Alsea S.A.B. de C.V

Good morning everyone and welcome to Alsea second quarter 2026 earnings data conference. My name is Gerardo Lozoya and I'm a head of investor relations and corporate affairs. Today you will hear from our chief executive officer Christian Gurria and Federico Rodriguez our chief financial officer. Before we continue our friendly reminder that some of our comments today will contain forward-looking statements based on our current 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 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. Please go ahead, Chris.

Thank you, Gerardo. Good morning and thank you all for joining us in ALCEA's second quarter 2026 earnings video conference. I will begin with an overview of our performance during the quarter, highlighting key operating trends across regions and brands, as well as our progress in digital expansion and ESG initiatives. Federico, our CFO, will then walk you through our financial results in more detail. Before going into quarterly figures, I would like to briefly step back and provide some context on how the quarter evolved. As anticipated at the start of the year, consumer demand remained uneven across our markets and became more challenging during the second quarter, particularly in Mexico. April was the softest month, reflecting weaker discretionary spending and lower traffic across much of the industry. Conditions improved slightly in May and further in June, but the overall environment remained more cautious than we had initially expected. The FIFA World Cup generated additional customer traffic during June, particularly across Chili's and Domino's Pizza. While the impact was relatively in line with our expectations, it helped partially offset the weakness observed in April and represented a positive contribution in the quarter. While the operating environment was challenging during the quarter, we maintained disciplined execution, supported by the strength of our brands and our continued focus on profitability, customer experience, and cash flow generation. With that context, let me provide an overview of our quarterly performance, including our financial results, regional highlights, and key brand developments, along with updates on our digital advancements, ESG initiatives, and expansion strategy. In the second quarter, we reported a 0.9% year-over-year decrease in total sales, reaching 21 billion pesos, or a 3.5% increase. Excluding foreign exchange effects, same-store sales grew by 2.6%. EBITDA decreased 6.2% in the second quarter, reaching 2.8 billion pesos with a margin of 13.5%, decreasing by 70 basis points year-over-year. Regarding brand performance in the second quarter, Starbucks Alcea same store sales increased by 0.6% versus the same period a year ago for Starbucks Mexico same store sales decreased by 2% reflecting a challenging environment combined with a deliberate reduction in promotional activity as we prioritize profitability and an enhanced customer experience across our stores and two comparison based in April of last year due to the peanuts campaign For Starbucks Europe, same-store sales increased by 2.2%, with solid performance in Spain and the rest of the markets, while France continued to lag, but with trends improving toward the end of the quarter and double-digit growth in the Netherlands and Belgium. Finally, in South America, same-store sales rose 10.5%, driven primarily by Argentina. Excluding Argentina, same-store sales increased 3%. supported by strong performance in Colombia. Domino's Pizza Alsea posted a 2.7% increase in same-store sales. In Mexico, Domino's same-store sales increased 3%, reflecting a gradual improvement over the course of the quarter, partially in June, supported by FIFA World Cup. In Spain, same-store sales increased by 1.6%, supported by continued solid commercial execution. In Colombia, Domino's same-store sales increased 6.9%, sustaining the strong momentum seen in recent quarters. Burger King Alcea's same-store sales, excluding Argentina, decreased 2.5%, showing a slight improvement over the course of the quarter. In Chile, same-store sales decreased 5.7% due to an economic slowdown across the country. The full-service restaurant segment delivered a 3.6% same-store sales growth, remaining one of the most consistent performers during the quarter. Full-service restaurants in Mexico increased by 5.4%, led by outstanding performance at Chili's, with a particularly strong June, growing double digits. driven by the FIFA World Cup, while also Bips also delivers solid growth, maintaining its consistent execution and its attractive value and innovating offerings. Same-store sales for full-service restaurants in Spain grew 1.3%, reflecting growth growth base across most of the portfolio. During the second quarter, we opened 30 new stores, 20 corporate units, and 10 franchises. continuing to expand our presence across our key markets while maintaining a disciplined approach to capital allocation. Although the operating environment has become more challenging, our expansion strategy remains unchanged as paybacks and returns of the new openings remain healthy. We continue to prioritize opportunities that meet our return thresholds. balancing new unique growth with investments in our existing store base. Store remodels remain an important part of the strategy as they continue to renovate attractive returns while enhancing and elevating customer experience. We also continue advancing our portfolio optimization efforts. During the quarter, we completed a divestment of arches in Colombia, allowing us to further concentrate our resources on the brands and markets where we see the greatest growth S.A.B. de C.V We are encouraged by the initial customer response and remain excited about the opportunity to continue developing the brand in Mexico. Our digital platforms continue to be key drivers of growth. By the end of the quarter, loyalty sales increased 8%, reaching 5.5 billion pesos, representing 24.3 million orders and contributing 27.9% of total sales. We also surpass 8.4 million active users across our loyalty programs, confirming the strength of our digital engagement. Additionally, we serve 34.7 million digital orders in the quarter, totaling 8 billion pesos, which represents 40.7% of our total sales. Turning to our ESG initiatives, During the quarter, we published our 25th Integrated Annual Report, reaffirming our commitment to creating long-term sustainable value through our sustainability model. As always, the report is available on our website for those interested in a more detailed review of our ESG initiatives and performance. We also completed a global climate risk assessment covering more than 3,600 sites across Mexico, South America, and Europe, representing approximately 73% of our portfolio. This strengthens our ability to identify and manage climate-related risks across our operations and supply chain. Finally, through Fundación Alcea, we continue to expand our social impact, As of the end of the quarter, we have donated more than 53 million pesos and delivered over 490,000 meals, benefiting more than 16,000 people through our initiatives focused on food safety, food security, education, and employability. In Europe, our five brands also participated in the Producto con Corazón, so product with a heart, raising more than 100,000 euros to support nutrition and well-being projects through Fundación ASEA in Spain. Let me now turn it over to Federico, our CFO, who will provide further insight on the financial performance.

