Grupo Comercial Ched Ord

Good morning to all participants and welcome to Grupo Comercial Chedraui's fourth quarter 2025 commercial conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Participating in the conference call today will be Mr. Jose Antonio Chedraui, CEO of Grupo Comercial Chedraui, Mr. Carlos Smith, CEO of Chedraui USA, Humberto Tafolla CFO and Arturo Velázquez IRO for the company. We will begin the call with the initial comments on Grupo Comercial Chedraui's fourth quarter financial results by the company's CEO, Mr. Jose Antonio Chedraui and Chedraui USA CEO, Carlos Smith. Thank you. You may begin.

Good morning to all and welcome to our presentation of Grupo Comercial Chedraui's fourth quarter 2025 results. I want to begin by sincerely thanking our valued customers for choosing to shop at our stores, especially during this challenging economic environment, both in Mexico and the U.S. Your continued trust inspires us every day. I also want to proudly recognize our employees on wavering dedication to advancing our three strategic pillars throughout 2025. Their commitment to delivering a unique shopping experience, providing the best assortment at the lowest prices, and consistently exceeding expectations has been crucial to strengthening our customers' loyalty. In Mexico, our same-store sales have once again outperformed Antat's self-service segment by 164 basis points, making an outstanding 22nd consecutive quarter of outperformance. For the full year, our same-store sales growth exceeded Antat's self-service by 140 basis points. Making this the fifth consecutive year of remarkable achievement. At Chedraui USA, although sales were impacted by continued immigration enforcement and the U.S. government shut down in October and November, EBITDA margin improved by 178 basis points to 8.6% and by 6 basis points to 6.9% When including additional non-cash accruals made for general liability and workers' compensation claims in the quarter. This was supported by rigorous expense management and efficiencies from our Rancho Cucamanga Distribution Center. Finally, I'm pleased to note that we completed the most aggressive store opening year in Chedraui's history. and we surpassed our store openings target. In Mexico, we opened 65 stores during the quarter for a total of 142 stores in 2025. As such, we ended 2025 with a total of 1,067 stores in Mexico and the US. Our organic expansion will continue throughout 2026. As we expect to open 147 stores in Mexico, of which 17 of these are larger store formats, and the remaining are supercito. While in the U.S., we expect to open five stores, four el super and one fiesta. Now, to start our presentation, please turn to slide four, where I will highlight the achievements of the quarter. Chedraui Mexico's same-store sales grew 3% in the fourth quarter of 2025 and surpassed Antad's 1.4% growth for the 22nd consecutive quarter. Chedraui Mexico's total sales increased 6.9% due to higher same-store sales and a 4.4% sales floor expansion. Consolidated EBITDA increased 101 basis points to 8.6% and 7 basis points to 7.7%, including extraordinary items in the quarter. Chedraui Mexico's EBITDA margin stood 8.7% and 8.5%, including an extraordinary payment to fiscal authorities Chedraui USA's EBITDA margin increased by 178 basis points to 8.6% and 6 basis points to 6.9% including extraordinary non-cash accruals for claim liabilities. Net cash to EBITDA improved to minus 0.28 times In the fourth quarter of 25 compared to the minus point 18 times in the fourth quarter of 24. We accelerated our organic growth in Mexico by opening 65 stores in the quarter for a total of 142 stores in 2025 above target. In the following slides, I will comment in more detail About our fourth quarter results. Turn to slide five, please. During the fourth quarter, consolidated sales declined 3% compared to the fourth quarter of 2024, primarily reflecting the currency translation effect for Chedraui USA sales from a 10% appreciation of the Mexican peso against the US dollar. Consolidated EBITDA, Increase by 9.7% and EBITDA margin stood at 8.6%, a 101 basis point improvement. If extraordinary items for the quarter are included, EBITDA declined 2.2% to 5,793 million pesos, and EBITDA margin rose by 7 basis points to 7.7%. This performance reflects effective inventory and promotional management, as well as a disciplined expense control across all business units. On slide six, our strategic M&A investments and organic growth strategy have continued to support the positive long-term trend in consolidated net income. Over the past four years, net income has achieved a compounded annual growth rate of 17.4%, highlighting the effectiveness of our growth strategy and disciplined financial management. Our return on equity has recently been affected by RCDC transition costs and non-recurring items for the quarter. However, even after considering these factors, our long term strategic focus In the following slides, we will review the main highlights of our businesses in Mexico and in the U.S. On slide 7, our continued commitment to offer the lowest prices and targeted customer promotions with an assortment of products that our clients prefer and a unique shopping experience enable us to achieve a 3% increase in same-store sales, outperforming and TADS self-service segment by 164 basis points in the quarter. During the last several months, we have focused on enhancing our e-commerce strategy To give customers diverse shopping options. As such, our e-commerce sales penetration increased by 70 basis points to 3.9% in the fourth quarter of 25 in Mexico, compared to the same quarter in 2024. This performance was driven by higher customer satisfaction and stronger reprieve In addition to our strong third-party partnerships with platforms such as Uber, Rappi, Didi, and Rappi Turbo, which have continued to enhance our growth. Please turn to slide 8. Despite a weaker than expected consumption environment in Mexico, total sales in the quarter increased 6.9%, Compared to the fourth quarter of 2024, supported by a 3% increase in same-store sales and a 4.4% expansion in sales floor area. As commented, Chedraui Mexico incurred an extraordinary one-time payment to tax authorities corresponding to the revision of prior fiscal years, which impacted EBITDA margin by 20 basis points. EBITDA in the fourth quarter of 2025 increased 8.2% and EBITDA margin expanded by 11 basis points to 8.7%, driven by strict expense control along with enhanced inventory and strategic promotional management, which was able to offset higher labor costs. If the extraordinary item for the quarter is included, Chedraui Mexico's EBITDA grew 5.8% year over year to 3,271 million pesos, while EBITDA margin declined 9 basis points to 8.5% of sales. I will now turn the meeting over to Carlos Smith, CEO of Chedraui USA, for his comments on our U.S. operations. Carlos, please go ahead.

