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spk13: Hello, and welcome to the FMSA's second quarter 2024 results conference call. My name is George. I'll be your coordinator for today's event. Please note, this conference is being recorded, and for the duration of the call, your lines will be in the listen-only mode. However, you will have the opportunity to ask questions towards the end of the presentation, and this can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0, and you will be connected to an operator. And I'd like to hand it over to your host today, Mr. Juan Fonseca, Head of Investor Relations, to begin today's conference. Please go ahead, sir. Thank you, George.
spk07: Good morning, everyone. Welcome to FEMSA's second quarter 2024 results conference call. Today, we are joined by Martín Arias, our CFO, and Jorge Collazo, who heads Copicola FEMSA's Investor Relations team. The plan is for Martín to open the conversation with some high-level comments on our strategic progress and business trends, followed by a more detailed discussion of the results, and finally opening a call for your questions. Before I hand over the call to our team, I want to address the disclosure at the end of today's press release related to changes to our first quarter results as reported. In the press release for the first quarter of 2024, we classified certain results related to non-core discontinued operations on several incorrect lines, and we are reclassifying them today. The changes only impact the consolidated income statement and mainly cause a decline in income from operations. However, they do not impact consolidated net income and do not impact any of the results of the business unit report separately. You can find a detailed table at the end of today's press release, and Martin will briefly explain the main differences before we open the call for your questions. Martin, please go ahead.
spk08: Thank you, Juan. Good morning, everyone. Before we review our quarterly results, I would like to update you on the most recent steps we have taken as we continue to execute on the FEMSA Forward Strategy regarding initiatives related to capital returns for shareholders as well as asset divestitures. As you are aware, we remain actively engaged in share buybacks. In the second quarter, we completed our first accelerated share repurchase program for $400 million and initiated a new program for $600 million. During the first six months of 2024, we have bought back approximately $180 million in shares in the Mexican stock market. Earlier this year, we also secured shareholder approval for an extraordinary dividend of approximately $600 million, half of which has already been paid. This brings our extraordinary return of capital to shareholders for 2024 to nearly $1.8 billion, equal to approximately 60% of what we committed to by the end of 2026. These figures do not include the ordinary dividend of approximately $800 million, half of which has been paid to date. This is all consistent with the capital allocation framework we communicated last February, and we will continue to advance towards our stated objectives. In terms of our progress on asset divestitures, We announced last week that we have reached a definitive agreement to divest our refrigeration and food service equipment operations in Vera and Torrey for a total amount of approximately $450 million. This transaction is expected to close before the end of the year. And finally, in the first week of July, we received the remaining payments from our divestment in Jethro Restaurant Tipo totaling $945 million. This means we have now received the full amount from the JETRO transaction. This is not reflected in our financials recorded today, but the cash is now on hand. We will continue to analyze opportunities to return capital to shareholders beyond our ordinary dividend, consistent with our stated objective of a total of approximately $3 billion by the end of 2026. In addition, as we gain greater clarity on all the organic and strategic opportunities available, And in light of developments on the macro front in the coming years, we will analyze the possibility of launching additional capital return initiatives. Let me turn to the general trends we saw in our operations. In the second quarter, we continue to see good momentum and strong performance from our core business units. Once again, most of our operations, including the two that contribute most to our results, delivered a solid set of numbers. Proximity Americas saw deceleration in the pace of the same-store sales growth in Mexico against a tough comparison base due in part to a shift in the timing of Holy Week celebrations relative to last year, as well as volatile weather, but offset by a stellar gross margin and solid store expansion. For its part, Pogacolafensa delivered a remarkable performance, showing double digital increases across its own income statement, driven once again by strong volume and revenue growth in its major markets. We continue to see good results at Valora and OxoGas, with both businesses delivering double-digit growth in income from operations. At our health division, we saw sequential improvement in our fast-growing retail operation in Colombia, combined with stable results from Chile. But we again face competitive headwinds in Mexico, and we are laser-focused, with our plans to change the trajectory in that market to bring it in line with the positive dynamics we see elsewhere at FEMSA. Finally, at digital, we continue to add users and advance towards our ecosystem objectives. Now let me go over the quarter's results in more detail. Let's begin with FEMSA's consolidated second quarter results. Total revenues increased 12.2% and operating income rose 15.8% compared to the second quarter of 2023, driven largely by strong growth of proximity, fuel, and , and despite weaker performance in our health division. Net consolidated income increased 75.5% to 15.7 billion pesos, mainly explained by improved operating income, a non-cash foreign exchange gain of 6.1 billion pesos related to our U.S. dollar denominated cash position and derivative financial instruments, and a higher interest income related to an increase in our average cash balance. This was all offset by a significant shift from a large other non-operating income to a small non-operating expense, related to the receipt of Heineken dividends and the gain from the sale of JRD in the second quarter of 23. And was also offset by higher interest expense reflecting a benefit in the second quarter of 23 from a one-time gain related to the repurchase of debt. Now turning to our operational results. Proximity Americas delivered a solid performance in the second quarter. Oxo's same-store sales increased 4.1% in the first quarter, I'm sorry, in the second quarter, driven by an increase of 4.7% in average customer ticket and a decrease of 0.6% in traffic. The second quarter was an atypical one, where each month reflected a unique set of mixed effects, generally more negative than positive. For example, the month of April had a tough calendar effect, due to the shift in the Holy Week celebrations, while May benefited from extremely high temperatures across Mexico, and June faced a comparison base of approximately 20% growth in 23, as well as some early tropical storms and the restriction of alcohol sales ahead of the national elections. Ultimately, these factors combined to contribute to the deceleration of same-store sales. However, Gross margin expanded by 310 basis points to reach 44.1 percent, driven by strong trends in commercial income, a positive contribution from financial services, and revenue management initiatives. Income from operations increased 7.6 percent, while the operating margin contracted 10 basis points to 9.9 percent. reflecting higher operating expenses as we build our platform in South America, higher labor costs across markets, and investment behind capability building and strategic initiatives such as store segmentation and revenue management. On the store expansion front, OXO added 404 net new stores during the quarter, of which 332 were opened in Mexico, and 72 in South America. This figure includes 14 openings by Grupo NOS in Brazil. Historically, store openings typically have lagged in the first half of the year, complicating our operations in the second half and resulting in lower incremental revenues from those stores for the full year. Therefore, in an effort to improve the shape of our annual expansion curve, we have shifted our focus this year to opening as many stores as we can during the first half. This approach will enhance the efficiency and productivity of the new stores and avoid the operational congestion in the key fourth quarter. This means our full-year target for OXO Mexico remains between 1,000 and 1,100 net new stores, which is the sweet spot for which our growth engine is currently optimized.
spk11: Moving to proximity Europe.
