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

Recording in progress.

Hello and welcome to the PENSA first quarter 2026 conference call. My name is Sophia and I'll be your moderator for today's event. Please note that this conference is being recorded. For the duration of the call, all participants will be in a listen-only mode. You will have the opportunity to ask questions at the end of the presentation. To do so, please use the raise hand feature in Zoom and we will open your lines. If you experience any technical issues during the call, please use the chat function to request assistance. I would now like to hand the call over to Mr. Juan Fonseca, Investor Relations Director at FEMSA. Please, go ahead.

Good morning, everyone, and welcome to FEMSA's first quarter 2026 results conference call. Today, we are joined by José Antonio Fernández Garza, FEMSA CEO, Martín Arias, our CFO, and Jorge Collazo, who heads Correco a la FEMSA's investor relations team. The plan is for José Antonio to open the conversation with some high-level comments on the quarter's performance and trends, followed by Martín, who will provide more granular details on the results. Finally, we will open the call for your questions. José Antonio, please go ahead.

Thank you, Juan. Good morning, everyone. Before we get into the numbers, we should talk a bit about the changes we have made to improve our disclosure. As you saw in our release, we are now reporting Oxo Medico on its own, given how important its performance and trajectory continue to be for our investors and analysts. At the same time, we are reporting a new segment, Americas and Mobility, which comprises our Oxo operations outside of Mexico, as well as our fuel business in those markets where we participate in fuel, namely Mexico and the United States. This new segment contains some of our fastest growing operations, so hopefully it will allow you to track our progress as we work to gradually capture the growth opportunity in places like Brazil and Colombia. These are the main changes to our reporting segments, with Europe, health, and Coca-Cola Pensa remaining as they were. Moving on to the quarter results, most of our operations delivered a strong performance, and the first highlight is a continued recovery at OXO Mexico. Building on the positive trends we first saw during the final quarter of last year, OXO delivered 8.3% revenue growth, driven by same-store sales that beat the industry, despite the disruptions in late February that led to many store closures, a few of which remain today. In particular, we saw revenue growth in the tobacco and soft drink categories, reflecting the pass-through effect from the application of new excise taxes. But we also saw positive revenue dynamics in almost all other categories except snacks, sweets, and alternative beverage. We believe that these revenue trends reflected our continued focus on affordability through promotional activity and price package initiatives, which in turn helped drive improvements in traffic. Beyond the top line, however, the team also delivered gross margin expansion through continued cooperation with our suppliers, increases in distribution income, and warehouse cost savings. On the selling expense front, Also, Mexico achieved selling expense containment with growth in line with expansion plus inflation. This reflects the impact of our efforts to increase efficiency. As a result of all these factors, operating income growth went well into the double digits. Just as relevant as the growth in numbers themselves, in a consumer environment that remains challenging, we believe we have continued to gain market share in recent months against the traditional trade, while bigger box retailers were stable as a whole. However, as encouraging as these results are, we recognize there is still work to do. Average traffic remained slightly negative during the quarter, but improved significantly versus the declines we faced last year, reflecting clear progress and the early benefits of our commercial initiatives. While we are encouraged by this trajectory, we are not being complacent and remain firmly focused on continuing to improve traffic. As we mentioned on our last poll, we aspire to restore Optum Mexico's sustained growth and relevance through a clear focus on recovering traffic and further improving same-store sales by sharpening our value proposition and enhancing the customer experience while delivering strong operational executions. Next, I would like to talk a little about Americas and Mobility. During the first quarter, the business delivered strong growth across most of its income statements. We should note that this segment includes two months of the recently consolidated operations of Oxxo Brasil, and therefore, the comparable column is particularly useful to understand the rest of the segment's year-on-year growth. Here, we are especially proud of the same-store sales growth in Latam ex-Brazil, of more than 20% in local currency, a very encouraging sign of Oxxo's underground momentum in Colombia, Chile, and Peru. For its part, Brazil posted same-store sales growth of 6.9% in local currency, reflecting continued progress in strengthening the value proposition while the U.S. business delivered same-store sales growth of 1.7% in local currency. In terms of store expansion, growth was moderate on a last 12-month basis. In Colombia, this reflected our decision to prioritize operational improvements and strengthen key capabilities to support a stronger pace of expansion starting this year. While in Brazil, Expansion was impacted during most of 2025 by our focus on unwinding our joint venture. Looking ahead, this is a segment that should gradually improve its profitability as it gains scale, strengthens operating leverage, and continues to mature across markets. With our updated reporting structure, we will now be able to monitor that progress more closely on a regular basis. Since we're discussing some of our past growers, we should also mention Vara, and the fact that during the first quarter, it increased its same-store sales by double digits, driven equally by traffic and tickets, while opening 38 net new stores and reaching almost 30% of private label in its revenue mix. All in all, a solid quarter for Vara. In Europe, Valora again delivered strong growth in operating income even as they continue to face soft traffic trends, particularly outside the core Swiss retail and food service business. For its part, the Coca-Cola FEMSA team remains focused on executing its playbook of strengthening affordability, expanding refillable to defend household penetration, and continuing to deploy state-of-the-art digital tools and revenue growth management initiatives. particularly important in Mexico, where softer consumer demand has been further pressured by this year's excise tax increase. On the other side of the ledger, our health operations again delivered a lackluster set of results. Top line was driven by Colombia retail, Chile and Ecuador in local currency, with revenue growth and market share gains. However, results were pressured by soft margins in Chile, reflecting an unfavorable product mix shift toward lower-margin pharma products such as GLP-1 treatments and by continued losses in Mexico. Let me also discuss recent developments on our institutional business in Colombia. As you know, our health business in Colombia includes a significant institutional segment in which we distribute medicine and provides highly specialized medical services on behalf of private healthcare providers, intermediaries known as EPSs. The institutional component represents a bit more than half of our business in Colombia, although it has been growing much more slowly than our retail business and is significantly less profitable. In recent years, this part of the business has become increasingly challenging due to funding gaps, which have impeded the ability of such EPSs to reimburse their service suppliers, including us. Accordingly, we have been gradually reducing our exposure, although our total outstanding receivables to the EPSS have continued to grow. As part of our strategy to reduce exposure, at the beginning of April, we notified EPSS Anita, our largest counterparty in this channel, by a significant margin, that we will not renew our agreement upon upon its expiration in September. The current environment in the Colombian healthcare system would result in the insolvency of certain MPSs, thus creating a credit risk for us with regards to such receivables. We will continue to actively manage this exposure, remain disciplined in our capital allocation, and keep the market informed of any relevant developments as we continue to prioritize our retail drugstore business which has stronger profitability, cash generation, and more attractive long-term returns. Finally, SPIN had a good quarter. Today, SPIN by OXO sits at the center of the digital consumer revolution in Mexico, with 11 million active users and more than 100 million monthly transactions. SPIN is already one of the fastest-growing participants in stay and peer-to-peer transfers across indexes. As we mentioned on our last call, SPIN is focusing on becoming a structurally omni-channel platform aiming to amplify OXO's ability to solve and serve daily consumption needs and occasions for the Mexican consumer and change how they experience convenience in their daily lives. Before turning the call over to Martin, I would like to reflect on some of the changes we have made in our organization during these first few months. The work has been intense and challenging, but having the right team in place is fundamental to our long-term success. At this point, we have finished almost all of the organizational changes we need to make. We completed the combination of the overhead structures of PENSA corporate and the proximity and health divisions, including the top reductions in headcount required by this new structure. For each part, OXO Mexico has a renewed senior leadership team that brings additional capabilities, and the revamped team at Spin now has a more aligned reporting line with Oxfam Mexico to ensure maximum alignment. We still have some work to do to review our corporate non-MTE expenses, but I believe we have assembled a strong world-class team that will help me lead this extraordinary company through the next stage of growth. I want to take this opportunity to thank everyone on our team at every level for continuing to deliver a top-notch performance, even as we made meaningful adjustments to the lineup. And with that, let me turn it over to Martin to go over the numbers in more detail. Thank you, José Antonio.