Thank you, Antonio. Good morning, everyone. Chedraui USA continues to operate in an environment with stricter immigration enforcement, and this quarter was further impacted by the U.S. government shutdown that occurred in October and November. Although we were able to increase our average sales ticket, these events negatively impacted the number of transactions at our stores, bringing our same store sales negative for the quarter. As we stated on last quarter's call, We implemented strict expense controls to help navigate these headwinds, which were effective in mitigating our loss of operating leverage in the quarter. As Antonio referenced earlier, it's important to note that operating expenses were affected by additional non-cash accruals made during the quarter relating to general liability and workers' compensation claims, which impacted EBITDA margin by 171 basis points. While the number of new claims is trending down, the cost to resolve these claims has increased, not only for us, but across the retail industry. We continue to take actions to reduce the frequency and cost of these claims. I would like to highlight our commitment to delivering solid long-term results despite short-term challenges. Despite current trends, both El Super and Fiesta same-store sales have grown considerably over the last four years. When comparing 2025 data with 2021, the same-store sales compounded annual growth rate for El Super is 6.2% and 6.6% for Fiesta. Also, EBITDA margins over the same period increased by nearly 41 basis points for El Super and 310 basis points for Fiesta, even when considering the headwinds we faced in this fourth quarter.

Now we will review the results of the fourth quarter.

Please turn to slide 9. Chedraui USA same-store sales declined by 2.8% in U.S. dollar terms compared to the same quarter of last year. This is explained by a decline in transactions at El Super and Fiesta due to immigration enforcement, the delay and partial release of SNAP benefits as a result of the government shutdown, and a high same-store sales base comparison to the prior year. At Smart & Final, same-store sales decreased 0.9% in U.S. dollar terms, primarily due to lower transactions in Southern California, where immigration enforcement has been stricter than in other regions, coupled with the impact on SNAP benefits due to the government shutdown. Overall, Chedraui USA's total sales decreased by 2.2% in U.S. dollar terms. Additionally, the 10% appreciation of the Mexican peso against the U.S. dollar contributed to a sales decline of 11.6% in Mexican pesos. Please turn to slide 10. EBITDA increased 11.4% in Mexican pesos, while EBITDA margin rose 178 basis points to 8.6% as a result of disciplined expense control across the organization. If accrued noncash claim provisions are included, Chedraui USA's EBITDA and Mexican Bessels declined 10.8%, less than sales, and EBITDA margin of 6.9% increased six basis points compared to the fourth quarter of 2024. The combined El Super and Fiesta EBITDA margin reached 8.5% compared to 8.9% in the fourth quarter of 2024, mainly explained by the pressure on transaction count experienced at El Super. When accrued non-cash claim provisions are included, EBITDA margins stood at 7.2% in the quarter. Finally, Smart & Final's EBITDA margin of 8.7% improved 379 basis points compared to the same quarter of 2024 and 171 basis points including additional claim accruals. This is explained by the improvements in the RCDC operations and the aggressive perishable pricing campaign This concludes our report on the U.S. operations.

