Alsea S.A.B. de C.V

Good morning, everyone, and welcome to Alsea's first quarter 2025 earnings video conference. My name is Gerardo Lozoya, Head of Investor Relations and Corporate Affairs. And today, our Chief Executive Officer, Armando Torrado, our Chief Financial Officer, Federico Rodriguez, and our upcoming Chief Executive Officer, Christian Gurria, will be presenting the results. Before we continue, a friendly reminder that some of our comments today will contain forward-looking statements. based on our current view of our business and that future results may differ materially from these statements. Today's call should be considered in conjunction with disclaimers in our earnings release and our most recent Bolsa Mexicana de Valores report. The company is not obligated to update or revise any such forward-looking statements. Please note that unless specified otherwise, the earnings numbers referred to are based on pre-IFRS 16 standards. for his initial remarks. Please go ahead, Armando.

Thank you. Thank you, Gerardo, and good morning, everyone. Welcome to ASEA's first quarter 2025 earnings video conference. I would like to begin by thanking our team stakeholders for the continued commitments as we set our priorities for the year ahead. Before going into our quadrant information, I want to give a warm welcome to Christian Gurria, that is here with us. And this will be my last CEO call as a CEO of Alsea. Christian will be present and he will present his strategy priorities as the new CEO in the next earning call in July. Today, I will provide an overview of our quarter performance, covering our financial results, regional highlights, and key brand developments. I will also highlight our progress on our digital transformation, ESG initiatives, and expansion strategy. Before diving into the highlights previously announced, I am pleased to share that we signed a strategic agreement with Chipotle Mexican Grill to launch The Brown in Mexico. The first locations are expected to open in early 2026. This partnership strengths our portfolio with a high-potential concept and aligns with our long-term growth strategy. Chipotle offers a fast, casual dining experience centered on customized and fresh, high-quality ingredients, providing a different concept. To begin, let me give you some highlights from this choir. In the first quarter, we report a 12.8 year-over-year increase in total sales, reaching 20 billion pesos, or a 7% increase when excluding for-exchange effects. Same-store sales grew by 5.1%. EBITDA decreased by 9.1% in the first quarter, reaching 2.3 billion pesos, with a margin of 11.7%. This decline was primarily driven by negative calendar effect, the depreciation of the Mexican peso, and three-week labor disruptions in Chile and persist macroeconomic pressures. In the context and with a long-term perspective, we maintain cautious approaching to pricing environment on elevated input costs. As we remain focused on driving traffic while sustaining brand competitiveness and customer preference. We serve over almost 34 million digital orders in the quarter, amounting for 7.4 billion pesos, which accounted for 38.7 of our total sales. This performance confirms the continuous effective transactions of our digital strategy. Regarding our brand's performance in the quarter, Starbucks Alsea same-store sales increased by 4.7%. For Starbucks Mexico, same-store sales increased by 3.5%, mainly driven by a loyal customer base and solid in-store performance, despite a negative calendar effect and more cautious consumer backdrop. For Starbucks Europe, same-store sales declined 2.2% as we continue progressing toward traffic recovery following last year's boycott in France. There's early signs of improvement and emerging. This is supported by local initiatives and target commercial strategies, a main at rebuilding consumer engagement. And finally, in South America, same-store sales increased by 18.6%, and decreased by 6.7, excluding the effect of Argentina. In Domino's Pizza Alsea, we posted a 2.6 increase in same-store sales. In Mexico, Domino's Pizza same-store sales increased by 1.5%, supported by stable performance in the delivery channel. although growth was moderated compared to prior periods due to the softer trends in the telephone ordering channel. In Spain, same-store sales increased by 2.4%, reflecting effective promotion strategies and solid customer response to product innovation, including our continued successful campaign of Crosantissima. And in Colombia, Domino's delivered a strong result, achieving a 10.57% same-store sales growth, mainly driven by effective marketing campaigns, such as Dominos Mania, which contributed to higher volumes and strengthened our brand momentum. Burger King Salcea same-store sales grew in Argentina, decreased by 4.8%. In Mexico, we reported same-store sales contraction of 7.8%. This contraction was driven by a slowdown in delivery and in our premium offerings. However, However, we expect digital kiosks and more efficient promotions to support future growth. The full-service restaurant segment delivered a 3.4% growth in same-store sales. This segment continues to deliver resilient results, posting mid-single digital same-store sales growth consistently over the past three years. reflecting the strength of our value proposition and operational excellence across key brands. VIPS Mexico achieved a solid 2.8 year-over-year growth in same-store sales, fueled by strongest response to many offerings and consistent store execution. That reinforced the brand's value proposition. In Mexico, most of the full-service restaurant brands has a good performance with a mid-single-digit growth in same-store sales. And in Spain, Bibs and Genos reported a solid same-store sales growth of 3.5% and 2.2% respectively. Our global expansion strategy remains focused on capturing the most profitable opportunities across our key markets. In line with our guidance, we opened 34 new stores during the first quarter, including 27 corporate units and seven franchisees, especially targeting high-traffic areas. We expected openings to accelerate as the year progresses. As part of this strategy, we are expanding into flagship locations such as our upcoming Starbucks stores, the store in the Santiago Bernabéu shopping mall in Madrid, which underscopes our commitment to long-term brand position and strategic growth. Along our expansion in high potential regions, we are also remodeling existing locations to enhance customer experience and driving growth. Regarding our loyalty programs, our digital transformation continued to full growth. By the end of the quarter, loyalty sales grew by 21.6%, reaching 5.2 billion pesos, accounting for 25.3 million orders and contributing for a 27.4% of total sales. Additionally, by the end of the first quarter, Club Buy has surpassed 3.1 million members, which represent almost 7% of Spain population, while Starbucks rewards reach over 2.3 million active users across all ASEA region. Regarding ESG and people, this quarter we continue advancing in our ESG and digital transformation agenda. We are affirming our commitment to sustainable value creation through transparency, innovation, and social responsibility. As part of this effort, we are currently working in our 2024 integrated annual report set to publish later today. For the second time, this report will include a double materiality assessment, a binarial evaluation of how ESG factors impact in our financial performance, and how our operations impact that communities and environments where we operate. This approach allows us to identify the ESG priorities most valuable to our stakeholders and the long-term sustainability in our business. In line with this commitment, we invested over 13 million pesos in social programs, this quarter, and directly benefited more than 80,000 people that it demonstrates our ongoing dedication to that community while delivering meaningful social impact. Looking ahead, we will continue to align our ESG and digital priorities with our long-term strategy goals, ensuring a responsible and innovation path forward for Alsea and our stakeholders. I would like to hand it right now to Federico Rodriguez.

