Alsea S.A.B. de C.V

Good morning, everyone, and welcome to Alsea's second quarter 2025 earnings video conference. My name is Gerardo Lozoya, head of investor relations and corporate affairs. Today, you will hear from our newly appointed chief executive officer, Cristian Gurria, and Federico Rodriguez, our chief financial officer. I'd like to take a moment to warmly welcome Cristian to his first earnings call as CEO. With over two decades of experience at Alsea, he brings deep operational knowledge and strategic insight into this new leadership role. 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, released in our most recent Bolsa Mexicana de Valores report. The company is not obliged 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. I will now hand it over to Christian for his initial remarks.

Thank you, Gerardo, and thank you all for joining us today. This is my first earning call as CEO of Alcer. I am honored and excited to step into this role. After more than 25 years with the company, a journey that began as a manager in a Domino's Pizza store in Cuernavaca, in Mexico, over the years, I've worked with exceptional teams across multiple brands and regions, gaining a deep understanding of our operations, culture, and long-term potential. I want to sincerely thank Armando and the entire Alsea team for their trust and support in ensuring a smooth and successful leadership transition for the past five months. It's an honor to build on the solid foundation they have set. I take on this new responsibility with a clear and strong commitment to continue building on Alsea's core strengths, operational discipline, a customer-centric approach, and a long-term strategic vision. We remain focused on improving efficiency by making the organization more agile, driving disciplined organic growth in our highest value brands, reinforcing our core business, and pursuing sustainable growth opportunities through the innovation and strong execution. All of this is supported by the best talent in the industry. Before we turn to the quarterly results, I want to outline the strategic priorities that will guide our focus going forward. First, discipline organic growth and bar portfolio optimization. We will prioritize expansion and innovation in brands with the strongest market position. We will strengthen our customer engagement through digital, loyalty, and delivery channels. Prioritize scalable and high ROI brands and rationalize non-core assets. Second, discipline capital allocation. Invest in growth and productivity initiatives with clear return thresholds. Maintain strong free cash flow generation and a healthy balance sheet. Third, build a high-performance organization. attract, retain, and continue developing high-impact operational teams and top talent across all markets. Promote agility and accountability throughout the organization. Fourth, enhance profitability. Drive cost discipline, enhance procurement efficiencies, and optimize labor resources. And fifth, advance ESG commitments. leading sustainability and governance leadership, integrate ESG into daily operations and strategic decisions. Now, I'll provide an overview of our quarterly performance, including our financial results and key brand developments, along with updates on our digital transformation, ESG initiatives and expansion strategy. In the second quarter, we reported a 4.2% year-over-year increase in total sales, reaching 20.4 billion pesos, or an 8.9% increase when including foreign exchange effects. Same store sales grew by 4.9%. This quarter reflects the calendar impact of Easter. EBITDA increased by 10.5% in the second quarter, reaching 3 billion pesos, with a margin of 14.2%. The margin contracted at 40 basis points year over year. We served nearly 35.3 million digital orders in the quarter, totaling 7.7 billion pesos, which represents 38.6% of our total sales. This performance demonstrates the ongoing success of our digital strategy. Regarding brand performance in the second quarter, Starbucks Arcea, same-store sales increased by 4.4%. For Starbucks Mexico, same-store sales rose 3.8%, mainly driven by a loyal customer base and solid in-store performance. For Starbucks Europe, same-store sales increased by 2.5%, reflecting a gradual recovery in France and a sequential improvement in Spain, driven by effective commercial strikes. Finally, in South America, same-store sales increased by 9.7% and declined 6% excluding Argentina. This is mainly driven by lower traffic in Chile. Domino's Pizza Alsea posted a 6% increase in same-store sales. In Mexico, Domino's Pizza same-store sales increased 8.9%, driven by strong performance in the delivery channel. In Spain, same-store sales increased by 1.9%, reflecting effective promotional efforts and a positive customer response to product innovation. In Colombia, Domino's delivered strong results. Same-store sales increased 10.8%, supported by successful marketing initiatives such as Domino's Mania, that boosted volumes and reinforced brand momentum. Burger King and Alsea same-store sales, excluding Argentina, decreased by 6.1%. In Mexico, Burger King reported a same-store sales contraction of 6.8%. This was driven by continued underperformance in delivery in our premium offerings. The full-service restaurant segment delivered 5.9% same-store sales growth. This segment has performed well, with same-store sales growing at the mid-single-digit rate over the past three years. This consistent growth highlights the effectiveness of our value proposition and consistent execution across our core brands. Same-store sales for full-service restaurants in Mexico increased by 6.1%, with most brands growing at mid-single-digit space, while Chili's and Italian's achieved a high single-digit growth. This performance was driven by the strength of our value proposition, product innovation, successful product launches, and a favorable calendar effect. Same-store sales for full-service restaurants in Spain grew 5.9%, with VIPs and Gino's delivering solid growth of 4.3% and 7.3% respectively. Our global organic expansion strategy remains focused on prioritizing quality over quantity, targeting the most profitable opportunities across our key markets, across our key markets. In the second quarter, we opened 32 new stores, 24 corporate and eight franchises, with an emphasis on high traffic and high potential locations. We expect the pace of openings to pick up in the second half of the year. This approach reflects our commitment to long-term brand positioning and discipline, a strategic growth to traffic flagship developments and selective market expansion. Given the profitability and payback of remodeling, such as increased customer satisfaction and higher sales, we will continue prioritizing a refreshed and modernized look across our locations. Our digital transformation continues to drive growth. By the end of the quarter, loyalty sales increased 4.7%. reaching 5.4 billion pesos, representing 25.6 million orders and contributing 26.8% of total sales. We also surpassed 8 million active users across our loyalty programs, confirming the strength of our digital engagement. This quarter, we continue to strengthen our sustainability model by aligning our purpose with every aspect of our operations. As part of this effort, we updated our double materiality assessment, which was published in our 2024 annual report. This analysis allows us to recalibrate our impact goals and move forward with greater precision toward a business model that fully integrates sustainability across all levels of our organization. Every step we take reflects our long-term commitment to responsible, purpose-driven growth. Thank you. I will now hand it over to Federico.