Thank you, Cristian, and good morning, everyone. The sales decreased by 0.9% in the second quarter, mainly due to weaker consumption in Mexico and a negative foreign exchange effect. excluding the foreign exchange effect, sales increased 3.8%. In the second quarter, sales in Mexico were up 4.2% to 12.2 billion pesos, mainly driven by the full-service restaurant segment. In Europe, sales decreased by 7.4% to 5.9 billion pesos, while in Europe terms, sales increased by 4%, mainly driven by the consistent performance in Spain. Finally, South America sales fell 6.9% to 2.9 billion pesos. Evita decreased by 6.2% with a margin contraction of 70 basis points, mainly due to a weaker consumption environment in Mexico and South America. A stronger peso that represents 65 million pesos of conversion and a one-off in the second quarter of last year related with the selling of 10 stores of Domino's Pizza to one of the franchisees. In Mexico, Adioset Evita increased 1.3% year-over-year with a margin contraction of 70 basis points. mainly due to reduced operating leverage resulting from slower same-store sales growth, partially offset by a positive impact of some dollarized input costs given the appreciation of the Mexican peso. In Europe, the adjusted EBITDA decreased by 10.5% year-over-year driven by the foreign exchange effect. Excluding this effect, adjusted EBITDA grew 8% reflecting lower cost of certain raw materials and efficient control in operating expenses. In South America, adjustability decreased by 15.1%, mainly driven by the foreign exchange effect, as well as pressure on certain input costs. Net income for the second quarter decreased 48.4% year-over-year, reaching 528 million pesos, reflecting a less favorable foreign exchange impact on the financing result, as this quarter recorded a foreign exchange loss of 81 million compared to the non-cash FX gain of 608 million pesos recognized in the same period last year due to the dollar bonds held in the balance sheet. The capex for the first six months of the year totaled 1.8 billion pesos. Out of this total, 78% was allocated to store development initiatives, including the opening of 20 new corporate units, the renovation and remodeling of existing locations, and equipment replacement across the branch. The remaining 22% was directed at digitalization projects. By the end of the second quarter, the pre-IFRS 16 total debt increased by 2.1 billion pesos year over year, reaching 35 billion pesos. The company's net debt, not accounting the impact of IFRS 16, was 29.5 billion pesos, which is 501 million pesos less than it was at the same time last year. This increase reflects the discipline in pre-cash flow through a more efficient CAPEX, a reduction on the cost of financing aligned with the refinancing of the different facilities, and a more predictable working capital. Consolidated net debt reached 44.9 billion pesos, including leases. At the end of the quarter, 99% of the debt was long-term, with 71% denominated in Mexican pesos and 29% in euros. We remain focused on maintaining a healthy capital structure supported by proven financial management. By the end of the quarter, the cash position stood at 5.5 billion pesos. Turning to the financial ratios, the total debt to post-IFRS 16 EBITDA ratio closed the quarter at 2.8 times, while the net debt to EBITDA ratio stood at 2.5 times. Since establishing the 2026 guidance, the consumer environment in Mexico has been more challenging than we initially anticipated, particularly during the early part of the second quarter. April was the softest month of the year from a consumer demand and traffic perspective and weighted meaningfully on our performance during the period. Encouragingly, trends improved progressively as the quarter advanced, with May performing better than April and June improving further. This sequential recovery was supported by the strength and relevance of the brands, targeted commercial initiatives, and the continued focus on delivering compelling value and customer experiences across the portfolio. While these improving trends reinforce the confidence in the resilience of the business, we believe it is prudent to reflect the current demand environment in the outlook. As a result, we have revised the 2026 guidance to allow single-digit growth for same-store sales, revenue, and evidence. Importantly, the capital allocation framework remains unchanged. We continue to expect approximately 5.5 billion pesos in capex between 180 and 220 store openings and leverage within the previously communicated range. This reflects the continued confidence in the long-term attractiveness of the growth opportunities and the returns generated by the investment pipeline. More importantly, the guidance revision should not be interpreted S.A.B. de C.V Looking ahead, the focus remains on the variables within our control, protecting profitable traffic, maintaining pricing discipline, strengthening the value proposition of the brands, leveraging our digital and loyalty capabilities, and accelerating productivity and efficiency initiatives across the organizations. We are not relying on a sharp recovery in the consumer demand. Rather, our expectations are supported by disciplined execution, continued cost management efforts, and the gradual improvement in trends we observe throughout the quarter. Free cash flow generation remains one of the highest priorities. Combined with disciplined capital allocation and a stronger balance sheet following the refinancing initiatives, we remain confident in the ability to generate solid pre-cash flow while continuing to invest behind the brand's long-term growth agenda. Ultimately, we believe the combination of improving sequential trends, a portfolio of category-leading brands, disciplined operational execution, a strong focus on cash generation, and unchanged long-term investment frameworks positions S.A.B. well to navigate the current environment and continue creating sustainable value for all the shareholders. I will now pass you over to the operator for the Q&A session. Please, operator.

