Fomento Economico Mexicano SAB de CV Q1 FY2025 earnings call

Key managerial messages include: Proximity Americas faced challenges from soft consumer environment, calendar effects, and weather; actions taken include commercial and cost initiatives to drive traffic, maintain gross margin expansion, and cost containment; focus on affordable brands, reactivating coffee offerings, enhancing financial services, and leveraging loyalty programs. Other operations update: US is testing and converting DK stores to OXXO, Brazil is reducing shrinkage and expanding OXXOs, Europe's Valora has growth in pesos but sluggish comparables, and Health Mexico is restructuring its business model due to cost issues.

Proximity Americas: Same-store sales contracted by 1.8% in Q1 2025, with average ticket up 5.1% and average traffic down 6.6%. Total revenues increased 6.8% (1.4% comparable), while income from operations declined 11.8% (11% comparable). Proximity Europe: Revenues rose 18% (1% comparable) in peso terms, but gross profits fell 1.9% on a currency-neutral basis, leading to a 110 basis point margin contraction. Health Division: Revenue grew 21% (pesos) or 7% (comparable), with Colombia strong but Mexico challenging with store closures planned. Coca-Cola FEMSA: Revenues grew 10% (5.9% comparable), income from operations up 7.4% (3.2% comparable).

Expect sequential improvement in top line from Q2, full-year revenue growth to be high single-digit with stable operating margins; confidence in commercial and cost initiatives to drive results; positive outlook for the remainder of the year despite a slow start.

Macro environment uncertainty, trade with US, weather impacts, consumer sentiment in Mexico, competition from traditional trade in tobacco, and challenges in turning around Health Mexico's operations in Mexico.

Q: Tiago Bortoluci asked about traffic share, store expansion appetite, and mix evolution.

A: Jose Antonio Fernandez Carbajal responded on traffic drivers, share loss to traditional trade, store expansion focus on quality, and growth in financial services and commercial income.

Q: Ben Theurer inquired about initiatives for more affordable brands and cost savings in OXXO.

A: Jose Antonio Fernandez Carbajal discussed private label, partnerships with suppliers for value brands, and overhead cost control initiatives. Martin Arias added on selling expense growth and staffing optimization.

Q: Bob Ford asked about monetization of Spin and Spin Premia, and ESA in Health Mexico.

A: Martin Arias spoke about the ecosystem approach to Spin, integrating payment services and loyalty, and Jose Antonio Fernandez Carbajal discussed restructuring Health Mexico's business model due to cost and margin issues.

Q: Ricardo Alves questioned cannibalization in Mexico, US expansion, and Brazil's growth.

A: Jose Antonio Fernandez Carbajal addressed cannibalization at 20-30 bps, US expansion focus on organic growth, and Brazil's growth potential with resolved operational issues.

Q: Alvaro Garcia asked about OXXO Nicos and Spin pilot learnings.

A: Jose Antonio Fernandez Carbajal explained OXXO Nicos' economics and Martin Arias discussed Spin pilot learnings on mom-and-pop training and cash flow management.

Q: Hector Maya asked about affordable brands and long-term strategy.

A: Jose Antonio Fernandez Carbajal talked about private label, supplier partnerships, and returnable packaging initiatives for affordable brands.

Q: Ulises Argote asked about US rebranding of DK stores.

A: Jose Antonio Fernandez Carbajal shared early positive sales and traffic trends with OXXO rebranding in the US, emphasizing testing different concepts.

Q: Froylan Mendez asked about Bara's expansion and Mexico's down trade.

A: Jose Antonio Fernandez Carbajal discussed Bara's expansion acceleration and Mexico's down trade impact on Bara's performance.

Q: Rodrigo Alcantara asked about staff efficiency in stores.

A: Jose Antonio Fernandez Carbajal and Martin Arias discussed staff efficiency initiatives, using analytics for precise staffing, and preparation for future minimum wage increases.