Good morning, everyone, and thank you for joining us today. As José Antonio mentioned, starting this quarter, we are reporting on the new segment structure of SoMéxico, Americas, and Mobility Europe Health We have included the comparable base numbers for the first quarter of 2025. Among other benefits, we believe this structure will make it easier for you to track and monitor operations that are in different stages of development and evolution. Let me begin with PHEMSA's consolidated financial results for the first quarter of 2026. Total revenues increased 6.1% year-over-year. while operating income grew 5.5%, reflecting the continued recovery in Oxomenico, contributions from our international operations, and the early benefits of our cost restructuring initiatives, but offset by currency headwinds due to a stronger peso and the softer performance of health and health. On a comparable and currency neutral basis, total revenues and operating income grew 8.5% and 12.1% respectively. Net consolidated income amounted to 17.6 billion pesos, representing an increase of 97.3% compared to the first quarter of 2025. This increase was driven by a one-time non-cash accounting gain related to the Brady Plus and Imperial Day combination. Eliminating this non-cash gain, net consolidated income would have been 5.7 billion pesos, or a decline of 36.4% year over year. This decline was mainly explained by higher net financing expenses, reflecting, one, a foreign exchange loss compared to a gain in 2025, representing a swing of 883 million pesos, driven by the appreciation of the Mexican peso against the U.S. dollar denominator in cash positions. Two, an expense of 189 million pesos related to financial instruments, compared to a gain of $1.1 billion last year for the favorable valuation of the convertible bond associated with Heineken shares. And three, lower interest income as a result of a lower cash position and lower interest rates. Additionally, income from discontinued operations contributed $2.5 billion in the first quarter of last year, but not this year. The effective tax rate for the quarter was 17.1%. including the impact of the one-time accounting gain relating to our investment in Grady Plus. The gain was recognized as part of a share exchange transaction that for accounting purposes required fair value recognition similar to a sale, resulting in a book gain with no current tax effect. Excluding this non-cash item, the effective tax rate would have been 37.9%. The difference between the statutory corporate tax rate of 30% and our effective tax rate of 37.9% is mainly explained by certain non-deductible items, including labor-related expenses in OxoMéxico, as well as losses at spin that, while diminishing, currently do not generate tax yields. We expect these losses to decline beginning next quarter. Turning to our operating results, OxoMéxico delivered total revenue growth of 8.3%, driven by same-store sales growth of 6% and continued net new store additions of 158 units during the quarter. Gross margin was 46.2%, expanding 140 basis points year over year, reflecting solid income from key suppliers and the resilient performance of financial services. Selling expenses grew in line with store expansion plus inflation, despite the double-digit growth in labor costs. reflecting our multiple initiatives to contain costs and drive efficiencies. Administrative expenses increased by 13.9% to represent 2.9% of revenues, driven by a change in the phasing of provisions for year-end bonuses and profit sharing that in the past were more heavily provisioned later in the year and greater expected bonuses and profit sharing due to projected better financial performance this year. As a result, operating income grew 20.9% with operating margin expanding 80 basis points to 7.6%. The Americas and Mobility segment delivered total revenues of 25 billion pesos, increasing 12.9% for 10.5% on a comparable and currency-info basis. The segment's top line benefited from strong performance across Oxfam Latinx. which saw average weighted currency neutral same-store sales growth of 13.1% in Chile, Peru, and Colombia, and the consolidation of OXO Brazil. Gross margin of merchandise was stable at 31.8% of revenues. On the fuel division, it increased 120 basis points to 13%. Driven by a more favorable sales mix with a higher retail volumes in OXO gas relative to wholesale, which carried higher margins, together with the benefit of higher fuel prices and improved CPG margins in the U.S., partially offset by lower volumes in the U.S. Operating income was 281 million pesos, with an operating margin of 1.1%, which represented an increase of more than 100% on a comparable basis, excluding currency translations and the consolidation of Oxford, Brazil. The operating margin reflects the recent consolidation of Oxford Brazil, which generates an operating loss at this stage, partially offset by strong fuel performance and narrowing losses across the remainder of Oxford Latin. Our operations in Europe reported total revenues of 12.9 billion pesos, stable in peso terms