We will now start the Q&A session. If you have a question, please press the question button in the browser. Please make sure we're not in full screen mode to see the button. The first question is from Mr. Ben Theroux from Barthes. Please go ahead.

Good morning, Christian. Thank you very much for taking my question. Just two very quick ones. So obviously the corner had a couple of softer spots. So as we look particularly at the performance in Mexico, S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V Kind of like surprising to see a little bit more softness here in some of the categories. So maybe just a reconciliation of like what were expectations versus what was reality and where was the mismatch? That would be my first question. And then second, could you elaborate a little bit more on France and the performance there most recently? I mean, obviously, Spain has continued to do very well holding up the European markets, but just wondering about like the sequential trends in France where we stand right now. Those were my two quick ones. Thank you.

Thank you, Ben. Good morning and thank you for your questions. So let me answer the second one first about France. We, as you are aware, since last year we launched a recovery plan for the market in order to shift the trends that we were seeing. This year we have clearly seen an improvement on the trend in terms of traffic with the last three months showing positive traffic versus last year. S.A.B. de C.V The third one is on a commercial platform where we are bringing the brand closer to different events around music, around entertainment, around experience. So we believe that has been why we have seen this shift in terms of performance. S.A.B. de C.V Regarding traffic in Q2 and expectations, it's true that what we expected was that Chili's and Domino's Pizza had a very strong and very well-benefit by the World Cup. For the rest of the brands, talking specifically about Mexico, The FSR brands were performing pretty in line with what we expected. Nevertheless, we clearly saw a reduction of traffic that impacted brands like Starbucks, particularly in airports and these types of locations. regarding the cities like Monterrey, Guadalajara, and Mexico, part of the impact that we had is the reduction of movement. There was a promotion, I would say, of home office, particularly during the important games, obviously the 13 games that we saw in Mexico, plus the important games across the World Cup. I would say those are the effects. that we saw. Fortunately, we have seen also that as we move into the month of July, we've seen, besides last weekend with the final game and the third and fourth place games, we clearly saw a shift on the trend in general in all of our brands.

Perfect. Thank you very much.

Thank you very much. Thank you very much for your question. Our next question is from Mr. Alejandro Fuchs from Itao DBA. Please go ahead.