spk08: Total revenues increased by 5.8% in pesos. This positive performance was driven by growth in all business lines. Growth profit increased 8.8% in pesos, while gross margin improved by 120 basis points, reaching 43.3%. At the operating income level, Valora again delivered strong growth with 41% growth and 100 basis points margin expansion, reflecting the continued ad performance of the B2B operation, healthy results from the retail and food service businesses, and consistent cost management. Turning to the health division, total revenue showed a slight contraction of 0.4%, with the same store sales decreasing 1.1%. This outcome was primarily driven by a highly competitive environment in Mexico and Ecuador, which was offset by stable performance in Chile and continued good momentum in Colombia retail. As a result, operating income fell by 14.8% in pesos, and the operating margin contracted by 70 basis points reaching 4.1%. While these numbers show a sequential improvement from the first quarter, This challenging dynamic continues to highlight the need for strategic adjustments to overcome the challenges and change the trajectory of our business, particularly in Mexico. As we have mentioned before, we are dedicating considerable efforts to addressing the issues within the health division. In Colombia, we continue to see encouraging results from our strategic acceleration of the retail component of our business, making us the retail leader in that market and reducing our exposure to the institutional sector. This transition is steering us towards a more profitable and structurally robust operation, enhancing our overall performance and stability. Meanwhile, in Mexico, we are undertaking several significant strategic measures, including the launch of a new store format following a successful template used in our South American markets, which, among other things, emphasizes the beauty of personal care categories and strengthens consumer promotional activities. We'll keep you posted as these initiatives progress. Turning to OxoGas, we posted a notable 15.9% increase in same-station sales and 16.2% in total revenues, reflecting solid performance in retail and institutional sales. During the quarter, the gross margin reached 11.6%, while the operating margins stood at 4.2%. Although the structural profitability from our fast-growing institutional business is lower than that of retail, this was offset by operational inefficiencies. Turning to digital at FEMSA, we continue to make significant progress during the quarter. The number of active users for SpinBioxo reached 7.9 million, marking a 37% year-on-year growth This demonstrates consistent customer adoption and an increase in transactions per user. Our SPIN PREMIUM loyalty program also showed impressive growth with a 44.3% year-on-year increase reaching 22.8 million active users. Approximately 36% of OXO Mexico sales and 40.6% of OXO Gas sales are now linked to SPIN PREMIUM. This integration strengthens our data gathering and utilization capabilities. We expect to gradually focus less on total users with a shift towards a higher number of transactions per user. Finally, Coca-Cola FEMSA recorded another impressive quarter, achieving double-digit growth across its income statement. This remarkable performance was driven by consistent volume growth across most of its markets, coupled with effective revenue growth management initiatives, and despite the challenges faced to the flooding of its plant in Porto Alegre, Brazil, and the Holy Week calendar shift. A replay of COF's quarterly call, which was held last Friday, is available on their website. Regarding CapEx deployment, our key priorities remain to enhance our operational capabilities, drive innovation, and sustain organic growth across our operations. In the second quarter, our capex reached 11.3 billion pesos, representing 5.7% of total revenue and 35.1% increase over the same period last year. This growth was driven by the expansion and remodeling of storage at OXO Mexico, the continued development of OXO LATAM, increased investments in production and distribution capacity at COF, as well as continued investment in our FEMSA-wide digital transformation initiatives. Finally, let me go over the table that we included at the back of our press release, which presents in detail a comparison between the first quarter 2024 consolidated income statement and the comparable first quarter 2023 results, and the reclassified statement published today. The main effect of these changes are the following. Total revenues grew 10.5% in the new numbers as opposed to 11.3%. Gross margin was 38.7% in the new numbers as opposed to 39.4%. Income from operations were 12,935 million pesos versus 14,767 million pesos. and reflected a margin of 7.3% in the new numbers versus 8.3% relative to the reclassified 2023 figure. Income from operations grew 12.2% in the new numbers as opposed to 14.4%. Other operating expenses, other non-operating expenses were only $487 million instead of 2.4 billion pesos. As mentioned in our press release, this does not impact the consolidated net income figures, nor does it impact the results of the businesses reported individually in either period, and does not affect the 2023 audited statements. And with that, let's open the call for questions. Operator, please.
spk13: Thank you very much, sir. Ladies and gentlemen, as a reminder, if you wish to ask any questions, please press star one on your telephone keypad and just make sure your mute function is not activated in order to let your equipment, sorry, still reach your equipment. The first question today is coming from Ben Torrer, coming from Barclays. Please go ahead, sir. Your line is open.
spk12: Yeah, good morning. Thank you very much for taking my question, Martin. So one thing I wanted to follow up is just the strength of the gross margin at OXO. I mean, that was obviously... As you've highlighted in your prepared remarks, a lot driven by the commercial initiatives, but it also feels like the financial services. So I wanted to understand if you can help us bridge the success that you're having at your digital initiatives, be it Spin by Oxo, but also Premia. as it relates to that boost on the gross margin. So how sustainable is that boost and how much of that is really related and interconnected with all the success you've pointed out in the press release when it comes to the digital initiatives? Thank you very much.
spk08: Yeah, just to clarify, I mean, the digital initiatives, many of them are housed in digital at FEMSA and are not reflected in the proximity numbers per se. What you will see in proximity that is related to digital is that the initiatives of many of those efforts benefit the store and tend to drive traffic and consumer engagement. As I said in the past, tomorrow, for any reason, we decided that digital at FEMSA should be reintegrated into OXO. a significant portion of the initiatives that Digital at FEMSA undertakes would have to continue to exist exactly as they continue to exist. For example, PREMIA, SPINBIOXO. So we are still not, I would say, seeing the full potential of the Digital at FEMSA monetization of data or consumer promotions through the app. at the level that we expect they will occur in the future. That's an ongoing process. So the improvement in the gross margin that you're seeing today is really very typical work of retailers of gaining commercial income from suppliers to promote their products and to give them prominent placements and to drive promotions. In the case of financial services, As you may know, financial services has a relatively higher gross margin. It's a service, so it doesn't really have a very large COGS associated with it. And so when that business does well, it tends to improve the overall gross margin of the business. That effort on the commercial income relating to suppliers, I would tell you, is a product of many years of capability building and focus. And as you know, the history of OXO has been one of every year creating a series of initiatives that create new layers of value. And we're always thinking one, three, five, 10 years out, what do we need to be doing today? So today you're seeing the harvest of years of capability building, hiring of people, development of the system, so that we can offer suppliers very varied and segmented opportunities for consumer promotions. So we're harvesting that today. I don't know if you have anything to add.