or up 1.5% on a currency-neutral basis. as the start of the year was characterized by a solid Swiss retail and food service business offset by a weak German retail and food service business, resulting from soft traffic across our consumer formats that improved during the month of March. We continued to see a weak B2B segment driven by strong competition, and we have taken measures, including bringing in a new sales team to help us reignite growth in this business. Gross profit decreased by 1.3%, with a gross margin of 41.5%, resulting from the reclassification of distribution expenses from SDNA to cost of sales. On a comparable basis, the gross margin would have expanded by 90 basis points. There is no impact on operating income from this reclassification. Operating income was 356 million pesos, a solid increase of 7.4% year on year. driven by strong cost containment, offsetting the weak top-line growth. Operating margin was 2.8%, reflecting continued cost discipline against the volatile macro environment. For its part, the health division delivered total revenues of 22.2 billion pesos, growing 0.9% year-over-year or 6.5% on a currency-neutral basis. On a same-store sales basis, Performance was positive across Colombia, Ecuador, and Chile in local currency, while Mexico continued to face headwinds. During the quarter, and consistent with the adjustments made last quarter, we reclassified certain distribution expenses from SDNA to cost of sales. This change was made purely for accounting presentation purposes to better align the reclassification of distribution costs with the nature of the expense. As with Valora, there is no impact on operating income because of this reclassification. However, as a mechanical effect of this change, gross margin was impacted by approximately 666 million pesos, reflecting the proportional shift of these expenses into cost of sales. Gross profit decreased by 10%, with a gross margin of 26.2%. On a comparable basis, the first quarter gross margin would have declined by 20 basis points. 657 million pesos, a decline of 14.9%, and 4.9% on a comparable basis, with an operating margin of 3%. This result was supported by strong growth in Colombia and Ecuador, which was more than offset by a decline in Chile and continued losses in May. For its part, Procarpa La Fensa delivered revenue growth of 1.1% and a decline in operating income of 2.3%. And on a comparable basis, revenue grew 6.3% and operating income also grew 2.1%, reflecting the benefits of its diversified geographic footprint as international operations offset a more challenging result in Mexico. Portfolio initiatives, strong marketplace execution, and digital capabilities continue to support market share gains while disciplined cost and expense management helps sustain stable consolidated markets. As always, we encourage you to listen to the earnings call posted yesterday. Before closing, let me briefly update you on capital allocation. In the first quarter, we deployed 6.2 billion pesos in CapEx, representing approximately 3% of total revenues and 29.5% lower than last year, primarily reflecting a slower start of the year in our so-called store openings. and a conservative approach to capacity-related investments at both. We expect CapEx employment to accelerate through the remainder of the year, trending towards our more typical CapEx-to-sales ratio of approximately 5% to 6%. Our approach remains disciplined, linking investment decisions across markets to clear visibility on same-store sales and demand trends, margin evolution, and cash generation. With respect to shareholder returns, In our recent annual general meeting of shareholders, we voted to deploy 15.2 billion pesos in ordinary dividends between March 2026 and March 2027, an increase per share of 4.5% versus last year. In addition, shareholders also approved an extraordinary dividend for the year equivalent to 25.8 billion pesos. Taking together the combination of ordinary and extraordinary returns represents total expected capital distributions of approximately 41 billion pesos on a March 2026 to March 2027 basis. Additionally, we continue to execute on our latest 300 million share repurchase program, which we expect to be completed during the second quarter. This program is part of our 2025 returns, and therefore incremental to the 41 billion pesos I just mentioned. As I look ahead, we are optimistic as we accelerate towards a busy summer that includes the FIFA World Cup, while executing against our strategy across our business units. However, we temper our optimism with some caution, particularly towards the second half of the year, as we continue to operate in a challenging and uncertain macro environment worldwide. We got some feedback about our last call being a bit long. We are mindful of your time, and we want to be fair in giving as many participants an opportunity to ask questions. We ask you to help us by asking one question at a time. Feel free to rejoin the queue if you have further questions. Thank you. And with that, you can open the call for your questions.