Thank you, operator. Hola, Cristian, Federico, Gerardo. Thank you for the space for questions. I have two quick ones, if I may. The first one in Mexico was wondering, Christian or Federico, if you could give us a little more context on what is the company doing in terms of maybe SG&A contention, given that, you know, maybe to contain a little bit of the expense front, that would be number one. And then number two, in terms of the guidance, maybe for Federico, the guidance implies a stable margin, right, EBITDA pre-FRS, because low single-digit top-line growth, low single-digit EBITDA growth. But the first half of the year, we saw EBITDA margin contraction already. So you were expecting to be the margin expansion for the second half, but you also said you don't expect demand to hugely increase going forward. So how can we put in balance those two things? Thank you.

Gracias, Alejandro. I will take both of the questions. I will start regarding the guidance. We are not assuming a sharp margin recovery in the second half regarding demand. Rather, we expect a gradual stabilization supported by several factors. This was what happened during second quarter. First, we are seeing a sequential improvement in demand trends as the quarter progressed, particularly after April. Second, we continue to benefit from lower dollar than nominated input costs, which supports growth margin during the year. There, we are executing a number of productivity and efficiency initiatives across the business, including labor optimization. This means increasing productivity, procurement savings, and tighter SG&A management. Importantly, the margin outlook does not depend on a significant acceleration in consumer demand. This is not going to change from one day to the other. The focus remains on improving traffic quality, maintaining pricing discipline, and translating operational efficiencies into profitability. I think we are on the way. and as a result we believe margins should gradually stabilize in the second half supported by execution, initiatives in productivity, and cost discipline. Margin stabilization is not going to come from a consumer demand change on the short term. That's the thesis that we have for the second part of this year. Regarding the SG&A, I know that you guys used to to do some kind of arithmetics to analyze how is the SG&A. It is important to note that part of the year-over-year comparison that you are calculating is affecting by a more favorable base in the prior year. In the second half of 25, we benefited from a one-off game related to the sale of 10 stores to one of our franchisees, in Domino's Pizza. This was a positive impact into the operating expenses. In addition, the pre-opening expenses last year were unusually low, due to timing difference in the third opening schedule and developing pipeline. This does not mean that we are being more unproductive in terms of the G&A. It's just a delay of the openings, plus a one-off in the second quarter of 2015.

Super clear. Muchas gracias, Federico. Gracias a ti, Alejandro.

Thank you very much for your question. Our next question is from Mr. Luis Terzagliol from Citi. Please go ahead.

All right. Thanks for taking my question. My first one is regarding the performance of Starbucks Mexico. So I wanted to have a better color on the outcome that you expect with the actions that you have been taking in the format such as the store remodeling and the store refurbishment program. What should we expect from the performance of the stores after you fully deploy them? Is there any sales uplift or margin uplift target that you can share with us? And when should we expect to start seeing these benefits in the company's results? And my second one is regarding the new stores portfolio of Sightseeing Store Sales. So, if you could just give a little bit of a comment on how did it contribute to the quarterly performance, as well as if you can talk a little bit about the mature portfolio, the performance of the quarter. Thanks.

Sure.

S.A.B. de C.V for the next five years. As you know, this year we'll be opening 220 stores in the different geographies. In Mexico, 70% of that growth and Spain, 30% of that. S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V from Starbucks or from Domino's or the full-service restaurant brands around 18 to 24 months. It is not easy to find one of these sites, and especially with the returns that we are seeing on cash-on-cash phases, we do not have a reason to change the long-term strategy of ASEA.

Luis, regarding Starbucks, we are focused on rebuilding traffic through both brand and operational initiatives. Yesterday, for example, we launched our Juntémonos Más campaign, so Let's Get Together campaign, which is our new brand platform that reinforces the Starbucks role as the third place, a space that brings together people beyond home and work. At the same time, we are rolling out the new POS platform, that will improve speed of service, operational efficiency, and customer experience. Plus, as you mentioned about the remodelings, we have committed to 85 remodelings and more than 60 openings in Mexico this year. We expect to finish the remodelings by the end of September, beginning of October, so we don't impact the... higher sales period. And in the case of openings, we should be delivering the 60 plus openings by the end of December. We will start looking at the effect of the remodelings as we go through the years. As I have mentioned before, in Starbucks, the impact of the remodeling in terms of sales goes from 3.5 to 7%. on same-store sales, depending on the extent of the remodeling. If we are able to add a terras or a mezzanine or improve the distribution of the store, depending on how the customer uses the stores, which we already know, Those are the improvements in traffic that you could see. So we will see this across the year on the stores as we remodel. And this is an ongoing process as we are going to continue with the same strategy following 2026 where we're going to continue allocating an important part of the capex on the brand in remodeling and uplifting stores to elevate the customer experience.