spk07: Yeah, I've been just one. I mean, I would just add within that role that OXO has increasingly played as a partner of our suppliers' marketing efforts, you are seeing kind of the early days of not just in the physical store, obviously banners on the walls, decals on the doors of the coolers, that sort of thing, displays, kiosks, but the early days of digital, screens at the stores and other ways through which The commercial income is being expanded into the digital realm and of course this also will involve, you know, digital in larger ways. The other comment I wanted to make is in the kind of the old school services which to Martin's point continues to perform well in addition to whatever is happening on the digital we did see double-digit growth in financial services. But that's just kind of, you know, more people going to the store and paying their bills and paying for their Temu and Shane purchases and other, you know, different things that we're doing with Amazon. And so, you know, kind of the same old bricks and mortar, you know, give people more reasons to come to the store. And we are being, you know, our colleagues are being very successful on that front.
spk11: Perfect. Thank you very much.
spk13: Thank you, sir. Ladies and gentlemen, if your question has been answered, you may remove yourself from the queue by pressing star 2. We'll now move to Rodrigo Alcantara, calling from UBS.
spk11: Please go ahead. Your line is open. Hi. Thanks for checking my question.
spk03: Just a follow-up here on the gross margin. It was quite impressive. I mean, maybe you can just break down, I mean, how much also a proportion, would you say, could be attributed to the commercial income and how much would you say could be attributed to the services, which is also very interesting what you commented, Juan. I mean, 50-50, 40-60, if you could give us some more granularity on that just for us to assess the sustainability of the gross margin expansion would be very helpful. That would be my question. Thank you.
spk07: Hey, Rodrigo, this is Juan. I could tell you, but then I'd have to kill you, right? So look, commercial income is very relevant, right? I would say, and some of you will remember my comments from a year ago or a year and a half ago, having opened the stores to both brewers, right? I mean, opening the stores to the Modelo portfolio always held potential you know, in the sense of having the two large brewers competing, you know, for space in what is the most important channel for them. So that is beginning to actually take place. We, you know, we've become important for a number of suppliers, a number of categories for whom OXO is, you know, bar none the most important place to deploy resources because, you know, we are a not just a double-digit, but a significantly double-digit part of their channel structure in Mexico. So it works as a partnership, obviously, and it is – I mean, again, I'm not going to tell you a number, but it's very relevant. Now, I did mention a few moments ago that after some years, also for many of you who have been observers of the company for a long time, we had seen financial services kind of plateau We are seeing, I don't know if resurgence is the right word, but certainly, you know, having brought, you know, came back, you know, we made some changes to our relationship with BBVA. And, you know, I mentioned a few moments ago, some of these bigger e-commerce players for whom a lot of the purchases are, you know, people will do a purchase online, but then they prefer to pay in cash at the store. because they don't want to provide their data online, or for whatever reason they feel more comfortable paying in cash. So things that did not exist two, three years ago are happening now on the financial services side. So I would say those two are obviously the bulk of what's driving the expansion, but that's been true for a long time. And I would say if I have to say which is bigger, I would say commercial income is bigger. But, yeah, that's, I think, as far as I would take it.
spk03: That's helpful, Juan. Also, on this front, I mean, a couple of quarters ago, months ago, you announced kind of like a partnership with Amazon Mexico on that. I mean, could you give us any update on this? Is this something also that is, you know, contributing to the service income line? That would be all. Thank you very much.
spk07: I mean, we've been working with Amazon for a while, as you know, in terms of the click and collect and having packages kind of under the counter. We are making some efforts to see whether there's a lockers alternative that we can deploy at some of the stores. We work with not just Amazon, we work with other e-commerce players where you can pay for your purchase, as I mentioned, some of them, but people like Mercado Libre where you can You can also do that now. You can obviously through gift cards and other products. I mean, it's a very dynamic part of the business, right, where every month, every quarter, we try to have more. Again, at the end of the day, it's more reasons for people to come to the store. They generate profit streams, but they also bring footfall, right? So it works out for us.
spk11: Great. Thank you, Juan. Sure. Thank you, Mr. When I move to Ricardo Alves, calling from Morgan Stanley. Please go ahead.
spk06: Hi, everyone. I had some technical issues. Can you hear me?
spk11: Yes.
spk07: Yes, Ricardo.
spk06: Thank you very much. Thanks for the call. Thanks for the opportunity. What's even more impressive to us about your growth margin expansion is that you delivered that in the context of average tickets that were in line with inflation and not above inflation as we've seen consistently over the past few quarters. So I wanted to talk about your average ticket as well. Appreciate already the comments you made on the gross margin expansion, but thinking about your same store sales and the component of average ticket, what were the main drivers in your view of to deliver above inflation before the second quarter? And then in turn, what were the drivers for it to perform just in line with inflation in the second quarter? I'm just trying to think of reasons that impaired that performance in the second quarter so that we can see above inflation figures as we move into the second half. I mean, I would understand the traffic being down because of the holiday shift, but maybe there's more details on the mix of products and maybe categories that were underperforming because of the holiday or maybe because of the election, that maybe it's gonna be a way and we could go back to above inflation ticket. So that's my first question kind of related to same-store sales going forward, but focus on average ticket. My second question, we've been positively impressed over the past few months on the shareholder remuneration front, over $2.5 billion of buybacks and dividends. When you reflect, I think that maybe this is a question to Martin, when you reflect on the announcement made on February versus your current execution, which in my opinion is above expectations, what are the key learnings? Or with the learnings that you've had, are you willing to change in any way the announcement that you made in terms of your cash allocation down the road? you did another accelerated share repurchase. Is that the main focus going forward or perhaps another dividend early next year? And specifically for 2024, can we be getting closer to $3 billion in total return based on everything that you did and you can still be active on local buybacks in Mexico? Sorry for the long question and thanks again for the time.
spk08: On the capital allocation, I mentioned it in the my comments. We will always consistently reevaluate capital return to shareholders, which is one of the core commitments made during FEMSA Forward. So, that is a history that will never end. There's no final chapter on capital return. So as we gain clarity on organic and inorganic opportunities available to us, as we understand the macro environments in which we're operating and the challenges or opportunities that create, and as we see the cash generation that our businesses are generating, and in particular, the return that we're getting from the organic investments that we're making, we will have to reevaluate this consistently. But our dividend now is up to over $800 million. That's the ordinary. That's a very sacred number that going forward, we will protect and maintain as much as that is possible for us. As to the extraordinaries, Again, of the $3 billion that we promised that we would return to the markets in an extraordinary fashion, we've returned $1.8 billion. As to whether we will accelerate the remaining $1.2 billion, that is yet to be seen, and the determination of whether it will be dividends or shares will be determined by market conditions generally. So when we see opportunities to buy our shares at a compelling price, we will do so. And if not, we always have available to us the ability to repay through extraordinary dividends. And I make this judgment almost every month. We meet, we discuss what our plans are, how our results are coming, how we see the markets, how we see the opportunities in the short, medium term. and on the basis of that. So I don't want to tell you that whether we will or will not return the additional 1.2 because that's the decision that's made, when we will return that 1.2 because that's the decision that's going to be made based on market conditions. So I hope that's helpful and that answers your question.