Thank you, Christian. Good morning, everyone. Sales increased by 14.2% in the second quarter, supported by strong performance in Mexico, Spain, and Colombia. Excluding the FX, sales increased 8.9%. We remain on course to meet our 2025 guidance and are seeing solid progress driven by discipline execution across regions. In the second quarter, sales in Mexico were up 9.1% to 11.6 billion pesos. In Europe, sales increased by 25.4% to 6.4 billion pesos, while in Europe sales increased by 5.2%. Finally, South America sales grew 12.8% to 3.2 billion pesos. The EBITDA increased by 10.5% with a margin contraction of 40 basis points, mainly due to the depreciation of the Mexican peso and increased labor costs in Europe and South America. These impacts were partially offset by the favorable Easter calendar effect, the recovery of brands across most regions, disciplined revenue management, and improved SG&A efficiency. In this context, we choose to be careful with pricing to protect traffic and sustain brand competitiveness. In Mexico, the adjusted EBITDA increased 4.6%, supported by strong operating discipline and continued SG&A efficiencies, partially offset by FX-driven input cost pressures. In Europe, the adjusted EBITDA increased by 26.4% year-over-year, primarily due to positive same-store sales and improved traffic trends. In South America, adjusted EBITDA decreased by 11.4%, reflecting a lower consumption environment in the region, except for Colombia. Lower traffic, particularly in Argentina and Chile, weighted on operating leverage and contributed to the decline. The net income for the second quarter increased 552.7% year-over-year. reaching 868 million pesos, reflecting positive non-cash effects, which reduce the cost of our U.S. denominated debt in Mexican pesos terms. Regarding the CAPEX, the CAPEX for the first six months of the year, total 2.5 billion pesos. Of this total, 70% was allocated to store development initiatives, including the opening of 24 new corporate units, the renovation and remodeling of existing locations, and equipment replacement across the brands. The remaining 30% was directed at the strategic projects focused on technological upgrades, process improvements, software licenses, and the construction of the new facility in Jalisco, all of the above reinforcing the long-term competitiveness and operational efficiency. At the end of the second quarter, the pre-IFRS 16 gross debt increased by 5.5 billion pesos year-over-year. reaching 34.8 billion pesos. This increase reflects the bank loans used to settle the minority stake in the European operations, the impact of the Mexican peso depreciation on the foreign currency denominated debt, as well as short-term debt for working capital needs. The company's net debt, not counting the impact of was 29.9 billion pesos, which is 4.3 billion pesos more than it was at the same time last year. Consolidated net debt reached 47.9 billion pesos, including lease liabilities. At the end of the quarter, 76% of the debt was long-term, with 65% denominated in Mexican pesos and 35% in euros. will remain focused on maintaining a healthy capital structure supported by prudent financial management and a strong commitment to meeting all obligations. At the end of the quarter, the cash position stood at 4.8 billion pesos. Turning to the financial ratios, the total debt to post-IFRS 16 EBITDA ratio closed the quarter at three times, while the net debt to EBITDA ratio stood at 2.7 times. As expected for the time of the year for the first half, cash usage was elevated during the first six months, reflecting the typical seasonality of the business and the temporary draw on working capital. We anticipate a gradual recovery like we had on the last year, as sales volumes normalize and working capital efficiency improves. I will now pass you over to the operator for the Q&A session.