Thank you so much for the call, guys. Thank you.

Thank you very much for your question. Our next question is from Ms. Isabella Lamas from UBS. Please go ahead.

Hello. Hi, Christian, Federico, Gerardo. Thank you for the space here for the questions. If I could ask you from our side here, starting by the sense of sales trends by month, you've mentioned that there was a gradual progress with June much better than May, better than April. but I was kind of wondering if you could give a bit more color on how are things progressing since June so how do you see July up to the point across Europe especially in Mexico if you could give a bit more of detail on that and overall if you think you could expect some recovery and progress across the third quarter That's my first point. And the second one, if I could ask about S.A.R., but specifically in Mexico. If you could also provide a bit more detail in what you think could be the reasons for the softness we saw in the quarter. And if you expect a recovery path, maybe could you see some positive levels going to the next quarter? And that would be it. Thank you again.

Thank you, Isabel. I will take both questions. Regarding Starbucks in Mexico, how we view the second quarter is a combination of different factors. The first one is a softer demand due to the macroeconomic environment we are seeing. As I mentioned before, lower airport traffic, which represents an important number of our stores. Movement restrictions during the World Cup, particularly in Mexico City, Guadalajara, and Monterrey. And during this period, the promotion of home office in these particular cities, which are our larger cities. Nevertheless, we continue with our middle-long-term strategy of the brand, as I mentioned just before, prioritizing remodelings, store outlets, and new store openings in order to make sure we continue elevating the customer experience, but at the same time, how do we bring the brand closer to more customers? having said that this is what we've seen during the quarter we have also seen a gradual recovery as the month of July started and when we see the gains spread out more and we've seen clearly activity going back to normal and we have seen clearly this in a positive way particularly to your question about Starbucks and How do we see, and I believe that the question is going to be a little bit repetitive to what I just said about what are we going to do with Starbucks moving forward. This Juntémonos Más campaign, which was launched yesterday, is really focused on the third place and Starbucks values and what makes Starbucks what it is, no? At the same time, this rolling of the new POS platform in Mexico, which was something that we were working for several months to begin the launch, has started already. We did a pilot in some of our stores, and we have clearly seen the benefit with a better performing platform which helped us with speed of service when you put all together in a transaction. At the same time, we continue working on innovation, being a Starbucks innovation in beverage, one of the key factors that we see continues moving the needle. We have some... S.A.B. de C.V and some innovation around merch and food. So we believe that we should be, we are already seeing in July a recovery, and we are confident by the end of the quarter we should be much better than what we delivered in Starbucks in the month of, in the second quarter.

Complementing the first question regarding the sales or sales evolution, The key point is that April was clearly the lowest point of the quarter. We have seen sequential improvement in May and June, both for Alsea and all of the brands, and we continue to see that positive trend in July. In fact, the current sensor cell trends, I am watching that right now, are tracking closer to what we have seen in the first quarter than to the levels we experienced in April. We also expect at the end of the World Cup period will provide a more normalized backdrop for the demand. But, as said before, the haircut on the guidance is not taking into account a huge recovery in the demand.

And Isabella, sorry, if I may add a couple of things for Starbucks Mexico. We faced in the second quarter a tough comp. In the initial remarks from Christian, we mentioned the business campaign that we didn't have, let's say, this 2026. So that was something that affected the quarter, particularly again in April, which was the softest month. And as Celia and Christian were saying, we were trending positive. S.A.B. de C.V Again, doing on purpose, trying to benefit our profitability.

Thank you, guys. If you allow me, could I do a quick follow-up? How do you see the market share trend for Starbucks in Mexico? Do you see the market growing? If you could comment about that quickly. Thanks.

Yes, as I mentioned before, we continue with our strategy. I mean, this is a long-term strategy, not one quarter. And as mentioned by Gerardo, Federico, and myself, there were some particular factors compared versus last year, some of the negative effects in the brand coming from the World Cup. So this doesn't change the strategy. We continue on our path to deliver the 60-plus openings that we plan for this year. We continue penetrating the brand that is still Thank you very much. Goodbye.

Thank you, Isabel.

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

Yes, hey, good morning, everyone. Christian Federico Gerardo. I have... S.A.B. de C.V S.A.B. de C.V after your investor day, right? So the first question is, what are the kind of capabilities that you identified that you need today in Starbucks that weren't there like two months ago when we discussed the strategic plan? This is the first question.

I think we lost Tiago. Let's see if we can bring him back.

Our next question is from Ms. Melissa B. Yoon from Bank of America. Please go ahead.

