Fomento Economico Mexicano S.A.B. de C.V.

Welcome to the FEMSA's first quarter 2025 results conference call. My name is Alan and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration your lines will be on listen only. However, you'll have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad. If you require assistance at any time, please press star 0 and you'll be connected to an operator. I'll now hand you over to your host, Juan Fonseca, to begin the press. Thank you.

Thank you. Good morning, everyone. Welcome to FEMSA's first quarter 2025 results conference call. Today we are joined by José Antonio Fernández Garzalagüera, CEO of our Proximity and Health Division, Martín Arias, our CFO, and Jorge Collazo, who heads Coca-Cola FEMSA's industry relations team. The plan for today is for Jose to open the conversation with some comments on the performance of the business during the first quarter, particularly at Proximity Americas, and then to provide a quick update on our retail portfolio. After Jose's remarks, Martin will provide more detail on our quarterly results. Finally, we will open the call for your questions. Jose, please go ahead.

Thank you, Juan. Good morning, everyone. During the first quarter, FEMSA was able to navigate a challenging environment across several markets, particularly in Mexico, taking advantage of its resilient, geographically diversified business platform. Within proximity and health, however, Mexico is by far the biggest component, and the division results will inevitably reflect whatever is happening in these core markets. Our results for the first quarter reflect a challenging set of headwinds particularly in proximity America, combining a persistently soft consumer environment in Mexico with a tough calendar setup and against a demanding comparison base. Therefore, I would like for my remarks today to provide you with three things. First, our assessment of the causes of the underwhelming numbers, particularly related to same-store traffic in OXO Mexico. Second, an overview of some of the actions we're taking to offset or mitigate the impact in Mexico, and finally, our expectations for the remainder of the year, including what we foresee will be a better second half in Mexico that should help us deliver a solid full-year result despite the slow start. After that, we will give you an update on the rest of the operations. During the first quarter, Same-store sales for proximity Americas contracted by 1.8%, with average ticket growing 5.1%, slightly ahead of inflation, but average traffic contracting 6.6%, continuing a trend that has been in place for several quarters. The calendar effects are straightforward. We had one day less in February, and the entire holy week shifted to the second quarter this year. Adjusting for those differences, we estimate that same store sales would have been flat. Beyond that, there is an undeniable weakness in the consumer environment that first manifested itself around the middle of last year, just after the election, and consistent with previous electoral years. Moreover, the ongoing uncertainty around trade with the U.S. has exacerbated What we already expected would be a slow start to the year due to the postponement of many investment decisions until greater clarity is achieved. Other negative traffic drivers include a particularly colder month of January impacting high traffic categories such as alcoholic and non-alcoholic beverages, cigarettes and snacks, as well as certain localized markets where consumers have reduced their movement outside the home after certain hours as a response to a heightened perception of risk. Finally, in terms of channel dynamics, we continue to see the traditional trade gradually recover some of the market share it lost to modern channels during the COVID pandemic. Historically, the traditional trade has done better in economic slowdowns as people cut down on impulse buys and seek the smaller price point SKUs of this channel. As a result of the consumer environment and consistent with what we have seen in similar downturns in the past, some of the TPG suppliers are adjusting their package strategy accordingly. For example, increasing the availability of smaller price point multi-serve and returnable presentations that are also well-suited for the traditional phrase. However, we do not have any clear evidence that other channels may be gaining competitiveness relative to OXO. And our reading to date is that the majority of the slowdown is attributable to factors outside of our control, such as the macro environment, weather, and calendar effects, and consistent with untapped figures for other channels. And this is a good segue to move on and discuss some of the actions we're taking. We have launched several commercial and cost initiatives with three clear objectives. One, to drive traffic and top line. Two, to maintain our positive trajectory of gross margin expansion. And three, cost containment initiatives to ensure the leanest organization possible, while not mortgaging our future by cutting transformational initiatives. Within the top-line initiatives, we should highlight our push for increased affordability across categories, working in tandem with our key supplier partners. These initiatives aim to expand our assortment to include more affordable brands and presentations, including in key categories like tobacco, soft drinks, beer, spirits, and salty snacks. We have launched targeted plans to reactivate the Andati coffee offering and to support the beer and soft drink categories, including returnable multi-serves. Furthermore, we continue to increase the breadth of our financial services and correspondent partnerships with banks and fintechs, while also increasingly leveraging the insights from our SPIN Premier Loyalty Program to improve the effectiveness of our promotion. And this connects with our efforts to drive profitability at the gross margin level. As we keep working with our supplying partners to find incremental value through the precise execution of more targeted promotions. On