Thank you, Carlos. Now, we turn to the consolidated financial results on slide 11. Consolidated sales of 75,221 million pesos declined 3% compared to the fourth quarter of 24, mainly explained by a 10% and Jose Antonio Chedraui Eguia. As a percentage of sales, stood at 23.2% in the quarter compared to the 21.8% in the prior comparative quarter. Consolidated operating expenses, excluding depreciation and amortization, decreased by 0.8% as a result of strict expense control, one including extraordinary items in the quarter, Operating expenses excluding depreciation and amortization increased 5.5% compared to the fourth quarter of 24. Consolidated operating income increased 19% with operating margin increasing 101 basis points to 5.5%. If extraordinary items are included, operating income of 3,403 million pesos declined 1.4% compared to the fourth quarter of 24 with an operating margin of 4.5% at similar levels to that of the fourth quarter of 2024. Consolidated EBITDA increased 9.7% and EBITDA margin Wasop 101 basis points to 8.6%. When including extraordinary items, EBITDA declined 2.2% and represented 7.7% of sales, a 7 basis points increase compared to the prior comparative quarter. Financial expenses remained flat. Explained by lower interest expense on Chedraui USA's debt, and the appreciation of the Mexican peso against the U.S. dollar in the last 12 months. The prior was partially offset by lower financial income in Mexico, driven by lower interest rates. Consolidated net income amounted to 1,846 million pesos and 1,344 million pesos If extraordinary items are included. Finally, please move to slide 12. We closed the year with a net cash position of 6,923 million pesos and our net cash to EBITDA ratio improved to minus 0.28 times from minus 0.18 times in the same period last year. CAPEX for the 2025 totaled 8,549 million pesos, representing 2.9% of sales and coming in below the prior year due to the significant investment in RCDC in 2024. Now, please allow us to move on to the question and answer section.

Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for the first question. The first question comes from Bob Ford with Bank of America. Please proceed.

Hey, good morning and thanks for taking my questions. Antonio, given the difficult economic environments in Mexico and the U.S., how are key value drivers evolving and how are you thinking about differentiation and retention strategies? And then also, how are you thinking about channel opportunities over the intermediate term, particularly when it comes to small box and e-commerce in Mexico? And then lastly, with respect to the labor claims, I was curious if these are for cumulative trauma, right? Something like a repetitive stress issue and what steps you can take to protect against frivolous lawsuits, particularly in California.

Thank you.

Well, I will comment about Mexico and then Carlos can talk about the U.S. Well, in Mexico, as you've seen, we're seeing a slowdown in consumption and that reported very low growth in sales. So, we believe that what we're doing is trying to increase penetration In every market, within the formats that we already have put in place, we believe that there are still room in certain cities for the big boxes, which are very efficient and profitable. And then in other areas, we're going with the smaller boxes, mainly Super Chedraui and Supercitos. So we believe that with the formats that we have for physical stores, We are just in the right place where we want to be. On the other hand, as you mentioned, we're focusing a lot on the e-commerce side. We believe that we can increase our sales penetration closer to 5% this year. We're being very successful with our own platform as well as With the third-party operators, that includes Turbo, where we have a lot of expectations in the near future, delivering customers in less than 15 minutes. So that's a huge opportunity, not only to penetrate the markets where we have presence at the moment, but even going to other markets without having to open a physical store. So we feel that we have the right physical formats and the focus in the e-commerce to reach our sales projections for this year. Carlos, maybe you can.

Yeah, hi Bob, Carlos here. Yes, we... The adjustment that we made is really related mostly to general liability claims in our stores, which is customer accidents, slip and falls, and things like that. And as you probably know, this has been an industry-wide issue as it relates to the increase in costs as it relates to closing the claim. If a claim costs us $10 four years ago, those claims today are costing us three times that. And this has been an industry-wide problem, as you can see through everyone's reporting. And the key for us is really to address frequency. Frequency at our stores. What are we doing to make sure that our stores are We're providing a safe environment for our customers. And the second portion of it is to be very aggressive in our claims handling process. So we've invested quite a bit of money internally to ensure that we sniff out what we call fraudulent claims, which there's always some. But our position is we take every single claim extremely, extremely seriously, and we try and process it as quickly as possible. So the key here moving forward is ensure that our frequency is down through our operations team and that once we do have a claim, that that claim gets closed as quickly as possible.