Hi. Good morning, everyone. Thanks for taking my questions. I wanted first to ask if you could comment on the impact of the World Cup in Spain and the trajectory still along the quarter and expectations going into the second half. And then on South America, I wanted to better understand the drivers of the gross margin contraction, whether higher fuel prices are having an impact either on your cost of goods or on other distribution expenses, and when you expect to see some of the savings from consolidating the back office with Mexico. Thank you.

Wonderful, Beth. Hi, Melissa. How are you? Regarding Spain and the World Cup, the brand that clearly was positively impacted by the World Cup was Domino's Pizza. Regarding the other brands, due to the time of the games and the times the games were scheduled, we really didn't see neither a positive or negative impact in our full-service brands or in the case of Starbucks. Actually, Starbucks... continue with a solid performance, as well as our other brands like Foster's, Hollywood, and Deeps continue performing solid. So really, the brand was positively impacted, was dominoes, but besides that, there was no important or positive impact, or negative or positive impact. Pretty much the market remained stable.

Okay, and the trends in sales along the month, by month along the quarter and going into the second half?

So far, we are back as we ended Q1 with similar trends. Summer started pretty strong in Europe, which is also encouraging.

Regarding South America loss of margin... S.A.B. de C.V during the second quarter. And while underlying demand-trends were mixed, these markets, Argentina recorded sales in Mexican pesos, negatively affected by the currency translation. This is not only present in South America, but in Europe, too. If you look at the figures of Europe in local currency, it's improving in all the different lines, from top line to EBITDA to profitability. But, well, it was a currency translation. And regarding the consolidation of the synergies, not only for the back office, but the increasing productivity, a lot of them will be set in place during the second half of this year, more for the fourth quarter, and the remaining part for the first half of 2027.

Great, thank you.

You're welcome.

Thank you very much for your questions. We will now return to Mr. Tiago Borsalucci from Goldman Sachs. Please go ahead.

You guys, good morning. Can you hear me now? Yes, we can. S.A.B. de C.V work from home all this stuff but it's also true that within the company the controllables you have publicly announced a few high-level changes in your management team and this is coming like two months after your investor day right so I'm wondering what are the kind of capabilities that you think the banner needs now that weren't that clear or weren't necessarily there when we were together in New York in March. And then I might have another one.

Yes, Thiago, thank you for the question. Well, as you know, we have moved in this vertical integration of our brands and the transition of leadership was mainly due to the evolution of this vertical integration and the focus that we had at this moment on the development of the strategy of the brands. It's about, I would say, focusing on this brand evolution in terms of the elevation of the customer experience, the remodeling of our stores, discipline, approach to the capital location, and the opening of new stores. As I mentioned before, the right geographies in the right locations. and taking the opportunity of the different formats that we can use with Starbucks. So clearly it responds to these specific needs. I believe that the moment is different, the needs are different, and that's why we made this call. And that's it. There is no more additional comments regarding that question, no.

That's good, Christian. Thank you very much. I think my second one is for Fede regarding the guidance again, right? You commented that, you know, the semester sales and EBITDA growth targets imply broadly flattish margins, right? But again, we are seeing better effects versus last year and better effects versus what you had initially budget, right? So help us understanding why the effects part of the equation is not necessarily flowing through margins.

The updated guidance does imply that we need to see a better performance in the second half compared to what we have seen in the second quarter, but as said before, to Melissa, we believe that it's achievable because of the sequential improvement. There are a few reasons behind this confidence. First, the comparisons, if you remember the third quarter of the 2025, are easier, particularly after the sub-surveys that we spaced last year, not only in Mexico, but in all the regions. second we saw sequential improvement through the quarter with May better than April and June better than May and hopefully let's see what's happening with the second half of July we'll reach the same trend that we that we saw during the first quarter and sorry you wanted to highlight regarding the the FX inputs gains yeah why are they not the FX impact on Mexico growth yeah

Yes, that's impacting your gross margin.