spk07: Yeah, no, let me take a stab, Ricardo, this is Juan, on the same-store sales conversation. Certainly, the quarter, as Martin described in the opening remarks, is a very strange quarter in terms of each month having one-offs or tough comparisons. Generally, I think the subject of tough comparisons is a bit of a constant. I think we've mentioned at the outset that for the month of June, we were lapping a 20% growth for same-store sales. you know, both in terms of the ticket that you focus on the question, but also traffic, right? So, you know, we've talked a little bit about segmentation and revenue management capabilities being developed at OXO. Obviously, that should continue to help us drive pricing, hopefully above inflation. If I take a step back and I look at kind of how the year is evolving, you know, even thinking about margin for a second, you know, we, in the first quarter, We saw the contraction at the operating level be bigger and hopefully it's getting smaller now. I mean, certainly sequentially from first quarter to second quarter, it did get smaller and hopefully we can continue to shoot for that flat margin for the full year. But on the same store sales front as well, we are getting into easier comps, right? We get into the second half, we're getting into easier comps. So that should help, you know, in terms of the number that we print for third and fourth quarter. You know, one thing that is true, though, and that's kind of bigger than FEMSA, is that just historically, you know, after elections, second half after elections, sometimes there's a bit of softness out there in terms of the consumer environment. We'll see what happens this time around. You know, we're optimistic that the tools that we have and the capabilities that we have today that we maybe didn't have a year ago, two years ago, combined with a more normal comp base where we're not lapping 15s and 17s and 18s should make for a set of numbers for the second half that is kind of, you know, which is more normal. And as I've said before, we'll see if we, you know, the new algorithm for same-store sales And so being better than what we used to have, you know, before COVID when we talked about 5% same-store sales is kind of, you know, the mid-single digit that many of you have heard me say a thousand times. We'll see where we end up if we can do a little bit better than that. But then we'll also make some assumptions about inflation, right, and where inflation ends up. Obviously, we got some news this morning about inflation, you know, picking up a little bit. So we'll have to deal with that. But Generally speaking, I think we feel good about our ability to structurally improve on the algorithm with these new capabilities that are being developed at Oxfam.
spk08: I would just add, look, in a competitive environment, and we live in a competitive environment, our policy is not just to look at inflation and to say, I'm going to increase it above inflation. I mean, that's an unsustainable business model. Part of the secret that OXO has always had is that it is price competitive to other alternative retailers, but it is extremely convenient. And so being respectful of that principle of our success, what we need to do is drive more traffic into our stores. We need to drive more opportunities for consumers to come to our store to do more things in that store. Be they be services, be they food, be they other solutions that we can bring to them. And so we tend to focus really on revenue growth generally more than the ticket per se and that ticket relative to inflation because that is dictated in many instances by market conditions as opposed to whatever we feel we want to do or not do. And we focus a lot more on margin. As a good retailer, it's about the gross margin and maximizing that as much as possible. So I understand your question, and I know it's a figure that people from the outside look a lot at because it's easy to understand. It's publicly available. You can compare across retailers. But the formula, the secret sauce, is a little bit more complex. And to be honest, if you ask me all the ingredients, I could tell you all the ingredients, but the components of the mix actually changes, and it's changing over time. It changes by season. It changes as we develop new. So our secret sauce is always getting better, and the mix of the ingredients is changing.
spk06: That's a very fair point, Martin, and Juan as well. So thanks for the call. Really helpful.
spk13: Thank you very much, Mr. Alves. We'll move to Bob Ford of Bank of America. Please go ahead, sir.
spk02: Hey, thank you. Excuse me. Good morning, Martin, Juan, and thanks for taking my question. How are same-store sales in July at Oxfam Mexico, and how are you thinking about the legislative proposals to limit the work week and the funding or process changes to accommodate those? And then, one, you touched on the change in the relationship with BBVA, and I had read that they positioned 45,000 FCBs devices in your stores and I was curious if you could expand on the comment about the change in the relationship and maybe how these MPOS devices are playing into that. Thank you.
spk07: Let me maybe start with the end of your question and we'll try to cover everything. Generally, I think the relationship with our partners on the financial services side is It's interesting over time how it changes, right? Because it's, you know, the type of customer that we service in the financial services, you know, the different banks have different positions, I guess, in terms of how much of that they want OXO, you know, kind of outsourced to OXO. So it ebbs and flows, and we have really good relationship with BBVA. You know, the number of transactions that each one of the customers can perform at OXO per month recently. It does cover other aspects in terms of having the devices at the stores. But it's a very dynamic process, right? I won't say love-hate, but certainly different amounts of love in terms of the role that also plays for these retail banks in terms of large chunks of the population. that can eventually see Oxo as kind of, you know, the place where they bank. And so that's very much a story that is evolving. But right now, and I think I connect this to my earlier comment, I think we're going through a really good phase of how we're interacting with our banking partners. In terms of July, I think, I mean, we don't have, obviously, you know, the month's not over yet. But I go back to the comment I made a few months ago that, you know, second half of election years, there's plenty of data that shows that, you know, it would not be surprising to see a bit of a deceleration. We'll have to wait to see if that materializes. But yeah, I would say what we've seen would be consistent with that.
spk08: Yeah. I just emphasize what Juan said. Normally as a new government administration takes over, there tends to be a little bit less execution on the budget and as new authorities come in and make judgments about priorities and understanding where they stand. So it would not be surprising for the second half of Mexico. Obviously, this should be a much softer landing in terms of a transition of government. given that the same political party won and the close working relationship between the soon-to-be former president and the future president. So we'll have to wait and see on that side.
spk02: And then just lastly, how are you thinking about some of the proposals to reduce the work week? I mean, how abrupt do you think they can be and how do you think you can fund those?