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. Ben Theroux from Barclays. Please go ahead.

We cannot hear you, Ben. Not the emails, Ben.

Better? Yep. Yes.

S.A.B. de C.V

S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V

Thank you, man. Thank you for the question.

Oh, well, as you know, beyond the 25 years, I... We stopped hearing you, but we understood the first question, the priorities for Christian, and we couldn't hear the second question. But, Christian, if you want to answer...

Thank you, Ben. And well, as you know, beyond the 25 years I've been part of the Alsea family, I spent the last five months in a deeper onboarding across all the business. And aligned with the priorities I shared at the beginning of my intervention, For me, it's same store sales growth to traffic is one of the number one priorities. And this is the what, but the how is through the development and intentional focus on elevating the talent of our operators in our stores. and the operational base that supports our brands and our business. Talking about store managers mainly, our store managers manage businesses around $800K per year. And we know that by unlocking their potential, we will for sure unlock the growth at our source levels. And this will also intentionally elevate our district managers and regional directors of operations through the system. That is one part of the answer. And the other one is through remodelings. We know we are preparing a ratio of two to one, one start opening two remodelings, because we know this not only enhances the experience of our customers and brings additional traffic at the stores, but it also has a really good ROI and a very good payback. So those are part of the key strategies and focuses that we will be working on as we move forward.

Okay, perfect. And then I hope you can hear me. Just one second real quick. As you look into the performance in Mexico, we've had a lot of other companies that called out Edwards Weber as a very negative effect, but it feels like you were a little more isolated. Maybe any comment you can share as to why the performance actually was fairly decent in terms of traffic data, same-store sales within the operations in Mexico?

Yeah, well, Mene, as we told in the first quarter, we have a positive calendar effect, not only in Mexico, but in the rest of the regions too. And obviously that helps because Easter passed from March to April. But additionally, we have seen the resiliency and the positive trends that we have seen in a lot of brands. Obviously, we are still suffering in Burger King. In Burger King, we have the negative side of the story, but Starbucks is performing slightly better than in the first quarter with respect to the same-store sales. We have a mid-single digit in there. Domino's Pizza had a super strong recovery, now performing in the high single digit, and a significant part of this with the transactions. and the strength of the full-service restaurants in Mexico, but in Europe too. It is really significant, the trend that we have in that pillar for Alsea. We have from mid-single-digit same-store sales to high single-digit, depending on the brand, and we are happy because of the innovation, the consistency in the message. So I think we have a clear path. Obviously, in the third quarter, we have only three weeks of the month of July. We still have two months in the front, but we are seeing the same trend that we had in the second quarter.

Okay, perfect. Thank you very much. And if I may compliment Federico, also we were able to understand better what was the consumer needing, and with some value-driven campaigns, we were able to activate traffic, and we have some examples of what we have done in VIPS in Spain with some of the higher... Thank you very much.

Thank you very much for your question. Our next question is from Alejandro Fuchs from Itaú BBA. Please go ahead.

Thank you, operator. Hola, Cristian, Federico, Gerardo. Congratulations on the results and Christian on the new role. My first question is for Christian, also a little more strategic, similar to Ben, and then I have a follow-up. Christian, you've been at the company, obviously, more than two decades, right? You have seen many cycles going, not only in Mexico, the sector, but also the company. So I wanted to maybe pick your brain a little bit on where do you see Alsea in the next 10 years? You already shared with us some of the key strategies that you're going to be focusing on, which is very appreciated. But if you could take us 10 years from now, where would you see the company, what would be, let's say, the goal for you over that period? That would be the first question. Thank you.