Very helpful.

Thank you so much.

Thank you. The next question comes from Rahi Parikh with Barclays. Please proceed. Raheel, your line is open. The next question comes from Antonio Hernandez with Activener. Please proceed.

Hi, good morning. Thanks for the good question. Just wanted to know how do you see consumer trends so far this year? And you already provided some guidance and some detail, but whether to get a PRP show and whether So far, both Mexico and the U.S. looks like what you expected previously or any changes in them? Thanks.

Antonio, I barely heard your question, but I understand that it's basically consumer trends, what you're asking about Mexico and the U.S. Is that correct?

Exactly. So far this year. Okay.

Okay, well, consumption, we believe in, I'll talk about Mexico. We believe Mexico will continue to be slow in consumption, even though we have the soccer World Cup, which will help for sure. We still see that there's no reason why to think that consumption will pick up strong In the coming months, except for this particular reason of the World Cup. Being that said, we believe that we can achieve our guidance to be able to grow at least 3% same-store sales. We believe that's achievable. We are prepared for that. We have a strategy for every format of our We believe we're prepared for that. We're adjusting the assortment. We are being very aggressive in our pricing strategy. And the new stores and the remodeling stores, we're making sure that... The atmosphere, the service involved in those particular stores meets the expectations of the customer segments that we are trying to serve. So, that would be about Mexico.

Hello, Antonio. So, in the U.S., obviously, we operate in areas of high Hispanic density, and that consumer is still A little bit weary through all of the immigration enforcement activity. So we're very aware of that dynamic in our markets. But in general, I will tell you that the consumer is stretched thin. Things are more expensive. And our customers are willing to shop in multiple places. as they look for value to stretch their dollars. So, it's imperative for us to execute properly on our strategy with our pricing, with our perishable assortment in order to provide that value that they're looking for.

Okay. Thanks for that, Antonio.

Thank you. The next question comes from Froland Mendez with JP Morgan. Please proceed.

Hello. Can you hear me well? Yes, we hear you well. Thank you so much. First question is on the U.S., on the margin expansion on smart student final. It was really amazing to see the margin expansion. I know there are some Thank you very much Big difference in profitability between the big box and the smaller box formats. Colin, that would be great. Thank you so much. Hello, and this is Carlos.

Yes, we had a very nice result in terms of margin expansion at Smart & Final. Last year, we started a very aggressive price campaign at Smart & Final. Our buying gross margin grew significantly quarter over quarter. A lot of that is related to now starting to see the benefits of our RCDC materializing, but our team's done a fabulous job in other areas to lower cost of goods. And we've been able to maintain that aggressiveness in pricing, not only in our produce market, We feel very good about our pricing position at Smart & Final. And yes, these are not only sustainable margins, but we still see an opportunity to increase them.

And all about format profitability. Even though all formats meet our goals in return on invested capital, and that it's quite similar in every format, the smaller formats tend to, due to a lower investment, tend to be more profitable So, we're always trying to focus on the opportunities that we have, the land opportunities, and the customer we are trying to meet. If we could, we would maintain the combination of expanding a little bit faster in the smaller formats, but Thank you. The next question comes from Ulysses Ogrote with Banco Santander. Please proceed.

Thanks so much for the space for questions here. A quick one from my side. I was wondering if you could help us quantify there out of the 133 basis points improvement we saw in the gross margin. Can you help us understand a little bit with how much of that came from the RCBC benefits and how much of that was kind of for the other impacts that we had there in the quarter?

Thank you. Hello, users. Yeah, the majority of the benefit comes from our gross margin line, which is a combination of improvements in our buying gross margin. I mentioned a little bit about that at Smart and Final. But if you look at Super, on an annualized basis, our purchasing gross margin grew 124 basis points. So you can really start seeing now... The benefits of the RCDC materializing in cost of goods, which is great. And the second portion of that is that we are seeing great operating stability at our RCDC. Our productivity is improving every day. We're not exactly where we want to be, so we still have some room to grow, but we're happy with our progress. And our freight charges are continuing to come down. So the things that we...