Thank you very much Armando and good morning everyone. Sales increased by 12.8% in the first quarter, driven by the preference for the company's brands and the effective commercial strategies in Mexico, Spain and Colombia. Excluding foreign exchange effects, sales increased 7%. We remain firmly committed to the 2025 guidance we provided earlier this year and we believe we are making good progress toward achieving it. Supported by the discipline execution, Despite being repetitive, both negative calendar effects, the Easter and the Leap Year, were included into our 2025 guidance. For the first quarter, sales in Mexico were up 5.9% to 10.7 billion pesos. In Europe, sales increased by 17.3% to 5.9 billion pesos, while in Euro terms, sales decreased by 5.3%. Finally, S.A.B. sales increased by 32% to 3.3 billion pesos. EBITDA decreased by 9.1% with a margin contraction of 280 basis points, reflecting a more complex macroeconomic backdrop and a negative calendar effect, including one less day in February and the shift of Easter from March to April. In Mexico, adjusted EBITDA represented 67% of total EBITDA and declined by 7.2%, primarily due to the depreciation of the Mexican peso and inflationary pressure on dollar-denominated inputs, both impacting gross margin by approximately 100 basis points each. Additionally, the 2.5% growth in same-store sales was not enough to continue to improve operating leverage. In Europe, the adjusted EBITDA accounted for 22% of the total EBITDA and grew 3.6% year-over-year, supported by positive sensor sales and stable performance across key markets. However, a negative calendar effect weighted on margins resulting in a year-over-year contraction when excluding its FX. In South America, adjusted EBITDA represented 11% of the total EBITDA and declined by 10.5% mainly due to the three-week labor disruption in Chile, negative calendar effect in all the region, and softer consumer trends across the region, despite the solid performance in Colombia. The net income for the first quarter decreased 23.9% year-over-year to P335 million. These results reflect a lower financial impact compared to the same period last year, mainly driven by the loss of treasury position in Argentina in 2024. Going to the CAPEX, the CAPEX for the first quarter totaled 1.1 billion pesos. 64% were allocated to store development initiatives, including the opening of 13 new units, the renovation and remodeling of existing locations, and equipment replacement across the brands. The remaining 36% was directed to strategic projects focused on technology upgrades, process improvements, and software licenses, reinforcing our long-term competitiveness and operational efficiency. At the end of the first quarter, our pre-IFRS 16 gross debt increased by 6.2 billion pesos year-over-year, reaching 34.3 billion pesos. This increase is related with the postponed payment of the remaining minority stake in our European operations that we acquired in the first quarter of 2024. The net debt, excluding the IFRS 16 effect, totaled 30.2 billion pesos, of 7.6 billion pesos compared to the same period last year. Including lease liabilities, consolidated net debt reached 48.6 billion pesos. At the end of the quarter, 86% of the debt was long-term, with 64% denominated in Mexican pesos and 36% in euro. We remain focused on maintaining a healthy capital structure supported by prevent financial management and a strong commitment to meeting all obligations. At the end of the quarter, our cash position stood at 4.1 billion pesos. Turning to financial ratio, the total debt to post-IFRS 16 EBITDA ratio closed the quarter at 3.1 times, while the net debt to EBITDA ratio stood at 2.9 times. As expected and mentioned in previous calls for this time of the year, there was a high use of cash during the first quarter, reflecting the typical seasonality of the business and the temporary use of working capital. We anticipate a gradual recovery in working capital over the second half of the year, as it is every year. I will now pass you over to the operator for the Q&A session. Thank you very much.