Okay. At this time, we are going to open it up for questions and answers. If you have a question, please click on raise hand for audio questions or write it down in the Q&A section for written questions. Please remember that your company's name should be visible for your question to be taken. We do ask that when you pose your question that you pick up your headset to provide optimum sound quality. Our first question comes from Alvaro Garcia with BTG.

Hola, Alvaro.

Hey, good morning. Thanks for the space for questions. And thanks very much for the new segment information. I think it's great. You know, I have two questions. One for Martin. I'll stick with one question. On others. Thank you. On others, just, you know, it came down materially relative to last year. This is obviously the difference in EBITDA between your consolidated EBITDA and all of your different segments. So I was wondering if you could just help piece together why that came down in the context of the recent restructurings that you announced last quarter. Thank you.

Sure. I mean, one big driver, without a doubt, was the decline in losses and spin. And, again, generally, our efforts at cost-containment. One has to be careful with others' lines because sometimes that puts all the funds to forward things and for businesses that are coming in and out. Generally, I think from last quarter to this quarter, the best progress that was made was on the reduction of the spin. The benefits from cost reductions will probably begin to cycle in over the next three quarters, and you should continue to expect improvements also as we manage the spin losses and find more efficient ways to manage those losses from a tax shield perspective.

Wonderful, thank you.

Our next question comes from Ben Thurer with Barclays.

Hello, Ben.

Yeah, good morning. Thank you very much, and I'll stick to one as well. So, you showed relatively strong performance in terms of traffic this quarter, despite some of the security issues. So, could you help us understand a little bit more just Jan, Feb, March, and how issues in the Pacific area, Guadalajara, Jalisco, have impacted traffic throughout the quarter and what the normalization looks like? Thank you.

So, Ben, I would say I'm still not satisfied with traffic. I expect also it's a growth platform, it's a growing company, and it should also grow on a sales basis on a traffic level. And the strategies we have put in place are aiming towards profitable traffic growth on a medium-term level. Having said that, we are encouraged by seeing compared to other players in the industry, and what we see from Nielsen on the traditional rate, we're encouraged by our traffic numbers are relatively better, especially considering the effects we had on February on the disruptions in the Jalisco region and really in a larger swath of the country. I would say we're seeing very good growth traffic, I mean, better better than our average traffic growth, especially in the north of Mexico, probably helped a little bit by weather, also maybe a little bit more economic momentum in that region and the Bajio region, compared to a much difficult traffic scenario, obviously, in Jalisco and Nayarit and that region, Michoacan, and obviously the southeast, which I think has a negative effect After all, all these infrastructure projects from the last administration are not present anymore or not as relevant. That's how I would frame it in general.

I think maybe adding to the lackluster performance in kind of the south of the country, as you know, really the states that are more exposed to remittances, you know, the remittances are coming down and they're generating fewer pesos. And so I think that also contributes to the difference between the north and the rest of the country.

And we saw a relatively soft holy week or, you know, vacation season, probably a little bit disencouraged by international tourism from the news in Jalisco, plus a stronger pressure relative to the dollar also affected the region around Cancun. So that didn't help as well. But a long way to go on profit, and we're working on lots of stuff.

Well, keep it going. Thank you very much. Good luck.

Thank you, Wren.

Our next question comes from Melissa Bion with Bank of America.

Hello, Melissa.

Hello. Thanks for taking my question. I, too, will try to keep this to one question or theme. On the Oxford gross margin, are you seeing a contribution from commercial income in anticipation of the World Cup yet? And how do you expect margins to evolve along the year?

So we are not yet seeing, I don't think that is part of the incremental promotional income from this quarter, maybe a little bit in March, but no, I think we're going to see much more of that during the second quarter. There's a lot of excitement being built by many of the sponsor World Cup brands, and we're doing a lot of things behind that that should help. It's not necessarily promotional income, but today, which is the Adelino here in Mexico, we're launching El Panini, this collectible thing, and we're partnering with the Panini company, and we expect some tailwinds of traffic and revenues behind that. Part of it is commercial income. We're also seeing a lot of expansion on our retail media efforts, gaining momentum. We have about almost 6,500 digital banners that are functioning and our network of sales of that channel is growing. And finally, I'll some expansion in financial services. We're still seeing some services like top-ups decrease. They're much more than being covered by growth in cash withdrawals from new banks, fintechs, and other players like SPIN, frankly. So all of that has been help on the growth margin.

Maybe I can compliment Jose just on one slide. This quarter saw... In other words, suppliers who choose to deliver directly to our distribution centers and then we distribute on their behalf. And as we have gained scale and efficiency in our distribution, more suppliers see us as a better alternative relative to them directly distributing to the store.