Yeah, because we have low some operating leverage and obviously the mix is impacting the total consolidated yields. you have to take into account that year over year we are changing the mix obviously there's a higher growth between Starbucks and Indominus and the full service restaurant and maybe in the gross margin that could affect even while in the bottom part of the store EBITDA level you will see a gain but it's worth the operating leverage from Starbucks mainly in the second quarter but we are having around 50 basis points of gain because of the better effects in terms of the 35% of the cost of food line. If I may add, Tiago, to Fred's answer,

we do still have a little bit of pressure similar to first Q related to the inefficiencies of the distribution center as we mentioned again in Q1 these are I would say much lower than what we saw in Q1 but there was S.A.B. by around 20, 30 basis points. So I would say what Feder was mentioning around the benefit of FedEx, which was actually around 60 basis points, it was actually, I would say, compensated by these two other effects that I would say as we go through the year, those will get even kind of lower, potentially Q3 and then in Q4. So that was also impacting S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V

Well, as you have seen, we have improved to 2.8 billion pesos year over year, and I want to highlight that. This is part of the visiting that we need to prove to all the different shareholders and to the market. We are expecting to have the same net debt to EBITDA while we preserve with the openings and the total capital of 5.5 billion pesos. The answer is yes.

Thank you very much, guys.

Thank you.

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

Hey, can you hear me? Yes, Alvaro. Great to see you. Thanks for the space for questions. My question is on VIPS in Mexico. We've now lived through sort of a multi-year effort on the value front. Manuel Díaz clearly working. Seemingly very positive traffic evolution. Having said that, we really haven't heard from you on what... I guess my question is, to what degree do you have conviction that you can grow stores in VIPS Mexico down the line given this newfound sort of value platform? Obviously... We see other successful cases around the world of casual dining brands doing very well. I'm curious of your thoughts on VIPS Mexico selling any growth.

Thank you, Alvaro. Not only VIPS. We have clearly seen VIPS and the rest of the food service brands are performing in line or above expectations. Again, expansion decisions remain ROI driven and disciplined by site availability. During 2006, we will have around 30 new full service restaurant openings including all brands between Spain and Mexico. So we continue. I believe part of the success of VIPs, to your point, is that we have a very disciplined approach in where to open, where not to open, the right pace and the right rhythm. So just next year, we are talking about 19 remodelings in VIPs. and around 15 openings between Spain and Mexico. So continuous performing and delivering a very solid performance, but part of the recipe is because we have this disciplined approach to the development of the brand in both geographies.

Great. Thank you. And a follow-up on interest expense. You guided for roughly $25 million worth of benefits into 2026. There was a one-off in the first quarter. We do see an improvement year-over-year on the banking and derivative instrument fees line. So I was wondering if that's where the savings are coming from. But if we look at the Bolsa filing, it's not clear if we're actually seeing the interest expected savings. Are we seeing them on the P&L? If you could just walk us through that, that would be very helpful.

It's more related with allocation into the P&L, Alvaro, but that's a very important point, and I want to highlight this. During the prior year, the financing cost, remember that we held the U.S. dollar bond into our balance sheet, it has a cold spread associated with the U.S. dollar bond derivative instrument. That is no longer in place in 2026, and with the elimination of that instrument, This has been one of the main drivers of the improvement in the financing profile of this year. In fact, if you go to the first six months pre-cash flow of this year, the absence of this call spread into the interest expense line generate approximately, in the first six months, 478 million pesos of savings versus the prior year. Maybe into the P&L. It is not that clear because of the allocation between interest expense and derivative instrument. Where is the saving? But we do not have this derivative anymore into our balance sheet. And that is where you can see the saving of more than $25 million that we will have during this 2026. But if you go to the pre-cash flow, you can see in the press release that we have that savings. And that is part of what we want to highlight regarding free cash flow, 2.8 billion pesos more than in the first six months of 2025. Awesome.

Yeah, I'll let someone else ask about working capital. Thank you very much. Perfect. Thank you very much.

Thank you very much for your question. Our next question is from Mr. Troy Mendez from J.P. Morgan. Please go ahead.

Hello guys, thank you very much for taking the question and trying just to wrap up on the guidance. I'm sorry to be repetitive here. You already established that probably what needs to happen in Mexico for guidance to be achieved is for Starbucks to recover. Probably that brings better mix to the margins, but how about the rest of the regions? Can you clearly inform us a little bit more on what needs to happen in the third and fourth quarter for each region to land within your updated guidance, thanks for sales and EBITDA. Thank you so much.

Thank you, Freud. As I said before, we are not expecting a sharp change on the part of the demand consumption. We have realized that we are reflecting the weaker consumption environment in Mexico, but not only for Starbucks, but for all the different brands. as well as the impact of FX translation on reported results. Let's take into account that when we announced the guidance more than three months ago, we used an FX of 20.9%. S.A.B. de C.V S.A.B. de C.V at the same time this guidance does not require an extraordinary recovery scenario for in the part of the consumption not only for Starbucks but for the rest of the brands what we are assuming is a gradual normalization from the lowest point of same-store sales that we experienced in April, combined with easier comparisons in the third quarter, a continued gross margin support because of the improvements in the Guadalajara Distribution Center, a lower dollar denominated input cost like the coffee that we were having savings for the third and fourth quarter, and ongoing productivity initiatives and discipline S.G.N.A. like the efficiencies that we're setting into the back office and that I have just explained to Melissa. It is not coming only from a sensor sales improvement. It is in all the P&L.