We will now start the Q&A session. If you have a question, please press the question button in the browser. Please make sure you are not in full screen mode to see the button. The first question is from Mr. Alejandro Fuchs from Itaú BBA. Please go ahead.

Hola Armando, Cristian, Federico, Gerardo. Thank you for the space for questions. First of all, thank you Armando for always being very close to the market and always providing very detailed and helpful insight and welcome Cristian. I have two quick questions if I may. My first one would be on the guidance you provided for 2025. I think that the macro reality today has shifted a little bit, right, in Mexico. So, profitability is coming somewhat softer, too. So, how should we think about, you know, confidence level of meeting the guidance for 2025? That would be the first one. And the second one, more strategical, about Chipotle, the announcement, right? Wanted to see if maybe you can provide a little bit more detail about how the MFA with Chipotle is, maybe royalties to pay, the time frame openings and so on, and how much of the market in Mexico you think how many stores is good for. So that will be the two ones. Thank you.

Regarding the guidance, Alejandro, we are still committed. In fact, I would say that the contraction of margin regarding EBITDA, it was considered into our guidance. As you remember, we have a top-line guidance with a low tease. We are there. and regarding EBITDA, a growth of a mid-single digit. Obviously, that represents a margin contraction. We had a negative effect regarding calendar in the first quarter, the lead year it was considered. Obviously, we will do the catch-up in the next three years and the Easter going from March to April. So, we are having that catch up in the sensor cell figures that we are having in April. In fact, we are having a high single digit regarding sensor cells. Really good figure. But the only part that it was not into the guidance was the disruption labor, the labor disruption in Chile, which accounts for around 60 million pesos. I am truly not worried. I think that we can accept this in the remaining part of the year. And S.A.B. de C.V

S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V that operational efficiency, the digital convenience that we have, and the brand promises, it will be great. As you know, this concept is already in Alshaya, that we have a big relation with Alshaya, and the numbers that we've been seeing in those markets are really incredible. So I think this also, this measure, this is a strategy of the pillars that we've set, and we found and we go with pillars that have really scaled S.A.B. S.A.B. S.A.B. S.A.B. S.A.B. S.A.B. S.A.B. S.A.B.