Yeah, just one final comment on this, Melissa. I mean, 140 basis points is a big number. And, again, I think everything that was just discussed ahead of the World Cup, some long-term agreements that were recently renewed with some of our big suppliers, some of that may not be present in the second half, right? I don't think we should put 140 BIPs for the second half of the year. Hopefully I'm wrong. I've been wrong a hundred times on this. more often than not in the right direction, meaning much more than I thought, but just to be a little bit conservative because this was a big number.

Great. Understood. Thank you.

Our next question.

Sorry.

UBS. That's okay. Go ahead, Rodrigo.

Hello, Rodrigo again. Sorry.

Go ahead, Rodrigo. Hello, hello. Are you listening? Yes. Hello, Jose. So I have three questions. I'm just joking. Jose, I have you on the line. You know, the affordability strategy 2025, work quite well, right? Helped you recovering the lost traffic to mom and pops. It clearly worked well, that strategy. Still, I mean, the way I see this is kind of like a reactive strategy, let's say, you know, to what's happening there with the macro. Now, the question is, looking for 2026 and, you know, beyond the World Cup, what kind of like active strategies would you highlight for Roxo for it to accelerate I mean, you mentioned that you're working in a couple of stops at the beginning of your remarks, right? But just wondering if you can, like, help me understand the flagship strategies that you are working on to precisely accelerate the traffic trends beyond the World Cup. That would be my question. Thank you, Jose.

It's a great question. As you say, I think... working on a very good price from OVPPC architecture and also in the impulse categories in terms of affordability has returned us in a growing share trend in tobacco, in beer, in soft drinks, in most of our key categories. I think we still have a long way to go in terms of our ambition. of what we can do with impulse. I think given our capillarity, given that we sell the coldest gear out there, we should still gain share and continue to do so. Cold and affordable gear for everyone is our goal. But going forward, it's not going to be enough to bring us where we want to go in terms of relevance for the Mexican consumer. We are very ambitious in our food venience agenda. One of the things we achieved over the quarter, with very, still very minor price and offering adjustments, we increased our coffee cups sold per store on the quarter from 28 cups in the first quarter of 2025 to 30 cups on 2026. We still have a long way to go. We serve phenomenally good coffee for a convenient store chain. It's 100% Mexican coffee in Mexico, 100% Colombia in Colombia, and 100% Brazilian. It's a great product. We should promote it more. It's incredibly good coffee considering the price, and we still can go very aggressively on price. even that we have our own supply chain and have a capacity for withstanding margins there. Coffee should come with great breakfast options with what we call hero products that can help you for snacking, for lunch, but especially in breakfast we feel a huge opportunity and hopefully we're successful and the plan is is to be. You should see us growing in food and coffee over the next few quarters. And then I think we still see a huge opportunity in OXO. This is, you know, OXO only in Mexico in what we call daily replenishment. The traditional trade plays a very good game there with all the CPGs and we are I think we have a very good idea of what the consumer needs in terms of what is sold at Mom & Pop in everyday stores. This is not a competition against other formats like discounters. This is helping you on your daily replenishment, on what you need for what you forgot while you were going to work, those type of things. We are piloting a few things in Chihuahua and Veracruz in terms of bringing back affordability and highlighting the importance of how it's much more convenient to get your beer and on the way get your diapers or your toilet paper. We are seeing some encouraging progress, but still a long way to go. I think that's going to take us more time. But you know that traditional trade is still 50% of the basket, of the channel in Mexico. So we have a long, long share gain to achieve. And I think there's room for growth for us and other players like Parra to gain share there. Thank you.

Thank you. Thank you, Koso.

Our next question comes from Tiago Bortolucci with Goldman Sachs.

I think you may be on mute.

Sir, you can open your microphone. I believe he's having some technical issues. We're going to go ahead with our next question from Alejandro Fuchs with Itaú BPA.

Hello, Alejandro.

Hola, José Antonio, Martín, Juan, Jorge. Thank you for the space, the questions, and congratulations on the very strong start of the year. Just one question, maybe a little more strategically for José Antonio. We have seen in the past, you know, FEMSA simplifying its portfolio of businesses, right, with the FEMSA Forward Strategy. and being very efficient now with the location. So how do you feel, Jose, with maybe the portfolio of businesses that you have today, you know, thinking about the future? I felt a little bit, maybe more consciousness on the pharma side of the business again. So do you think that, do you feel comfortable today or we could see maybe going forward more of the simplification strategy that we have seen in the past?

Thank you. I'll I'll let Martin help me complement a little bit, but I would say, in general, we're always studying parts of the portfolio that would either perform better with someone else or should not be part. So, simplification is still always on our mind. We see most of our growth focused in organic growth. And frankly, Some of our operations in pharma have huge potential for organic growth, and that keeps us encouraged in those platforms. Unfortunately, it's not across all of our pharma businesses. Mexico is really underperforming, and we are analyzing all possibilities with that asset. Colombia has huge amounts of potential to grow. We continue and continue to gain very significant amounts of share on our Columbia retail. I'm taking out the institutional side that I mentioned on my initial remarks has some issues, but the Columbia private retail segment, the industry is growing and we are the fastest growers in that industry. So that really gives a lot of momentum. And so we should capture that as much of that weighting as possible. And Chile is gaining share in, We had a lackluster set of results, but in general, it still has lots of potential, Ecuador as well. So I would say on the big picture thinking, yes, we are always understanding where we are the best at, and we are the best, obviously, at proximity and convenience. That's where we shine. We are the best in Mexico, but we are also beginning to see that we can deliver growth and profitable growth In Latin America and even in Europe, we're encouraged by what we're able to turn around in our European businesses. But obviously, everything is always on our plates. And I dealt a lot of my time thinking five years, ten years from now, thinking in decades, how should the portfolio look and where should we go? So everything is on the table. I don't know much.