Thank you, Alejandro. From my view and my perspective, I believe it's an evolution and continuation of the current strategy we have in Alcea. First of all, by a very disciplined organic growth, prioritizing quality over quantity. S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V to summarize is a very strong and solid portfolio of brands driven by the best talent and delivering the best cash conversions and returns in the industry with a very solid and disciplined plan for the next years.

Thank you. That was very clear. And just one very quick follow-up, if I may. I want to touch upon maybe the part of the business that is going through a little bit of a slowdown, right? I think Mexico and Europe, you know, very good and very impressive performance. But maybe we can discuss a little bit of South America with excluding Argentina, negative semester sales in some of the brands. Maybe can you elaborate a little bit more on what's going on in Chile, in some of the other countries, Colombia, that you're seeing? and maybe what you expect for the second half. Thank you.

Well, you heard what happened in Mexico regarding Europe. We increased in a mid-single digit the same store sale with a significant recovery in Spain given the positive calendar effect, a better performance of Starbucks across the region, not only in Spain but in France too. We're improving sequentially the same store sales and the same for Portugal. S.A.B. de C.V S.A.B. de C.V and that is bringing, again, more traffic and traffic for the stores. We have improved the remodelings and we are having a double-digit increase in the sensor sales where we have performed a change in the look and feel of the unit. And regarding Domino's, you can remember that last year we launched the Croissantissima though pizza that activate the brand and we're seeing an increase in the same store sales trend especially in the delivery part so we are quite happy regarding what is happening not only in Europe but in LATAM too and unfortunately the negative side of the story in South America Argentina Argentina has sequentially recovered apart but obviously the inflation It is still showing traffic pressure as the cost of living has been increasing, creating challenges for the consumption and the economy overall. And Colombia, as mentioned before, obviously we're improving. We have seen a positive trend in the Domino's Pizza business during the last 12 months, so we are quite happy with the part of Colombia, but obviously Argentina and Chile are still suffering.

Thank you very much for your question.

Our next question is from Mr. Thiago Jarduin from Citi. Please go ahead.

Hello. Hello. Good morning. Good morning. Christian Federico Gerardo. Thank you for taking my questions. I would like to explore two points here. The first one So you were mentioning a little bit about the Domino's performance in Mexico. Fantastic performance, by the way. Congrats. And just wondering if we could maybe discuss a little bit about the competitive market here. So how you're seeing competition, how that played out in this quarter. In the previous 1Q, we saw the brand, if I'm not mistaken, posting seamstress seals at one and a half. this quarter 8.9 so just wondering if this gap it should continue going forward because it's a fantastic rival and yeah I have a second question I think I'll just make it right now just if we can maybe discuss a little bit the full service restaurants also having fantastic performance both Mexico and Spain just wondering what you're seeing on specific brands what are the top performance performance and maybe opportunities you're seeing here thank you

Do you want to start? Yes. Thank you, Tiago. Well, to your first question in terms of Domino's Pizza and the performance of the brand, as we mentioned before, we are working in an approach around the revenue management and product innovation. and this has clearly been recognized by the customer and in the beginning of the year we were more following other type of initiatives and by this shift S.A.B. de C.V Clearly, this is showing how the customer is positively responding. And this is, as mentioned before by Federico, initiatives like we had, particularly in Spain with and a solid portfolio of offers in Mexico for takeaway and also in delivery. This has clearly driven the additional traffic and shifted the trend that we had at the beginning of the year. S.A.B. de C.V Part of the answer is consistency. We have been driven consistency across the last years and taking the necessary decisions internally to the brands that we were having some gaps to catch up. and there are several examples of like in Spain with Foster's Hollywood and the introduction of chicken in our portfolio was originally a very beef driven hamburger driven brand and now chicken has become with this Nashville chicken campaign we have seen clearly the customer responding in a very favorable way and in the case of Mexico the possibility to have S.A.B. de C.V like Many of the Day in Dips and Paradiso Italiano in Italianis, which clearly the customer has recognized and continues driving traffic and a solid, consistent performance, also by having strong operators in these brands and making sure that stability on our managers and having the best talent has also been paying off.

And to complimenting Chris Santiago, all of the brands of the full-service restaurants portfolio are performing from a mid to a high single digit sensor sales trend. So we are quite happy from P.F. Chang's, the Cheesecake Factory. So we never talk a lot from this part of the business, from this segment, but we are quite happy. Last week, we opened one unit of the Cheesecake Factory in Puebla and it has been amazing the response of the people 6 000 people per week obviously that drives a lot of increasing the into the penetration of the brand so we have a lot of white space and that's for talking from for for the cheesecake factory but beeps beeps in Spain this year will open from 15 to 20 units obviously the specifications from to open one of these units is totally different from a domino's pizza or a starbucks coffee store So we are quite happy and I think we are in the right path, especially with consistency. We do not want to increase prices. We want to preserve the traffic that we have mentioned from last quarter of 2024 as of today.