Thank you very much for your question. Our next question is from Diego Jarduin from Citi. Please go ahead.

Fantastic. Good morning, Armando, Christian, Federico, Gerardo. Thank you very much for taking my questions. I would like to first continue discussing Chipotle. This is a very interesting subject and I think we have a lot of ground here to cover. But if we look at the Chipotle business and what's coming in for Alsea, I was wondering if we would have any synergies with the other business Alsea operates, right? S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V

Gracias, Tiago. Thank you. I mean, of course, synergies. I mean, a lot of synergies. I mean, we've been talking with the Chipotle team since probably some years, some years. I would say years that we've been talking to them. But the last really year that we sat at the table, especially, of course, supply chain. In all supply chain, we almost sold out the... S.A.B. de C.V S.A.B. S.A.B. de C.V a well-DNA match with Operator that we like to talk with Operation. This, I think, is a fantastic, fantastic team all over in California that manage this great concept. Regarding April, I'm very thrilled to tell you that things are doing for us very well in April. I mean, in comparison with that, we are, I mean, in Domino's Pizza, we have double low single digits. S.A.B. de C.V S.A.B. de C.V in February, we already took some decisions for the next quarter, I mean, for this quarter. So I think our margin will be in that guidance, like Federico said. And, you know, this calendar in this business for the first quarter, it was really a big effect that we suffered. But by the guidance that was still there, April is very good going right now. So that's a little bit like the comment.

And regarding the split for the same stock sales in the month of April, we have only four weeks out of the 13 weeks of the second quarter. Let's be really cautious around this. S.A.B. de C.V S.A.B. de C.V Thank you very much for your question. Our next question is from

Mr. Bob Ford from Bank of America. Please go ahead.

Hey, good morning, everybody, and thanks for taking my question. Cedrico, would you mind outlining the larger contributors to your integral cost of financing lines outside the interest on debt? You know, there appears to be some derivatives or other contributors which are not entirely intuitive and difficult to forecast. And then, you know, my other question was...

Sorry, can you speak a little bit louder? Can you repeat the question regarding cost of financing? Sorry.

I apologize for the decode. It was whether or not, is if you could just outline the larger contributors to the integral cost of financing outside interest on debt. There appear to be some derivatives there that aren't entirely intuitive and difficult to forecast. And the other question I had was with respect to Burger King Mexico. And, you know, we're hearing that you may be considering a larger relationship. And I was just curious, you know, what terms would you need to reconsider an MFA relationship with RBI?

Regarding the cost of financing, sorry Bob, I still did not hear you. If you can repeat it.

Regarding MFA for Burger King, I don't know if you want to... No, I mean, we don't have right now any conversations regarding an MFA in Mexico. Estela Corporation was here with us in March, the CEO for RBI. And actually, I think we strengthened our... in a very good terms, but that doesn't mean that we are looking or they are looking to do an MFA deal here in Mexico. No, that's not in the table right now.

And regarding cost of financing, Bob, I'm sorry if I didn't understand. We only have the current trading regarding financing. The interest increase that we are figuring out in this quarter is because we took more debt to pay the... the postponed payment with the minority shareholders of 90 million euros. We paid 50 million euros in the last quarter of 2024 and 40 million euros in this third quarter. So we took that debt, and that's provoking the increase in the cost of financing. We can do a follow-up if you want later so we can understand the whole question. Sorry.

That would be very helpful. Thank you, Federico.

Thank you, Bob.

Thank you very much for your question. Our next question is from Mr. Álvaro García from BTG Pactual. Please go ahead.

No te vimos, Álvaro.

No.

Ahí está. Te cortamos el internet. Okay.

Can you hear me there? Okay, yes.