spk08: Look, literally we're just reading publicly available information. It's our understanding that the work week will not be treated in this short legislative session that will happen in September. I understand that's off the table, but again, I'm reading what everybody else is reading. We do expect in the medium term that the reduction of the work week in Mexico The government has been very clear that it's an agenda, and as always, we will respect the law and we'll implement the requirements of the law. Generally, we're sort of agnostic as to these things as long as it's equally applied across the competitive environment, because then everybody has to react with the appropriate hours and many of their outlets and dealing with the cost impact of those issues. Till now, all of these issues have been implemented in that fashion. They haven't been particularly targeted towards a particular industry or a particular type of retail. So as long as it's applied equally and across the board, we will react and we believe that at the end of the day, we're in a position to continue to compete as well as we've competed against everyone else. As to the minimum wage, again, during the campaign, reading exactly the same thing everybody else is reading. The future president announced that it is her intention to continue to increase the minimum wage, albeit at a slower rate than it was in the last five or six years. So we continue to expect that to happen. Reacting to that, we are being proactive in every quarterly business reviews that we do. The OXO team is doing an amazing job of finding areas of opportunity for efficiencies through technology, through dynamic scheduling, through shifting responsibilities between store leaders and store area supervisors, the use of part-time work, The other day they were showing us a mapping that they're doing. They did it across 200, 300 types of stores with different segmentation to figure out where the peaks were versus the quote-unquote labor capacity in a store at any given moment. And despite what you would imagine, they saw an enormous number of opportunities where, hey, do we really need everybody to start their shift at exactly the same time? or can we have some people starting the shift at eight o'clock in the morning and finishing at four or five and have other people start at 10 but finish at six. And they're playing around with all these mixed, again, that segmentation that we always talk about from the perspective of the value proposition. This is that segmentation that's also happening at an operational level. And again, that we believe will give us flexibility and opportunity. And as I said in the past, the increase of the minimum wage for us, as long as it's applied equally, we see it as a positive. It's gonna help consumers. It's gonna be good for consumers. And consumers who are making more money will be spending more money at Oxo's and will be buying more soft drinks and will be going to more of our pharmacies and taking more trips and using more of our gasoline. So we are in the segments of the economy which generally benefit from the policies that the current government is implementing.
spk02: That makes sense. Thank you so much.
spk11: Thank you.
spk13: Thank you, Mr. Ford. We'll now move to Tiago Bortolucci from Goldman Sachs. Please go ahead.
spk01: Yes. Good morning, everyone. Thanks for taking the questions. My first one is a follow-up on oxo traffic, right? When we try to isolate here for calendar, on average, you grew traffic by 0.8% in the first half of the year. This is a deceleration from last year, clearly, and still puts you way below where you used to be pre-pandemic, right, if this is a reasonable base. I know Juan mentioned in one of the answers how important it is traffic to sustain the business model and profitability going forward, but given this low run rate relatively low run rate that you're printing how realistic it is to expect that an acceleration in traffic in the back end and in 2025 and what are the drivers for this this is the first one and the second one is still on oxo but now on profitability you posted more than 300 basis points expansion in gross margin but essentially flatish operating margin right i know in the press release You mentioned labor in Latin America as directionally the headwinds, but if you could help us quantifying those, which one is the most important. If it's labor, this pressure should ease next year. If it's Latin, it could be more structural. So just to help us frame the evolution of SG&A in OXO. Thank you very much.
spk11: Just one second, please.
spk08: Juan will take the part on the traffic, and then I'll take the one on the operating margin, operating income margin.
spk07: Yeah, so let me start, hey, Tiago. I mean, on the traffic side, if we go kind of, back a few years to when you were talking about pre-COVID, and I think that is very relevant. You know, we had this conversation, I'm sure, with many of you before COVID. You know, we would talk about within that 5% same-store sales that I mentioned a few minutes ago that was kind of my go-to number, assuming the, you know, Banco de Mexico, the ban for inflation between 3% and 4%, We would get, you know, of that five, it would be basically 4% ticket and 1% traffic, right? 1% traffic was kind of what we aspired to back then. And I would say it probably continues to be what we would aspire to right now. I mean, traffic is a lot harder to come by than ticket. There's also the, you know, the factor of how the fact that we're adding, you know, 4%, somewhere between 4% and 5% new stores every year, right? What does that mean for the individual traffic of a store? But I would personally sign on the dotted line if we could get to that one point of incremental traffic because to Martin's earlier comment, at the end of the day, getting more products and services and just figuring out more needs to satisfy at the store is really hard. And we do it well and we've done it for a long time. We expect to continue to do it, but generally it will be, I'm talking to you about 20% of the same store sales number. If you can do 20% of that being traffic, I think you're doing a great job. Quite frankly, what we've seen the last couple of years is just not, where we were doing 15% same store sales growth, where 8% was ticket and 7% was traffic, That's just not replicable, and it certainly had a component, as we discussed at the time, that had to do with recovery post-COVID, right? People going back to certain activities, going back to certain places, going back to the office, which is something maybe the one that continues to happen as we speak. But, you know, I would expect traffic, again, to normalize somewhere around one point within the same sort of sales calculation, and I think we'll be happy with that.
spk08: As to the issue of expenses, yes, they were 20 plus percent this quarter. Part of what you're seeing is the acceleration of growth in LATAM-OXO, where there has been an investment in people and capabilities relating to the more accelerated expansion that we're trying to achieve in some of these countries which are not in Mexico. Without a doubt, labor is an issue. So the total number for Mexico is actually below that by, I would say, 25%, so Mexico itself was more in the sort of 15% range, and then what you're seeing is that investment taking up and causing the entire number to go up to 20%. And so I would say labor is a driver, and I would say capability building and building up the teams for more aggressive expansion, for implementing some of the initiatives, that we're developing in Mexico, transporting them to the countries in Oxo-Latam.
spk07: That's what I would have to say on cost and expenses. And I would just connect, I mean, that last comment on Oxo-Latam, I mean, the reason this is beginning to move the needle a little bit here is that in some of these places, in particular, I would say in Colombia, we have gotten to the place where the value proposition is we believe the right one and so the pace of growth is increasing and so the platform, the team that you need in place to kind of take that operation to the next stage in terms of just sheer scale, we are at that inflection point and so that's I think where Martin is coming from in terms of those expenses increasing in what is otherwise a very small part of the division, right, that you think about South America versus Mexico.
spk01: Thanks both. If I may, just a quick follow-up. When you frame your ambition, right, for Latin America, which is huge, would you say you would need to invest more OPEX to get there, or are you already ballpark where you want to be?
spk08: There will definitely be an investment. The more successful you are, the more stores you have. When you reach a certain level, you get some operating leverage. But in the retail business, as compared to other businesses, the number of people in the stores is a function of the number of stores that you have. There's no... after you've found the right mix of people that you need in a store, ideally, it sort of starts being a bit variable. Your distribution costs. Yes, it's sort of a step function because you build a distribution center, you have some excess capacity and you fill it up, but at some point you fill up your distribution center and you ideally have enough stores that that distribution center reaches peak efficiency. And then the But every certain number of stores you're going to be opening up a certain amount of distribution centers. So now if you're growing your top line, you know, it will make sense. The beginning is the most painful. The beginning is always the most painful because you have to invest ahead of the profitability that's coming from the new store to construct the capability to be opening up hundreds of stores in a country. The lead time for opening up hundreds of stores will be a year, six months to a year. The negotiation of the rent, finding the right locations, getting the appropriate permits in place, negotiating with all the suppliers so that that store could open is a process. So the most painful part is at the beginning, and then thereafter, operating expenses as a percentage of the total start coming down, and then you're normalized and everything sort of starts growing relatively in line and related to each other. It's hard to predict. Now, I will tell you, we always have the ability, if things are not working out, to turn off certain valves and certain costs. So these are not costs. that remain embedded with you for forever if you're not getting the level of success that you're expecting.