This is fantastic. Very clear. Thank you very much and congrats on the results. Thank you, Tiago. Thank you.

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

Good morning, gentlemen. Thank you very much for the presentation. So it's a pleasure to talk to you, Christian. Congrats on the new role. Best of luck. It's a good way to start with a very solid quarter. Congrats on the results. I would just like to explore a little bit more the discussion we had here today on coffee prices, right? If I recall correctly, when we were in the first quarter conference call, you were mentioning that, you know, you were just sitting with Starbucks to negotiate coffee prices for the year, and we might start to see some of this pressure or, you know, some of this impact flowing to the P&L from the second quarter. 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 S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V S.A.B. and then the second point maybe it's more for Federico I know you reiterated the guidance, and particularly on the top line, FX is playing a positive role so far. But then, Federico, when I look to your pre-IFRS EBITDA, particularly, right, it's virtually flat-ish on the year-to-date comparison, right, up by a low single digit. And obviously, I know when we have been extensively discussing this, and thank you very much, Jerry, for the patience on going through this, S.A.B. de C.V S.A.B. de C.V

Okay. Regarding the second question, Thiago, regarding the guidance, obviously right now we have tailwinds because of the average effects that we use to build the guidance, as you can remember. We use 20.8 pesos per dollar. Around 30% of the total food basket is dollar index. And right now we are below 19 pesos. There's a lot of volatility. I don't know how long it's going to last, this part of the equation. but as mentioned in the last quarter with all the negative results and the contraction of around 300 basis points from a pre-IFRS 16 view, we are quite positive that we will achieve the guidance. I think we have done all the job and a lot of reports from the different people covering the share are telling about the SG&A. I will say that obviously As mentioned, we are not putting the 100% of the inflation, the internal inflation increase to the ticket. We want to have positive trends because of the traffic. But additionally, we have a lot of levers from our rent expense part, obviously all the cost of the structure inside Alsea, the ways to do different scheduling into the stores. We have three main levers into the P&L. The revenue, S.A.B. de C.V But I will tell you that, obviously, we manage the business from a pre-IFRS 16 part. We never see the post-IFRS 16. And we are quite positive regarding achieving the guidance, as we mentioned. Right now, we are having a low single digit in terms of EBITDA. But as you can remember, we have a lot of seasonality in this business. We have a relevant part of the revenue going from the beginning of January to the end of, sorry, the beginning of November to the end of January. So I am quite positive. Obviously, we are putting all the campaigns in form to be relevant this part, but with the trend that we see in the same-store sales, I'm quite positive that we will achieve the guidance. Sorry for the extension on the answer. Cristian?

Thank you, Federico. And Tiago, in the case of coffee, as you know, this commodity has been, we are seeing increments out there in the market of almost 100%. Fortunately, due to the, we are taking the leverage that we had with Starbucks and the high, high volumes of coffee they purchase, we have not felt this level of, or this percentage of increment. We had felt some of it, but the way First of all, by leveraging this, we are able to accept some of these high increments on this particular commodity. We are expecting for the second half of the year, particularly the fourth quarter, an improvement on this particular coffee prices. But nevertheless, what we can control is where we focus and put our energy. trying to avoid to pass this to the customer by working on our cost of food control, enhancing and putting focus on making sure that the controls we have at the store level are in place and are being strictly followed by a very S.A.B. de C.V. S.A.B. de C.V. All these combined allow us to offset these types of things. And as you know, sometimes it's coffee that goes up. Sometimes other goods go down. So it's an always-on game. And I believe that we know how to manage that without passing the cost directly to the customers.

S.A.B. de C.V S.A.B. de C.V But we did not count with the positive effects. Right now we are seeing some decreases in some of the main SKUs that we use into the food basket of Alsea. Only to give you one figure, we have more than 4,000 SKUs into the total composition of the portfolio. Obviously coffee, cheese, syrups are relevant because all the pizzas has cheese has cheese but I would say that we have a lot of levers and for example we have an increase into the beef right now where we recently launched the Nashville chicken into the posters Hollywood so we can change the mix and that's part of the revenue management of this business maybe we will not talk around the changes on the revenue management the mix that we use but All the value campaigns, the promotions are thinking from a growth margin protection. So we have the less impact into the total mix of the EBITDA figure. Sorry.