Yeah? There you go. A couple questions. First of all, the best, Armando, going forward. Welcome, Christian. First question, Chipotle. I was wondering if you could maybe break out, in terms of geographies, what you're thinking of, you know, what geographies make most sense in Mexico, within Mexico. And you mentioned pricing, how you're thinking about pricing. I know Fast Casual is nascent in Mexico, but how you're thinking about pricing in Mexico and the opportunity to, let's say, move lower there would be interesting. And my second question is for Christian on Starbucks in France. You guys are pretty clear about really not seeing a full-fledged recovery until 2026, but you've mentioned better results in April. I was wondering how much of what we've seen is under your control and how much is still an impact from the boycott and how you're feeling about that into the second half of 25. One last question for Federico. Sorry for all the questions on DNA, on depreciation and memorization. Last quarter, fourth quarter, we saw sort of this negative DNA in Europe. And I was wondering if you could maybe expand on that and if you can maybe help us, maybe full IFR 16 or not, how you're thinking about DNA into... Thank you. Thank you. Gracias, Alvaro.

Alvaro, regarding the region, of course, we already have some three or four parts of Mexico that we want to develop this brand. Consistently in the information that we have regarding how the brand is known in some regions. Of course, in the north part of the country, we are more aligned with Texas and other parts or probably California. S.A.B. de C.V in some parts of the north of the country regarding this type of QSR, fast casual food. There is more penetration. So with the information that Alcet has in the last 25 to 30 years, we are taking that decision with them regarding where is going to be the best place to settle down first and start this journey. I think regarding price, Chipotle offers a very solid value proposition. Like I said, with these high standards, we are already adjusting the model to local conditions. Really, how can we price without compromising any brand experience? and of course how we value that nutrition origin and speed and how we are doing. The numbers that we have now regarding the pricing are very competitive, very competitive to launch this brand. S.A.B. de C.V So that's a big competitive advantage also because if you've seen the whole three years that we've been here, the incremental of delivery for us in the digital platforms is amazing, among the category with aggregators is not growing. So we've been growing ahead, not also in Europe and Spain and South America, regarding the delivery. So we have a big potential over there, right?

Yeah, I'm complimenting Armando's answer regarding pricing, Alvaro. And related with Thiago's question, we'll take advantage of the shared service platform and the scale of Mexico to deliver the most competitive pricing. We are not really worried around that. And Cristian, do you want to answer?

Thank you, Federico. Good morning, Alvaro, and thank you for your question. Yes, as Armando shared a few minutes ago, We are seeing positive signs of recovery in France due to two effects. The first one is, of course, there is a lower comparable base to last year, 24. Nevertheless, in October 24, we launched a very specific plan based on four pillars around young people, coffee, partners, and environmental and social initiatives, which we are seeing already how this plan is paying back. it's true that also we have we expect a strong April, May until August for sure we have a smaller comparable base also due to the effect of the Olympic Games and a recovery of tourism in France versus previous years so we are optimistic on this side but also it's important to mention that this recovery is going to continue being steady but slow toward the end of the year. But we are optimistic that we are seeing these signs of recovery.

And finally, Alvaro, what is behind the increase in DNA in Europe? We have standardized the criteria in the last quarter of 2024 of all the leasing contracts across the different geographies to have a single one company-wide. We have different criteria. You have to understand that we have more than 5,000 different lease contracts, the IFRS 16 accounting rule. It was not pretty clear in 2018 when we implemented this accounting rule and we changed it. So this does not imply an increase in the rental expense. The rental expense pre-IFRS 16, the cash on cash is pretty much the same. We have obviously around 40% of variable rental contracts and the remaining 60% is totally fixed. this is an effect that we will have this year and you will see this quarter over quarter but by the end of the day the cash on cash is pretty much the same obviously we have inflation index contracts etc.

and variable to the revenue of each one of the stocks great thank you very much thank you very much for your question our next question is from S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V S.A.B.

No, we cannot hear you.

We cannot hear you.

Can you hear me now?

Yeah.

Oh, perfect. Okay. Sorry, I'm on for Ben at Barclays. So, copying on the last question, are you able to add some more color on the sequential performance in Starbucks in France and Benelux, maybe same sort of sales per month just to see the progression, if you guys are able to share that? And also a second question, how do you see the raw material impact on S.A.B. and potential tariff risks? Any color on that would be super helpful.

Well, regarding same-store sales for Starbucks in France, we are having a sequential improvement. Obviously, we have not reached the transaction that we had in October 2023 when the boycott started and obviously all the reputational damage S.A.B. de C.V launch, honestly, the situation should be equal in terms of transactions for mid-2026. That's the target that we are setting. We are delaying the pace of openings, but we are still opening instead of having 30 or 35 stores. That was the target one year ago. We are having 10 to 15 stores, corporate ones.