spk01: That's great. Thank you very much, both.
spk13: Thank you very much, Sergeant. We'll now move to Alvaro Garcia of BTG Actual. Please go ahead.
spk09: Hi, I'm Martin Juan. Thanks for the space for questions. My question is on other expenses. So on page 16 of your release, where you walk through sort of your net debt. The other expenses were $405 million versus $261 million last quarter, so a big sort of sequential uptick there. It implies sort of a $100 million run rate. I was wondering if that's related maybe to some intercompany stuff, or maybe is there a potential change in your guidance for expenses at digital and corporate going forward? Thank you.
spk08: Could you repeat those numbers just to make sure we can find the right place and make sure that we're responding?
spk09: Sure. It's page 16 of the release. It's where you walk through your net debt and adjusted EBITDA ex-coff, and there's an other when you walk through your EBITDA of $405 million. That's the other I'm sort of referring to. I suppose I could also refer to the difference between your consolidated EBITDA and your EBITDA of all your reported sub-segments, which also seems to be inching closer to $100 million a quarter. I just wanted to really just clarify that guidance for the cash burn at digital and corporate going forward.
spk11: Okay.
spk08: Yeah, again, I'll respond quickly. I'll let team members jump in here. This other, if you look at the footnote, it includes FEMSA's other businesses. It includes VADA and digital and FEMSA corporate expenses. I would tell you the bulk of that is digital and FEMSA, and FEMSA corporate expenses. FEMSA corporate expenses, as we've mentioned in the past, is we have an expectation, again, of non-reimbursable expenses, and by non-reimbursable expenses, expenses where the businesses, we're not providing a service to the business that if it weren't here would by definition need to be in the operations. For example, we have a centralized mergers and acquisitions team. We have a centralized treasury that provides services to the operations. We provide our security arm that provides security to executives and to many of our facilities is here. All that gets reimbursed to us and again, We didn't have the security here. Each one of the operations would have to have the security. So there's a sort of $100 million of corporate expenses that I've mentioned in the past. And the burn rate for digital is around $200 to $250 million. That $200 to $250 million does not include the benefits that it brings to OXO. It does include... Some payments that OXO makes for, for example, the Loyalty Program points because it's an arm's length transaction between the Loyalty Program and OXO and the Loyalty Program and the GAAP, but the burn rate is around, so right there you probably have 300 to 350 of the total, of the total 405 number that you see there.
spk07: Yeah, I would add, Alvaro, you know, in terms of some of the things that are being divested that, you know, were part of the other, like if you think about Solistica, you think about Invera, I mean, those are EBITDA-positive companies that are being sold. And so in the comparison, we're losing some of the entities that contributed to, you know, positive numbers to that other. So that's also, I think, impacting the numbers.
spk11: Great. Thanks. Appreciate it. Sure. Thank you, sir.
spk13: We'll move down to Carlos Laboy of HSBC. Please go ahead.
spk10: Yes, thank you. Juan, on Ben's question earlier, you may want to give some context of how Oxo's margins have expanded since you arrived at the firm, right? Because the scale up that this business has to go through is, um, is important context. My question was a different one. Um, Carlsberg just paid 14 times EBITDA for, for a weak Pepsi bottler with an unclear strategic purpose. So, you know, with one of the best Coke bottlers in the world sitting right there at half the valuation next to you, uh, why isn't it cheap enough for you to, to buy out the float? And, um, and deal with the governance problems that that relationship with FEMSA digital and Koch FEMSA raises.
spk07: Hey, Carlos. I mean, on your comment about what happened to the margins since I got here, I would like to take some credit for that, but obviously I don't. I just have really good colleagues I mean, I'll let Martin talk a little bit about the strategic part of the cost conversation. Maybe just set it up by saying, obviously, you saw the numbers and you wrote on the numbers that Cochran has delivered. The current place where the system is is so good and the level of alignment is so good between the buffers and the and our partners over in Atlanta, that it just, everything is working so well. And you know, this obviously takes us back to the conversations about animal spirits and consolidation and things that could happen. And so those are questions that I know that you've all been asking of Ian and his team, but you know, it's good times in Coca-Cola land, but I'll turn it over to Martin to maybe make a comment about how we, you know, why the current structure makes sense and what we might be thinking about.
spk08: Yeah, I mean, in effect, you seem to be suggesting a taking private transaction for Regula FEMSA. As happens with any topic in FEMSA, everything is always on the table, discussed and debated. So I can't tell you this is not an idea that at any given time we've discussed and debated. And... Part of what has weighed historically in our thinking has generally been there are advantages to having Coca-Cola FEMSA publicly traded. One, it provides a currency through which in the past we've been able to offer bottlers the opportunity to participate in the equity of whatever combination results from transactions that we undertake. and those bottlers have not always historically wanted to participate in other parts of our, necessarily participate in other parts of our business. Number two, Coca-Cola FEMSA has historically, its balance sheet has historically been a stronger balance sheet than FEMSA's in the regard that it's slightly better rating, it has slightly better cost of funding, driven by the participation of Coca-Cola and the of a bottling business which has slightly different dynamics than a retail business and a retail business of the nature such as retail. So there are, number three, I think FEMSA has always felt that Coca-Cola, FEMSA being a publicly traded company has generally helped the governance of Coca-Cola, FEMSA itself and its relationship with Coca-Cola and with the public, because it requires everything to be discussed through a public board, and that, I think, everybody has seen the merit of that. So it's not, taking private credit or FEMSA is not merely a financial decision. There are other elements that one has to think about. If you find someone, as to the 14 times EBITDA. Again, sometimes one pays a higher EBITDA for a business, not because it's a particularly good business, but because it's such a bad business that you believe that you can improve so much profitability that you can grow yourself into a lower multiple. And although I do strongly believe As you suggest, the Cobra Vela FEMSA should be better valued than it currently is given its returns on invested capital and its cash flow generation and its capability building. I mean, we could go on and on, and I'm sure both of us would agree because I know that you're a fan of Cobra Vela FEMSA. The reality is the opportunities for dramatically improving the performance simply because we bought out Coca-Cola and the public or just bought out the public probably is more limited than the example that you're highlighting. But I will tell you, we discussed it certainly in the panoply of investment ideas that we considered. And maybe it's not even taking product, buying more. Leveraging the balance sheet, which is a form of buying back shares or buying back quote-unquote equity, buying a portion of what Coca-Cola, I think, part of what Coca-Cola owns, doing share buybacks generally, or all things that are constantly and repeatedly discussed.