And Sede, where do you feel the largest upside or downside risk to the guidance if you can tell us like maybe upside is Starbucks Mexico, upside is Input Cost, downside is Argentina, can you let us know where do you feel more comfortable?

Let's see. Let's talk around South America. South America is less than 4% of the total EBITDA when you see a yearly basis. So, even while we are working hard on a daily basis, that is not one of the main points. This is 70% in Mexico, 25% in Europe. Europe is performing real well with the exception of the translation to pesos, but we are we are comfortable with the margin expansion when you look at the EBITDA margins and the cash flow generation. But I would say that the major risk is coming from the consumption environment in Mexico, not only for Starbucks again, but for the rest of the brands. As said before, we are coming back to the trends that we've seen by the end of the first quarter, but we have only taken 15 days of the month of July let's see what is happening because at the beginning of the year we were expecting a huge hangover especially after the World Cup we did not see the party but let's see if we are seeing this hangover hopefully not but that's the major risk excellent thank you so much I would say Troy just to clarify on the exchange rate

we were using 19.3 pesos per dollar in our guidance in the original guidance and around 22.7 euros per peso also in our original guidance excellent, thank you so much and let me add on the commercial side what do we plan to do to get the second half of the year moving forward we have clearly seen that the consumer environment

S.A.B. de C.V S.A.B. de C.V but always with the right level of profitability. In the case of full service, we are expanding affordability and group dining occasions. This is an important part of the strategy around family and group dining through menu innovation, including, for example, in Chili's, our new smokehouse platform, and in the case of Foster's Hollywood, what we call the barbecue platform, which is based on family-style offerings. S.A.B. de C.V by maintaining a very high-strung value perception. And I don't want to be repetitive with Starbucks, but clearly it's this campaign of Contemonos Mask, which enhances this third place and how to bring together people beyond home and office. The launch of our POS system in Mexico, which should improve the speed of service and customer and operations experience. And Thank you very much for your questions.

Our next question is from Mr. Antonio Hernandez from Actinver. Please go ahead.

Hi, good morning. Thanks for taking my question. Actually, two very quick ones. The first one regarding Starbucks. I mean, you already mentioned some divestments such as Arches and maybe some going on, but I was thinking about portfolio optimization. If you're considering even, I mean, I know your long-term plans haven't changed, but if you're considering maybe some relocation of some Starbucks units, That would be my first question, and the second one would be regarding no food inflation that you mentioned in the S.A.B. if you're still within that line.

Thanks.

As we mentioned during the quarter, Antonio, we completed the database of purchases in Colombia. This reflects, obviously, the portfolio optimization that you are mentioning, concentrating the resources and management applications on the brands and markets where we see the greatest growth opportunities. with this transaction we have completed this phase of the portfolio optimization strategy for the moment but beyond that as you know we are continuing to evaluate the potential divestment of some other brands within their portfolio we are not in a position today to confirm or comment any specific brand But these are ongoing strategic reviews, and as a policy, we don't discuss these transactions or brands to be divested until something definitive to be announced.

And I understood, Antonio, you also asked about Starbucks portfolio optimization. Am I right? S.A.B. de C.V more complicated with FSR, but clearly with Domino's Pizza and Starbucks, it's an ongoing life process and it's always part of what we do every single day, every single year.

Thanks. And the follow-up regarding internal inflation, you mentioned no food inflation in the S.A.B.

Is this expected for the year? Is this still expected?

Yeah, it's going to be negative, the inflation for the three markets. So those are good news to support the increase in margins, into the gross margin, and to launch promotional campaigns with a lot of sense, not only for the customer, but for Altea, too. Okay. Perfect. Excellent. Gracias, Antonio.

Gracias. 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. Before we conclude, we would like to thank you for your participation and interest in our quarterly conference call. If you have any additional questions or require further information, our investor relations team is always there to assist you. Thank you again and see you in the call of Q3. Thank you very much.

Muchas gracias. Thank you very much.

Auxerre would like to thank you for participating in today's video conference. You may now disconnect.