No, this is great. Thank you very much. And if I may, just a very quick follow-up here. This is in some sort of sales, right? 4.5% in the quarter, very nice print. As you recalled in the opening remarks, clearly benefited by a positive calendar, which hurt you in the beginning of the year, right? If I assume more or less 100 basis points, then your underlying some sort of sales would be close to inflation in the quarter, right? What makes you think that we should see, you know, real sensor sales growth in Mexico by the back end of the year?

Well, as you know, we do not split or we do not deliver the split among transactions and tickets. So I would say that we are not obsessed to have a positive figure or real figure because it is not the only ticket. And I would say that less than 50% of this figure is coming from ticket ads. S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V S.A.B. both for the future. I know that the rest of the players, the main competitors in terms of coffee or pizza, are doing a pass-through of the 100% of the increases in coffee and cheese. We do not want to move to that position because we can save this year, but we are going to suffer in the long term.

That's great. Thank you very much again, guys, and congrats on the numbers.

Thank you.

Thank you very much for your question. Our next question is from Mr. Antonio Hernandez from Actinver. Please go ahead.

Hi, good morning. Thanks for taking my question on your resource and Christian, welcome to this new position. Just a quick one regarding your CAPEX plans for the future. I mean, beyond 2025 in light of I mean, considering digitalization, remodeling, just as you mentioned, innovation as well. What are your plans going forward or what do you see them maybe as a percentage of sales, maybe as a total amount and maybe a potential breakdown as well? Thanks.

Well, Antonio, as you know, the guidance for CAPEX in 2025 is around 6 billion pesos. One-third of that figure is coming from openings. Another one-third is coming from maintenance, when you change the AC or when you paint the wall, etc., etc., etc. S.A.B. de C.V S.A.B. de C.V but we are on the range to open around 200 new stores year over year to fulfill the more than 2,000 white space that we have delivered in the last S.A.B. days for the different brands. And the breakdown will be pretty much the same. One-third openings plus remodelings plus the maintenance, another one-third. That would be the idea.

Yes, for sure. And to complement Federico's answer and a little bit following up on the breakdown, in the case of openings, we will clearly prioritize quality over quantity and the right brands and the right geographies. In terms of technology and the projects of technology, we will also focus on what can add technology for the customer and technology for our members, our team members. How to make their life easier, how to allow them to focus on the customer and on the business and try to simplify and reduce any tasks. S.A.B. de C.V S.A.B. de C.V We have clearly seen a very positive ROI and positive payback on remodelings. Clearly on the FSR segment, we see a stronger response from our customers due to the nature of the business when we remodel the store. So we are going to continue through this path. And as I mentioned before, a rate of two to one S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V

Antonio, sorry. I'm so sorry, Antonio. Antonio. Thanks for the call, and just a quick follow-up. You also mentioned in terms of digitalization and how you're working on these different tech initiatives to reduce maybe staffing in certain hours and so on. How advanced are you in these type of programs, maybe from a format or unit perspective? Thanks.

There are certain geographies where we have fully implemented these tools, like in the case of Europe. In Mexico, we are more advanced in some brands than others, but this is work in progress. And likewise in South America. Obviously, productivity has become more and more relevant in the past year. 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. Froilan Mendez from J.P. Morgan. Please go ahead.

I think we cannot hear you. No, no.

No.

Can you hear me now?

Yes.

Sorry about that. Thank you for taking my question. Congrats on the appointment and your first earnings call. Two questions, one more of a follow-up to Tony's question. This two-to-one ratio on remodeling versus opening, how does this compare to the past? Is this... S.A.B. de C.V S.A.B. de C.V Is this only Burger King and some of the full service offerings in South America? Or how much, let's say, fat do you see in the portfolio that needs to be optimized? And what is the timing to reach the ideal setup? Thank you so much.

If you want to answer the second question.

Well, good morning. As we have mentioned before, obviously, we cannot disclose what are we thinking regarding the whole portfolio. We have a lot of collaborators and we have to improve the operations and to maximize the evidence of these businesses. But we are actively looking for new brands, portfolio optimization regarding brands and stores. And obviously, we want to unlock all the value for the investor, for the shareholders. And we are obviously looking to sell some of the brands because we are focusing in three main strategies, the quick service, the full service restaurants, and the coffee shop. But if we have something, we'll tell you in the next months regarding the first one.