Very little to add. I would just remind everybody the history of FEMSA. From the brewery to FEMSA Forward, the mandate that we have as management from our board and from our shareholders is to value maximize. So any opportunities that we have to find assets in the portfolio where we can maximize value will always be considered thoughtfully. Number two, obviously, these are awkward conversations to have over forums like this because this impacts people, employees, suppliers. And so, you know, we have to be particularly cautious of what we say about what we're looking at or not looking at at any given moment. And I would add a third qualitative comment, which is, you know, once you own an asset, you then have to make a judgment about, you know, what is it worth to you relative to what other players might be out there that offer you in that That debate happens regularly here at the company. So I would just close with that.

Thank you.

Next question from Tiago Bertolucci with Goldman Sachs.

Hey, guys. Good morning, everyone. Can you hear me now? Yes. Hello, Tiago. Thank you very much for taking the question, and congrats. on the solid sequential improvement and turnaround of the business. I would like to explore the productivity and traffic theme in Mexico, but from another angle, that is how your new stores are performing, right? You are opening a run rate of 890 stores per year in Mexico. When we try to see, and this is the best simplification we can get, your numbers, you are growing area by 3%. but the sales contribution of this growth is close to 2%. So that might imply the productivity of these new stores is not trending in line or trending a bit lower than your same-store sales. I would just like to understand if this is right, what is the plan, and how comfortable it is to you to keep up with the growth pace, and how should we think about the incremental rates of these new cohorts? Thank you very much.

It's a very good thoughtful question. It looks like you've done your math. I think, first of all, we're still very impressed by the new cohorts of stores. As you know, a growing share of the mix is coming from what we all call also niche or also stores that are in special either factories, apartment buildings, or offices. Those stores tend to sell in average less than other stores. They usually have some FKU restrictions like alcohol, tobacco, et cetera. But then they tend to have a higher ROIC. So as that share of our offshore stores goes from 10% to almost 25% this year, that is impacting a little bit of that number. The other thing is that we are also looking not also on the the denominator, but also the denominator, and making sure we make smarter, focusing on improving our ROIC, reducing our cost of each new store. And so the return on invested capital of the new stores, even if they sometimes perform less or take more time to mature, are in a very good shape. Compared to last year, I think we should mention two important things. we made a pause in really making sure we are continuing to maximize ROICs, and that led to a slower start of the year compared to last year. That should normalize throughout the year in terms of total opening of stores. However, every three or four years, and I think we haven't really done a big pruning after the recovery of of COVID, and so in this year, we are being very smart about saying, hey, a few years have gone by. We've gone through COVID. How many stores of our underperforming stores we should consider, you know, canceling the contract or eliminating. And we think this year, while we're still going to open about 1,100 stores, the net opening of stores could be impacted by a few hundred stores. We're still finalizing that number. The Oxxo team is being very careful in seeing which stores should probably not exist. And so maybe the net new stores of this year will be impacted throughout the year. But I will have a better number as the year progresses.

Yeah, Teo, this is Juan. I think I'd like to follow up on what Jose just said because we started actually last quarter where we usually talk about the net number, but we are, and it happened last quarter, closing more non-performing stores. And the reality is that Those stores are in the base of the same store sales, and they're probably, even if they're not that great, they're probably selling more than some of the new ones or the newer ones, right? And so, the ones that we just opened in the last few months are probably selling less than those that we're closing. And that's happening more than it ever did before. And again, this is where the question came up in the last conversation. and that will probably continue as we continue to prune the store base.

But overall, we still see the opportunity for opening, you know, between 900 and 1,100 net new stores of OXO. This is not counting VARA, which is also accelerating in space, but also stores in Mexico for the next various years, a lot of years, hopefully.

This is very clear. Jose Juan, thank you very much. Obrigado.

Our next question comes from Hector Maya with Scotiabank.

Hola, Hector.

Hola, Jose Antonio, Martin, Juan. Congrats on the results. Could you please share with us how much of the ticket growth in Mexico in OXO was driven mostly by the pass-through of the new taxes on cigarettes and beverages versus organic pricing or mix from the implementation of the affordability strategy?

I'm going to do some math here just quickly, but we have been trending at inflation or a little bit above inflation generally in the tickets. And it wasn't like there was any structural thing that went on in the business. So if you just calculate the difference between the growth and the significant inflation, probably I would suggest that a significant portion of that was related to that. That would be my way to give you a quick and dirty answer because I haven't actually calculated. Common sense leads me to the conclusion rule.

Okay. I would say, if you add some color, we were quite impressed by the tobacco section, the very inelastic behavior of the consumer with the tax, not so much on the soft drinks. But I would say it was a big portion of it. I don't think it was above 80%, but it was a big portion.