And regarding the price increase and whatever, we've been not having any impact related to this problem of the tariffs around the globe. I mean, the tariffs for us are not really doing any incremental. Of course, regarding the coffee prices, coffee is in high time highs. S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V

Yeah, Rafi, complimenting. It is important to mention that the strategy really to focus on preserving traffic, even while we had some FX problems during the first quarter, as Armando had just mentioned, the dollar is weaker right now. Remember that we had 20.8 pesos per dollar for the as an average for the year. Right now we are below 20. That is helping us with all the raw materials coming from the States, like the cheese and the coffee, to talking around the two more relevant issues.

Okay, awesome. Thank you so much.

Thank you.

Thank you very much for your question. Our next question is from Mr. Thiago Bertolucci from Goldman Sachs. Please go ahead.

Hey, gentlemen. Good morning, everyone. Thanks for the opportunity of asking questions. Always a pleasure to talk to you guys. Armando, in your previous answer, you alluded to coffee prices, right? Given all the remarks and this ongoing... of trying to protect traffic, right? I would just like to understand a bit better from you how those raw material prices could flow into profitability and what is your strategy to try to mitigate it going forward and achieve your four-year guidance. This is the first one. And then the second one, I think more strategically speaking, right, Since the pandemic, we saw Alsea being very tactical in simplifying the portfolio of stores, right? And still this year, we saw a few other operations. Now with Chipotle, is it fair to say that eventually Alsea is now back into growth and growth, I'm saying not store expansion, but S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V

in the coffee about 90%. We are not having a 90% increase in our SKUs, in our numbers. As you know, Starbucks is the provider for the coffee for us around the world. But regarding them, they have a very quite good model of buying coffee in advance. So they are very... S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V S.A.B. S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V really getting out of that and we have some rationalized portfolio and we already have some transactions or some communications with some other third parties to do so this part of there is two or three brands around the world that are top niche, and this is one. Chipotle is one. This is a long run that is very capable with our pillar strategy, and this, of course, is going to start in Mexico, but I'm sure that if we do the things right and we have a good momentum and the brand is successful, this brand can for sure run and go to another geographics that Alsea managed. and that it will be a great brand for our portfolio in the regions that we operate. So this is a long, long decision. I'm not a sure one regarding that portfolio, but we are still very commitment to our cleaning of portfolio and investing in brands that we don't have any potential to grow or are not the brands of today and they were the brands of 20 years ago, right?

We have heard of the investor community, Tiago, and you know we want to simplify and rationalize the portfolio. Having said this, Chipotle is a tier one brand. It is one of the top three brands regarding restaurants S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V And regarding cost of food, additionally to what Armando said, we have more than 80% of the U.S. dollar needs for all the commodities hedged by now. You know that we cannot hedge on the commodities, the coffee or the cheese, but we can hedge on the dollar needs. So by the end of the day, you will not see that efficiency into the evident margins. But for sure, we are not having using more or burning more cash because of the dollar impact.

That's great and makes sense. By the way, Armando, thank you very much. It was a pleasure to work together with you. Congrats on the mandate and best of luck going forward on your initiative. Thank you very much, gentlemen.

Thank you, Carol.

Thank you very much for your question. That was the last question. I will now hand over to Mr. Christian Gurria for final comments.

Good morning again, everyone, and thank you very much for joining this call today. Before we conclude, I would like to share with you that I am in the process of wrapping up my onboarding and in transition with Armando. So I will be prepared to share and happy to share with you in our calling July the vision and the priorities looking forward for ASEA. Thank you very much. And I'll just hand over to Armando. Thank you, Armando, again for this extraordinary journey. And thank you very much.

Okay, so thank you, thank you all of you, and this remarks my last turning report as a CEO, so thank you very much, Tiago, and all of you guys for always being, of course, open and here. You always want to have, like always, the doors open of this company, so thank you again for the quarterly review. I'm confident and believing that this is going to be a great journey, of course, leaving S.A.B. de C.V S.A.B. de C.V