And regarding the first question about the ratio for land, in the past, we were prioritizing, in a way, new store openings. And right now, we are going to, as I mentioned before, prioritize in the terms of the organic growth, quality over quantity, the right brands in the right geographies, and with the best cash conversions. And likewise, in the case of remodelings, It's the same approach, understanding that the ratio and the number of, if we know we open an average of 200 stores, this means an average of 400 remodelings per year, which is a higher number than we used to have in the past.

Yeah, that is not changing the needle for the CapEx. Obviously, in the last couple of years, maybe we're having a lower ratio, but it is not changing. Obviously, when we remodel a store, it is not like you are building a new store. So maybe you are spending around 15% to 20% depending on the brand of the store. S.A.B. de C.V

Our next question is from Mr. Ulises Argote from Santander. Please go ahead.

Hi, guys. Thanks for the space for questions here, and I echo my colleagues in wishing you all the best in your new role, Christian. Just maybe taking advantage of you seeing the business here with a fresh set of eyes, I wanted to pick your brain further on Burger King and maybe kind of following their own last question. Also, obviously, the format continues to be challenging in Mexico in particular, but you also mentioned Chile with some very challenging trends there. Any plans that you can share, maybe if there's drivers for a turnaround, or should we S.A.B. de C.V

being able to shift the direction as we saw the trends at the beginning of the year. And we will continue following up the current strategy with the different examples that we have shared in terms of the FSR or Starbucks or Domino's Pizza. to continue delivering this performance. As we said before, we are seeing a very similar trend in Q3 to the one we saw during Q2. So we are confident that this is working. And also, as mentioned before, that we're Our last quarter starting the last late October and the end of the year is where we have the stronger campaigns and now we have had the time to do the work to have and prepare stronger campaigns. S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V drive and reactivate the traffic and focusing again on what we can learn and understand and listen to the customer. But we see a more flat trend as we move forward. And in the case of Chile, we had this effect from the from the strike, particularly in Starbucks. We have seen a slower recovery than what we expected, but the recovery is there, but it's lower. So we expect to continue following this trend with a slight recovery and with a positive trend as we go through the year.

Perfect. Thank you very much, guys. Gracias.

Thank you very much for your question. Our next question is from Mr. Alvaro Garcia from BTG Patchhole. Please go ahead.

Hi, can you hear me?

Yes.

S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V finding this floor on new openings in Starbucks in France. And then for Fede on SG&A in Mexico, we were a bit surprised with, yeah, how low SG&A was this quarter, both on sort of non-operational expenses and operational expenses. If you could maybe comment and give some more detail on how that happened, that would be very helpful. Thank you.

Thank you, Alvaro. In the case of France and Starbucks, we continue seeing positive trends in terms of traffic recovery. which has been slower than we expected. Nevertheless, we continue seeing a positive trend on traffic. We also expect that the summer is going to be stronger when we compare to previous year with the negative impact of the Olympic Games. So we know there will be additional traffic and we know there will be better performance in terms of same store sales. We launched a very specific plan, three-year plan, to drive and to change this, to shift this trend, and we are already seeing how this is paying off with the figures we're seeing. In the case of store growth, as you ask, again, we are going to continue prioritizing quality over quantity. and continue growing through our franchises and through compagnon stores. As you know, in France, it's the only market where we have a franchisee model in Starbucks, and we are working with our franchises to continue driving this growth and at the same time continue gaining market share in the market, but with a very, I would say, boutique approach in the market.

And for the second question, Alvaro, as I mentioned, more than 18 months ago, I knew that there was a little bit of gravy into the bottom part of the P&L. Obviously, we have been growing during the last 20 years, crossing the Atlantic, going to France, acquiring a lot of different transactions, and we were not available to consolidate all 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 obviously it is not easy to do but that's part of my job and that's the kind of efficiencies that we are finding in the bottom part obviously we have a more efficiencies in the long term we are not captured that in the next three or six months but it is an ongoing process of finding this kind of efficiencies and obviously Christian has found S.A.B. de C.V

That was a great answer, Fede. Thank you for that. We've seen a lot of weakness from beverage players in the second quarter. Obviously, a boatload of rain in June in the center of the country and sort of across the whole country. So in the context of Starbucks Mexico, you know, obviously that mix of beverages, specifically cold beverages, has really picked up over the last couple of years. Was that a specific category that saw weakness or not really at Starbucks Mexico this quarter?