And depending on what territory you spoke about, different soft trend brands decided to pass on more or less of the tax. Because, remember, they collect the tax and then they decide in the price they sell you what's the price at which they're going to increase it by. And so there is some variability between different parts of Mexico depending on the competitive dynamics amongst the players.

Perfect. Very clear. Thank you. Thank you very much.

Next question from Lucas Mussi with Morgan Stanley.

Hello, Lucas.

Hi, everyone. Thanks for taking my question. Congrats on results. I have one for Martin maybe about your current leverage excluding call force. Just wanted to hear a bit more how you're thinking about how that should progress through 2026 as we think about your capital allocation, your announced dividends and buyback activities. Just thinking about how you're thinking about cash flow for all 2026, how you think that should shape up as it pertains to your target two times net debt to EBITDA, excluding COF, by the end of the forward plan in the next 12 months or so. So just how you're thinking, how comfortable are you with your announced shareholder moderation, given what you saw in the first quarter and your early expectations of the second quarter, if you see some upside, potential upside, some gaps that could be filled in your target, or any general comment given you were already four months into the year. Thank you very much, everyone.

Yep. Yeah, I mean, all other things being equal, I would expect that given the return of capital position that we've taken, we will end up at the end of the year slightly below the two times. How much will ultimately depend on how well we do the remaining three quarters. And so that will leave the question early next year of deciding whether we make a judgment of either the doing another extraordinary dividend, for example. We also have capacity under our share buybacks, so we can figure that at any moment that we have in our judgment. We want to see an opportunity for buying shares. And number three, you know, which is the part that's hard to discuss in a public forum, We also have in our radar opportunities that we're constantly looking at from the M&A perspective. And there may be things that come up this year that will help us to close that gap. So without that M&A, I suspect we will be below, not hugely, but we will likely be below a few times and then expect to hear from us at the end of the year, beginning of next year, to give you thoughts on what our decision next year will be.

Thank you, my team. Take care, team.

Next question from Joseph with J.C. Morgan.

Hello, Joseph.

Hello. Good morning, everyone. Thanks for taking my question. I'd like to explore a little bit, like, the extension of bar in the north region of Mexico. So, just wanted to understand, like, how you see the performance, increasing private label, and how are you evolving the model? I think it's, like, a beautiful. Thank you.

We are very encouraged by what we are seeing on the expansion of bar in the north, although Bajio continues to prove, you know, with very favorable momentum. We are encouraged that we're seeing same-store sales growth on a both mix of traffic and ticket. We love to see more traffic driving the growth in sales. We are accelerating store expansion. We opened about, what, 45 stores in the first quarter. But we are planning to, on April, we're opening 30 stores. It's 38 stores in the first quarter, but we are opening 30 stores just in April. And so we plan on accelerating expansion, and we're still on target on that campaign promise I made of a store a day for VADA in 2026. Hopefully, my team will deliver that. We're going to be close to that number. We are seeing, considering that some of the stores in northern Mexico do not sell alcohol yet, the numbers remain quite impressive, and we're still fixing issues with supply chain, and still the welcoming has been very positive. But I'll stay there. I don't want to attract more attention towards our expansion here.

All right. Thank you very much.

Our next question comes from Henrique with Bradesco VBI.

Good morning. Thanks for taking my question. I would like to address the merchandise margins in the Americas. You mentioned, right, the 31.8% flat gross margin, but when I look at the comparable figures from the release, it looks like there was a five-point margin expansion year on year. So just to be clear, if there was anything in the comparison base, you know, that we should be aware of when thinking about this margin expansion. And on this topic, when you look at the 31, close to 32% gross margin, how is that compared to the target that you see for those operations outside of Mexico? in terms of the profitability you can achieve thinking about the expenses dilution that you have as you grow, or if gross margin expansion is still potentially an important driver for growth to accelerate and the bottom line growth as well. Thank you very much.

So the comparable items excludes Brazil, and Brazil still has a long way to go to match the gross margin that we're seeing in Chile, Peru, and Colombia. So I think that should explain most of it. I'm not sure, but I'm pretty sure it does. However, we are encouraged by what we're seeing in Brazil in terms of margin expansion ambition toward the rest of the year. And frankly, again, the momentum we're seeing in Colombia with double-digit traffic growth, with double-digit same-store sales growth, He was very encouraged that Colombia will be, eventually will dilute all of its overhead and will be a very profitable operation. It was already any time profitable that year. And hopefully it will be very close to any break-even this year. But it still has a longer way to go. It's still behind in gross margins. But every new cohort of stores were opening. is surprising us on the upside. They're maturing better, faster. Food is a larger component of our business in South America. In the store, consumption of beer is allowed in Brazil, and that is helping drive traffic. So, our plan is to, and then, By the way, we're also seeing some interesting expansion of some services, very different types of services, obviously, in Brazil and Colombia, but there's people doing lottery tickets, gift cards in Brazil. In Colombia, we're seeing a little bit of that and also some cash withdrawals. So I think road margins, while they're not going to – I don't think we'll ever match Mexico – could go way above the 35%. So that should keep us on the safe side on paying our cost of capital and continuing to invest in those two platforms, especially Colombia and Brazil.

Yeah, I think so much of your gross margin depends on your positioning with your suppliers, right? And your scale is a big part of that. So if we continue to grow, and we hope we will grow, then our conversations with our suppliers will evolve, and that gap will close vis-a-vis Mexico.