spk10: Martin, how do you value the data from Coke FEMSA? and the relationship information from Koch FEMSA that FEMSA needs or could need in the future? What is that worth?
spk08: Oh, if I had the answer to that, I'd be a venture capitalist and I'd be raising billions on dreams. I can't assign a value to it and I think we won't know for years. what that eventually will be valuable to the entire ecosystem. That was a tough one to assign a specific number to. I do think we have a conviction that through all of our businesses, Coca-Cola, FEMSA, and FEMSA in all its iterations, our pharmacy business is one of the businesses that has the best data The problem is it's a significantly smaller business, but I believe it has 6 million people in its loyalty program. But even here in Mexico, just in Mexico, I think they may have 6 million members in their loyalty program. And that's an incredible source of information on consumption patterns and needs of the consumer. Digital at FEMSA, that is the mission of Digital at FEMSA, because it's a long-term bet. It's going to require a lot of work, by the way, just standardizing the data so that, you know, when a consumer buys an Oxo Gas, we understand that it's the same consumer that's buying an Oxo Mexico, that we understood it's the same consumer that's buying at Farmacias Iza, that we know that they're a mom and pop in Coca-Cola FEMSA. I mean that is a significantly larger undertaking that I think people understand in integration of systems and standards and then using that information for amongst other things consumer promotions and selling the opportunity to make promotions to those consumers or to extend credit because you have a very clear understanding of spending patterns of developing loyalty programs. that drive traffic or consumption or give benefits to a mom and pop. I know that it sounds easy to say it, but when you understand the intricacies of what that involves, you understand that it's a huge task ahead of us. And as many huge tasks that FEMSA takes, you know, sometimes they take years to develop. and to come to fruition.
spk11: Thank you. Thank you very much, sir. We'll now go to Hector Maya, colleague from Scotiabank. Please go ahead.
spk00: Hi, thank you very much for taking my question. So could you please update us on how you have been thinking about transactions in the U.S. I mean, if your conviction regarding inorganic growth in convenience stores has changed or the timing to eventually pull the trigger has evolved considering the local and U.S. political environment this year, and also on how you're thinking so far in terms of store sizes or exposure to gas stations, because from what we see in the U.S. market, stores are much larger in size, like 250 square meters at the minimum. over 80% of stores sell fuel. So I was wondering on how you're thinking that FEMSA could tackle the specularities in the U.S. market. Thank you.
spk08: Yes, I mean, we've spoken about this in various forums. We continue to believe that there's an opportunity for FEMSA to contribute value and to create value with its capabilities by entering the convenience store sector in the U.S. We've had that conviction for many years, but obviously we had a structural issue relating to the Heineken shares that made it impossible. I would tell you, the issue of political environments in Latin America generally are not the driver. We wouldn't diversify if we didn't think we could create value.
spk07: I think Hector was talking about the U.S.
spk08: legal environment, but I think that has nothing to do with it. To be honest, compared to what we deal with on a daily basis and interact. I know that what's happening in the U.S. creates an enormous amount of passion and opinions about issues and we all probably listen to the U.S. news more than we should. People will continue to go to convenience stores, will continue to have to have gasoline, will continue to need snacks on their way to and from work. FEMSA has thrived in many different types of environments. We're highly confident that nothing that's going to happen in the U.S. is going to be so surprising to us relative to other experiences in other countries. So you highlighted some important differences between what is the business in the U.S. and what is the business in Mexico. And we are well aware of them, and we debate them frequently. But one, I would just note on the gasoline, we own gas stations in Mexico. And it's a very different business, but it's not like we're new to the gasoline business. Number two, they are bigger stores and they require more investment. So it requires much more careful thought as to how you expand and the speed with which you expand and the level of certainty that you need to have with regards to the value proposition that you have very different to open up 100 stores where the investment is $300,000 to $400,000 versus a store where the investment can be $4 million or $5 million. So it's a point well taken and one that we are certainly aware of. As we've said, we are looking for opportunities in what we call the southern belt that sort of starts through Texas and then goes through the south to the east. excluding Florida and excluding the Southwest such as California. There is where we believe particularly in Texas and border states that we can add value particularly complementing whatever we acquire with trying to develop a proposition with the Hispanic market. Again, we are not looking to open up a Hispanic value proposition in the United States as the sole and primary convenience store consumer proposal, but it will certainly be part of it, and we think we could sort of add value to that. We are intrigued by the possibility of trying out what has been extremely successful to us in the United States, which is a standalone convenience store value proposition, but we understand that that is something new, and gasoline will be part of the mix. So whatever opportunities we're looking at, almost all of them include a gasoline proposition. Again, in terms of size of opportunities, we've spoken about sizes which would be considered small relative to the size of all of FEMSA. I cannot... I don't have in our radar right now opportunities that exceed the billion, billion and a half numbers. We would like to start out with something smaller, get our feet on the ground, test out opportunities and possibilities before we would undertake a very large transaction. And we've been, until now, very disciplined in how we've gone about that and our board and our strategy committee have been very clear about that and we've listened and we always pay attention to our board and our strategy committee.
spk07: I hope that's helpful. I think just, I mean, I would just connect kind of as a way to close the comment to what Jose said on the call three months ago, right, in terms of, you know, the thoughtfulness and the prudence and the As compelling as the industry is and the overall size of the U.S. market, there's a lot of reasons why it's attractive. But in terms of just giving the market the comfort that we will be very, very deliberate and thoughtful in terms of how we go after it.
spk11: Thank you, Sumaya. Thank you very much. Very clear. Thank you.
spk13: Thank you, Sumaya. We have time for only one question at this time. The last question in the queue today will be from Luis Yance, colleague from Santander. Please go ahead.
spk04: Hi, guys. Thanks a lot for taking my questions. Quick one on same-store sales. I mean, I appreciate all the callers you gave about, you know, the one-off events that impacted second quarter. But as we think about second half, when you put into the balance what you said, on one side, you know, easier comps, going into the second half, but on the other side, you know, historically having a tougher second half after the first year of elections. Just wondering, where does that take you? I mean, especially relative to the formula you gave, the 5% same-store-sale growth on a normalized base. Does that take you to that number that's kind of sort of your expectation or perhaps a bit lower than that and closer to inflation? So just try to get a sense of where you think if things change you know, happen the way you think could happen, you know, where we might end up in terms of growth. And maybe if you can comment on the differences between the formats, because I guess a lot of the focus has been on OXO, Mexico, but on the other side, you know, you have LATAM, thanks to ourselves, going closer to flat. But then, you know, BARA, maybe Brazil, still growing double digits. So if you can comment on the difference in performance on those and maybe the expectations going forward, that will be helpful.