And in Mexico, well, I think we're getting better managing inventory, but it's also important to mention that focusing on the customer base of Chedraui customers and being able to to promote more efficiently has benefited us lowering the cost of promotional activities that we would have in the past. Remember that we have almost 40 million customers in our loyalty program and we are starting to do Thank you very much.

Thank you. The next question comes from Renate Cabral with Citigroup. Please proceed.

Hi, everyone. Thank you so much for taking my questions. The first one, I would like to ask if you could shed some light in the initiatives that the company is doing to mitigate the potential impact of the labor reform related to the reduction of working hours per week. We know that will be gradual. Just understand the main initiatives here. And the second question is related to the announcement of the government in terms of investment in the country, the plan Mexico. and how do you see those investments going towards especially the south of the country where Chedraui has a big presence and the opportunity there? Thank you so much.

Hi, Renata. Well, about the labor hours reduction, we have been working already on it using We have already three programs going on where we believe we can become more efficient using the hours of our team at the store level. And we believe that we will suffer very little from these and a gradual reduction that will start in 2027. On the other hand, the investment that the government has announced for sure benefits us when it reaches the cities and the areas where we participate. We saw what happened with the Tren Maya or with the Dos Bocas investment. And if that happens in our particular cities in the coming months or years, for sure we will benefit from that. Thank you, Renata.

Thank you so much for the call.

The next question with Rahi Parikh with Barclays. Please proceed.

Hi, great. Can you hear me now?

Yes. Yes, we can hear you clearly.

Great, great. I'm sorry for the issue earlier. So my question is kind of for the RCDC. What new technologies and AI are built now there versus the tour that we attended last year and what's remaining? So kind of just what's the goals in terms of technologies to include there? Thank you so much. Hi there. Yeah, so the initial startup of our RCDC was relatively vanilla. So

Our second phase will include some more automated areas, etc. But our first, you know, the first launch is really very vanilla. Most of the AI support that we're getting is within the tools that we use to forecast and determine demand at the stores. So that's obviously connected to our supply chain and it's helped us quite a bit In terms of reducing our inventory levels at the RCDC as well as our stores. So the real use for us is an inventory management and assortment planning. Like I mentioned, we've got great stability currently at the RCDC, but we still think that we've got some improvement in labor productivity as well as in more efficiencies related to our transportation function.

Make sense. And then what's other follow-up for this immigration for U.S.? Do you see that you kind of have to wage wages to retain workers? I know you mentioned, you know, it's tougher there in terms of sales, but just looking on the cost side. Thank you so much, and that's it.

No, I don't think we're in an environment where we've got wage pressure. I think our wage structures at all three banners are very, very competitive. And we see that in our turnover numbers, which are probably just below industry average. So I think we're in good shape there.

Great. Good to hear. I'll pass it on.

The next question comes from Alvaro Garcia with BTG. Please proceed.

Hey, gentlemen. Thanks for the space for questions. I have two. One on Mexico. I was wondering if you can speak about the importance of assortment in your smaller formats. So we recently saw Mr. Walden talking about looming lowering or reducing their And then my second question is on the dividend. You know, you obviously have a net cash position. I know you're very much excited about growth, both organic and potentially inorganic in the future, but any sort of comments on what drove the decision to sort of Thank you very much.

Thank you, Alvaro. Well, about the assortment and supersitos, even though we are trying to manage more efficiently inventory and SKU reductions always produce that, we are focusing on that Supercito and every format fulfills their mission towards their customers. We are very aware that we want to be a proximity store and not a hard discount. We don't want to be a hard discounter. We want to differentiate for that, and we want to accomplish the mission of replenishment Jose Antonio Chedraui Eguia, Jorge Luis Tawil Hernandez Díaz, Jorge Luis Tawil Hernandez Díaz, Jorge Luis Tawil Hernandez Díaz, Jorge Luis Tawil Hernandez with the assortment that fulfills the mission that we believe our proximity format is set for. On the other hand, the dividend, well, we have enough cash that we're not being able to use in our expansion program. And therefore, we just believe that there is very opportunity to use that cash For our investors than just having that cash sitting in our company invested in other investment opportunities rather than stores. If we cannot use the cash in stores or technology to become better or more efficient, we'll just increase dividends.

Great. Thank you very much.

Thank you. There are no further questions in queue at this time. I would like this time to call back to management for closing comments.

Well, I just want to thank everyone for joining and hope to be talking to you at the end of this first quarter of 2026. Thank you again.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.