There's two ways to prove a scale in this business. You can be a very big guy – and then extract more value, or you can grow very fast. And we're still not growing very fast in Colombia and Brazil, and we're still not a very big guy in those two countries. When we begin to show faster growth, faster profitable growth, which is the plan for the next couple of years, you'll start seeing more suppliers realizing we are more serious in South America, we're more serious in Brazil, We're educating the consumer or CPG partners of how profitable is our channel for them. It's a great place for them to launch new products, to launch new campaigns. And so we plan to stay in Brazil and Colombia for decades, hopefully.

That's very helpful. Thank you very much. Obrigado.

Our next question comes from Antonio Hernandez with Actinger.

Hi. Good morning. Hola, Antonio. Hola. Hola. ¿Qué tal? Buenos dias. Congrats on your returns. Just a quick question regarding that very strong performance in OXXO Mexico. I mean, you already mentioned that the 140 basis points expansion is maybe not sustainable, but you do expect some expansion ahead. Just wanted to get a sense on a disclosure of how much of that expansion was driven either from financial services, income from key suppliers, retail media, and so on.

Thanks. I think generally commercial income is the biggest contributor to the deltas, and I think that was the case again this time around. I mean, we spoke a little bit about you know, new agreements that were signed recently with some of the big ones, everything kind of leading up towards the FIFA World Cup.

We put some big suppliers, some beer guys, or some big beer SKUs into the distribution centers, and that is driving distribution income. So I think it's a mix of everything. I think with Juan Kosh's remarks before, has to do that if we are planning to remain ambitious on our affordability. Some of our margin expansion should be given back to our consumers in SKUs that our consumer team are more elastic to them and really value. And so as we continue to grow some gross margin in certain categories, because there's a lot of room for expansion, There's also a lot of room to give back to some of our consumers to bring them more frequently to buy at our stores in terms of things like pantry or coffee, for example.

Thanks. That's helpful.

Thank you.

Next question from Renata Cabral with CIGI.

Hi, Renata. How are you?

Hello. Bom dia. Thanks so much for the space and congrats on the results. My question is about spin. Maybe for José Antonio, as last quarter you described spin as a phenomenal impact, but I know there's the opportunity to bring more customers into the store. And we find the release spin for a new tender now crossing the 50% in Q1 remarked milestone. And I would love to hear how you're actually putting the data, the transaction level to work across more than half of the sales or the opportunities you see there, where that personalizing, promotion, optimizing, assortment, or for strengthening commercial negotiation with suppliers, if you If you have an example, it would be amazing. And just a couple of questions. Where do you see the natural saving for Tinder? Is 7% to 8% achievable over time? Thank you so much.

Renata, it's a very, very good question. We are very impressed by the encouraging results that we're seeing on Spin. I want to remain cautious. But I do say in March alone, we added the highest number of active users in the past two years. And more than our 11 million active users, our weekly active users keep growing. I think we're almost reaching five million. Our monthly transactions are growing month over month, double digits. on a very impressive basis. They overcome by far our financial services in the store. We're using much more pay and peer-to-peer payments in the Spin app. So basically, Spin is gaining momentum and reducing costs. So it's becoming... more profitable, or if you account for the OXO commission that we get, it's already making money. So I think SPIN is proving to be a success. Now, as SPIN continues to grow dramatically and becomes one of the biggest peer-to-peer payment systems in Mexico, a lot of those payments will commoditize and will capture some margins from OXO. But if we are the fastest growing, can we capture a big momentum? We're basically meeting our consumers where they are. We're making them what is very convenient to do and also making it more convenient to do in the app. And I think once we have that relationship with them in Steam, we can add either more services for them within Steam, and that may require some financial regulation changes. Or we can also invite them to the store more with promotions, with gamification. And so I think as you see that, we think we continue to become a more relevant partner also to bring more people into the store, to remind them, hey, do you know your beer is now available? All these things. We are studying how can we begin other services with SPIN or financial services with SPIN. We're still playing around with how to do credit. But I want to be very cautious. It's a very different consumer than what the other credit card players are doing. So we will be cautious on that. But we see an opportunity for that, given all the information we're learning from them. And frankly, with this gamification and what we're seeing in SPIN Premia, I think we have... at least the responsibility of trying to get our tender well into the two-thirds of, and we've seen it in our pharmacy business in Chile, we're way above 90%. It's going to be tougher in convenience, but I think we should get above, hopefully get towards 66%. It's an ambitious goal, but it's not an unattainable goal. That's what I would say for SPIN, but very encouraging results for what we're seeing. It also obviously helps for retail media channel, and that should be a source of profitability for SPIN as well.

Thank you so much, José Antonio. Really appreciate the color and the detail. Muito obrigada and congrats on the results.

Un placer, Renata. Buenas tardes.

Thank you. This concludes the question and answer section. At this time, I would like to turn the floor back to Mr. Fonseca for any closing remarks.

Thanks, everyone. We appreciate the discipline with the one-question policy. Obviously, any follow-ups, you know where to find me and Pamela and Alex. And we're always available. So thank you. And as we are getting closer to the weekend, have a good rest of your week.

Thank you. This does conclude today's presentation. You may disconnect now and have a nice day.