spk11: Thanks. You know, hi Luis, it's Juan.
spk07: I mean, in terms of the same-store sales number, that five that had kind of been my historical go-to and obviously based on what the operation has done, once you isolate a lot of the one-offs, you know, again, if you're just charting the numbers, that dip that we saw this quarter, a lot of it can be explained by comp base and some of these one-offs, right? So I think there's still the sentiment that we could end up at a slightly higher number than the historical average, but the way you phrase the question is the right one, right? I mean, there are unknowns in terms of the macro, you know, what happens in the second half. We know how the comparable base evolves, right? We know that. The one thing we know is the consumer going to be there, just generally. So right now I would be optimistic, but that's one guy's opinion. It really does depend on whether the macro in the second half, to Martin's earlier point, is this a different transition because there's a lot of continuity. And so does that mean that the budget gets allocated and money continues to flow? Or do we live again something like what we lived six years ago where, as you all remember, a lot of things were brought to a stop? I think we're going to be somewhere in between. So right now my bias would be an optimistic one, but we're going to have to wait and see.
spk11: Great, thanks.
spk04: And if you could comment on the difference on the format, you know, LATAM sensor cells, you know, on the lower end, maybe, you know, the double-digit ones that we saw at BATAM Brazil.
spk07: I mean, I think there we can't really leave out of the analysis just how new these value propositions are, right, and how much of the outside growth has to do with that. I mean, you know, OXO in Brazil or even Vara, those are not normalized same-store sales numbers. So, yes, I think in both cases there's a good tailwind of, you know, finding a niche or finding a need that was not being properly satisfied, right? I think the strength that we see in OXO Brazil The strength that we see in the discount sector in Mexico has a lot to do with a consumer that is, you know, avid or thirsty for what those formats provide. But there's also just the newness of the formats, right? And so I don't think we can at this point in either of those examples isolate how much is coming just from the sheer growth. And again, the fact that this is new to the consumer And how much of it is just that you play in a different part of the economy? And maybe discount in Mexico is going to bring better numbers than big box retail for the foreseeable future. But I don't know that.
spk08: The formats are pretty similar in many respects operationally. But in terms of what gets sold in the store, there's a different mix. we would love to have the mix of food that we have in Colombia versus what we have in Mexico. When that proposition was developed in Colombia, the value proposal that we're going with in terms of our expansion became clear after some trial and error that the Colombian consumer in that format, community format, needed to have significantly more food offerings than what we were offering in Mexico at the time. The types of food offerings that you make are completely different. Palo de Queso in Brazil is sort of like a staple comfort food, while the rest of Latin America means absolutely nothing. So in none of the stores in South America, for example, we have services. One, because we don't have the scale for those services to really pay for themselves. There are countries with different levels of banking penetration. Brazil is a country which, in financial terms, is quite different to Mexico. And so the value proposition on services is not going to come really from services, but food tends to be a higher margin business. And so you want to focus on food. So the propositions, each one of them are different. I would tell you if we battled more in Chile, then we're battling more in Chile today than we are in Brazil and Colombia. That's good news because Brazil and Colombia are the bigger countries. But Chile is a more challenging environment for us with significantly more sophisticated retailers who have significantly more developed convenience value proposition, then I would say that we're finding in either Colombia or Brazil. So we're optimistic on particularly those two larger countries, Colombia and Brazil. But this is slow, difficult work until you create that virtuous circle that you currently have in OXO. The value of the brand and what people associate with OXO in Mexico creates an opportunity where you could quickly acquire the right to win in many new things that you propose to the consumer and just the presence that OXO has. That's why we've dedicated so much time in building out our expansion, but specifically in South Potluck is we want to create that sense throughout Sao Paulo, the state, not the city, the state of Sao Paulo, which represents an outside percentage of GDP and population. Because if we can make that work in Sao Paulo, that will give us enormous comfort to then roll out to many other cities. And we've resisted the temptation and the pressure from many different forums to say, why don't you go to Rio? Why don't you go to a different city? No, no, no, we've got to. We want to create that sense of presence in the state of Sao Paulo to see how the Brazilian ultimately reacts. Also, I would tell you the same store of sales, I believe we calculated on the basis of sort of 18 months.
spk07: The public number is 13. Sorry, 13 months.
spk08: And so let's It's a little bit of the history of FEMSA and OXOs and so on, but the maturity curve of different stores in different countries is quite different. So what you would define as a mature store versus not a mature store makes a difference. And in Mexico, generally, 13 months was perceived as the proper level of maturity, particularly the size and presence that we have. But when you're developing a value proposition, The maturity may be different, so we may still see growth. It's really just the normal maturity of a store as opposed to the steady state sales of a store where you then are measuring the same store sales to see the continued health of that store relative to other alternatives. And so I support a little bit of what Juan is saying that the focus on that number in these new operations can be a little difficult to interpret at times.
spk07: No, I would add, Luis, and it's, you know, we're getting to this through the thanks to our sales question, but something we haven't really talked about a lot today that I expect we'll be talking a lot in calls and, you know, conversations in the future is prepared food, right? And Martina made reference to that. You know, we... We've done quite well in Colombia. We're doing well in Brazil. Obviously, Valora, you know, it's one of the things they do best is prepared food, you know, the whole foodvenience concept. They're very advanced in some of their value propositions. But in Mexico, where we've been the longest time and we're, you know, have the biggest scale, I think there's still opportunity for an improvement of the prepared food category that would then open or, you know, kind of supercharge this vector to bring more people into the store. And I would ask you to stay tuned on that because we are working internally a lot on kind of improving and approaching it in different ways, the prepared food opportunity in Mexico. So even as we kind of think about the U.S. as a future opportunity, certainly prepared food plays an important role in U.S. convenience, as you all know. So, you know, again, stay tuned for more and more conversations on prepared food and how we are improving our capabilities on that front.
spk11: Great. Thanks a lot, guys, for the call. Thank you, Luis.
spk13: Thank you, Mr. Jan. This is Sergeant Jobuster. We do not appear to have any further questions at this time. I turn the call back over to Mr. Juan Fonseca for any additional or closing remarks. Thank you.
spk07: I mean, just thank you for your interest for joining us today. As always, you know, the team and I, Pamela, Alex, and myself are always around to, you know, try to help. And, you know, we'll speak soon. Thank you.
spk13: Thank you very much. That will conclude today's conference. Thank you so much for your attendance. You may now disconnect. Have a good day and goodbye.
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