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.