this front, as you saw in our results, a bright spot at Proximity America was once again the continued margin expansion at the gross level. As we look at the pipeline of commercial collaboration we see in the months ahead, we are optimistic that we can continue to drive these metrics higher. There are several important negotiations underway in key categories that we expect to provide us with continued tailwinds at the gross margin level. Further down the income statement, we again face pressure from another low double-digit increase in the minimum wage, as well as a loss of operating leverage from the soft traffic trends and the incorporation of the results from the lower-margin decay operation in the U.S. We also maintained our pace of store-based expansion and capability-building activities. In an effort to offset rising expenses, we have made great strides reducing the FTE or full-time equivalent per store, generating real efficiencies at scale, as well as a reduction in overhead. Despite these efforts, we saw a swing from an expansion of 120 basis points at the gross level to a contraction of similar magnitude at the operating level. I have asked all of our operations to drill into overhead expenses where I think opportunities to be a leaner and more effective organization. And that brings me to the general outlook for the remainder of the year. Based on our projections, we believe we will see a sequential improvement in top-line dynamics beginning in the second quarter and peaking for the year during the third quarter. Such improvement is partly within our control through the implementation of all the commercial and cost control initiatives I just described, and partly outside of our control, requiring economic activity and consumer sentiment in Mexico to gradually peak up. Therefore, as a slow start, our base case expectation for the full year remains for a high single-digit increase in revenues with stable operating margins relative to 2024. Moving on, let me give you a brief update on some of our other formats and markets that we know are top of mind for investors. In the U.S., We continue our testing and experimentation as we advance in the definition of our optimal value proposition for this market. As you may remember from our last call, we have already started the first conversions of some of the DK stores into OXO. Back in February, we announced the first one. And since then, we have reached 15 OXO units, all of them in the Midlands-Odessa metro area in West Texas. While consumer reaction to the rebranding has been very positive, there is a lot of work to be done as we close the value proposition gap, including in the key prepared food category. On that front, we have already made progress bringing the Andati coffee offering from our Mexico operations, and we are testing improved food offerings in approximately 20% of the store base. The OxoMexico team is also sharing with the U.S. team some of its expert capabilities, such as pricing, assortment, and segmentation, and there is more to come. Again, very early days, and we will keep you posted on our progress there. In Brazil, we continue to make progress reducing shrinkage and employee turnover, which have been two areas of operational focus in recent quarters. We continue to see the brand and value proposition grow in consumer preference. and our expansion plans for this year are unchanged, with approximately 100 new OXOs in the state of Sao Paulo. At Vara, we had a good start to the year in terms of store-based expansion, adding roughly twice as many stores during the quarter compared to last year, and on track to add approximately 235 net new stores in 2025. We recently opened a new distribution center in Querétaro, And we're making progress as we set up our second region in northern Mexico, while also advancing as we develop and grow the supplier network for our key private labels. In Europe, Valora's results show solid growth in Mexican pesos, given the meaningful weakening of the peso against European currencies year on year. But on a comparable basis, the numbers are sluggish. We see positive trends in retail supported by certain categories like tobacco and from a growing commercial income platform. However, B2B service is lapping a very difficult comparison base from the successful one-time pretzel project we executed last year. We continue to work to improve traffic to B2C food service, which is somewhat dependent on German economic growth. And on the retail front in the coming months, we expect to rebrand a meaningful number of our DV stores in German train stations to our successful ABEC banner, which over time should help us in our organic growth efforts as the ABEC brand becomes better known in Germany. At Oxo Gas, we did well in the first quarter, but in the coming quarters, we will be increasing headwinds from the voluntary price commitments we have put in place for regular unleaded gasoline together with the rest of the industry in Mexico. And finally, at Pensa Health, we saw improving operational trends across most markets except Mexico, helped by the positive impact of FX, as was the case in Europe. The brightest spot continues to be our retail operation in Colombia, but results out of Chile and Ecuador were also solid. For each part, Mexico is in full operational turnaround mode. including a meaningful reciting as we rationalize the store base and continue to fine-tune the valuation of our two-format strategy. Expect further news on this front as the new management team completes its work of getting up to speed and fine-tuning the new strategy. Wrapping up, we would like to leave you with the message that even though the start of the year was slow in the core proximity America's business, Based on the information we have today, our expectation remains that the numbers will improve as we go through the year, positioning us well to deliver another solid set of results for the full year of 2025. And with that, I will now turn the call over to Martin to discuss SAMHSA first quarter results. Martin, please go ahead.