traditional trade and discounters to build relevance, and sees large untapped long-term growth potential in this segment. For OXXO Brazil, every new cohort of stores has outperformed prior groups, and while the business is currently growing double-digit revenues, it will take a few more years of refinement to reach profitability before accelerating expansion, similar to the path followed in Colombia.

• Q: How should investors expect OXXO Mexico performance to normalize in H2 2026 after the World Cup, for both sales and gross margin?

  A: Management is cautiously optimistic, with post-World Cup numbers through mid-July stronger than expected, even against a weak consumer backdrop. The baseline expectation is for mid-single-digit same-store sales growth as a normalized run rate, with underlying momentum from strategic adjustments offsetting the loss of temporary World Cup tailwinds. Key commercial income streams from suppliers that supported gross margin in Q2 are expected to remain in place through H2, limiting material gross margin normalization pressure.