No, I believe, on the contrary, I believe it's one of our strongest categories due to the mix that we have and the offer, both core and LTO offer that we have. When I mean LTO, it's the seasonal offerings. S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V because it's not only a specific city. Sometimes you can be having 40 degrees in the south and 10 degrees on the north. So this core offer together and complemented by our seasonal offerings are, I would say, which includes both innovation and our core portfolio. are clearly drivers of traffic not only today but historically. So we continue on this trend and adjusting and adapting to trends on ingredients, to trends on beverage profiles, and having the support of a partner like Starbucks clearly allows us to push on that very many months ahead of the curve.

And if I may add, complementing Christian's answer, the part figure, obviously, I have just asked for this figure. We have increased more than 50% the cold beverage for Starbucks coffee in Mexico. I don't have, obviously, the categories for the rest of the regions, but Starbucks Mexico is more than 80% of the total mix of the pillar. That's it.

And we can adapt to either geographies. You can see different behaviors. In Europe, 60% of the traffic is driven more in the afternoon with a more focus on cold beverage. In the case of Mexico, it's more a morning traffic, more on the espresso category. So I believe this ability to adjust and adapt and to continue always innovating is one of our stronger assets.

And if I may, Alvaro, related to your question, and this is not for Starbucks but for Domino's Pizza, some of the good performance of the quarter, it was also related to a very strong June month that I would say the rainy season on the delivery type of orders excelled. So that was also one of the reasons why Domino's, to some other question that we received, It was also driven by this effect.

Awesome.

Thank you very much.

Gracias a lot. Thank you.

Thank you very much for your question. Our next question is from Mr. Julio Cesar Martinez Castro from Sura Investments. Please go ahead.

Thank you for the call. My question is related to Alsace's overall growth strategy for 2026. Will the company prioritize growth through innovation such as introducing new brands and exploring new segments rather than focusing primarily on increasing market share through pricing strategies? We saw a reduction in the Burger King brand. and we later saw an announcement of introducing Chipotle into the Mexican market and my follow-up question is specifically regarding to Chipotle what was the overall rational and strategic vision behind bringing Chipotle into the Mexican market for 2026?

Okay, I will answer the first question regarding capital allocation, Julio. We have three main levels for the capital allocation. Obviously, the organic growth. As mentioned before, we have more than 2,000 openings footprint for the next 10 years. I will say that the rhythm will be from 200 to 120 stores year over year, including the franchises. S.A.B. de C.V S.A.B. de C.V Obviously, it is not only border king or the cash outlining part in South America. We are analyzing the 100% of the portfolio, where we should be, why we should compete in that sector, and if we are going to grow. Because obviously, maybe we have an extraordinary performance of the unit, but we have three units and we are not available to open 100 in the upcoming future. So, we do not want to compete in there. that would be regarding portfolio management. And the third part is to return to shareholders through the payment of dividends. We started in 2024 with the payment of dividends. This year, we have canceled around 11.7 million shares in the last quarter, and we'll continue with the buyback slash dividend strategy for the upcoming years. and regarding the second question for Chipotle and the rationale?

Yes. In the case of Chipotle, our DNA is always looking for opportunities, and this is part of the dynamics of Alsea, and we have always been looking for opportunities. There are not too many brands out there with the size of Chipotle and the potential. and we clearly see in Chipotle a very strong potential. It's also important to mention that we are not competing with tacos. This is not our focus. Here is about bringing a brand in what is called the fast casual segment where we can have a very high quality product with extraordinary ingredients, proteins, with a healthy profile, that will be complementing the existing offer that there is in the market. We clearly see a very big potential with a very good value proposition, which is what Chipotle is going to bring. So we are very, obviously we have a very non-CAPEX intensive commitment with Chipotle to develop the brand. Thank you very much for your question. That was the last question. I will now hand over to Mr. Cristian Gurria for final comments. Thank you very much, everyone. And before we conclude, we would like to thank you for your participation and interest in our quarterly conference call. We deeply value your trust, the trust you place in our company. And as a new CEO, I reaffirm our commitment to transparency and sustainable growth. If you have any additional questions or require further information, our investor relations team is always available to assist you. We wish you an excellent day and look forward to having you join us for our next factory call update in October. Thank you very much. Thank you, Gerardo. Thank you, Federico.

Thank you very much. Thank you very much.