Q1 2022 Fomento Economico Mexicano SAB de CV Earnings Call
Ladies and gentlemen, you are currently on hold for today's conference call.
At this time, Greg assembling today's audience and plan to be underway shortly well appreciate your patience and clean sort of nine underlying.
[music].
Good morning, and welcome everyone to the first quarter 'twenty to 'twenty two financial results conference call.
All lines have been placed on mute to prevent any background noise. After the presentation. There will be a question and answer session.
During this conference call management May discuss certain forward looking statements concerning <unk> future performance and should be considered as good faith estimates made by the company.
These forward looking statements reflect management's expectations and are based on currently available data.
Actual results are subject to future events, and uncertainties, which can materially impact the company's actual performance.
At this time I will now turn the conference over to Francisco Camacho Benthos Chiefs Gulfport also Sir Please go ahead Sir.
Thank you operator.
Morning, everyone.
I Hope you and your families are okay.
Welcome to <unk> first quarter 2022 results conference call.
Today, we're joined by our CFO and one six.
Well as always we also have Jorge <unk> on the line.
<unk> co invest.
Investor Relations team.
Without further delay let's.
We start with our call.
We are very encouraged with the result achieved by all our business units during the first quarter.
Remember, we closed 2021 with a positive momentum and things have continued to improve at historical Dean here.
I believe there are three things happening here.
Everyone.
Every one of our business unit has been working hard to develop successful growth strategies to feed their momentum and situation.
Always leveraging the superior execution of skills.
Our operators are known for.
Second the teams also worked through the last couple of years to adapt to.
So the COVID-19 challenges.
These often included <unk>, the cost structure and becoming more efficient.
And finally, we are continuing to see positive trends in consumer activity and mobility as the world continues to reopen.
With this effect, particularly visible in the month of March.
At OXXO the business accelerated sequentially during the quarter.
And these favorable revenue trends resulted in positive operating leverage.
As a result, the team was able to deliver record margins at the gross operating and EBITDA level for the first quarter.
I'll talk to international we closed the acquisition of propane market and organic growth continued at a brisk pace, including our joint venture in Brazil.
Where we opened the 100 OXXO stores during the quarter.
Forest Park or fuels business also saw positive demand trends as more of our customers increase their vehicle mobility as a result of the reopening of its growth and higher levels of activity across the board.
Our sales operations again had a strong quarter of growth their income statement building on a compressed comparable.
Comparable base that keeps getting more demanding and delivering all time high margins for the first quarter at the operating and maybe the lines.
Our logistics and distribution business also saw a sequentially improving quarter particular in the United States with the month of March reflecting better demand dynamics in the facility supply segment.
More people return to the office.
In Latin America, we also had a good quarter led by improved performance in the warehousing operations.
On the topic of logistics and distribution. It is worth mentioning that we remain committed to deploying incremental capital to build of our U S National platform.
Most recently we.
We were happy to announce an agreement to acquire Sigma supply an important distributor of packaging solutions, and Janssen product that fits and complements our footprint well strengthening our presence across a child and opening the door into the key Texas markets.
Staying on this topic for a minute you can think of Amboy solutions as a three legged stool with the legs are young son, foodservice consumables and packaging.
Together, Jan San and foodservice comprise what we call facility supplies.
Each of these leg offers compelling opportunities for cross selling and higher route density.
Most of our customers need and consume products from more than one lead in their operations.
Often they need all three.
And packaging has the added benefit of generating high returns on capital.
Sigma supply will be an important addition to our platform.
I also want to talk a little about our digital platform. Since we know many of you are interested in monitoring our progress there.
Our numbers for customer acquisition continued to grow at a good pace.
At below industry costs, and we closed the first quarter with 2 million registered users.
<unk> bye.
And $8 5 million at OXXO Premier.
In both cases active users are above 60% and pretty much all internal metrics and key performance indicators, like Idaho, and tender or in line or exceeding our baseline expectations.
Having said that we keep working not just been growing or customer and partnership networks, but also on accelerating expansion of third product value proposition.
Focusing on increasing user engagement by adding new functionalities and services, improving customer experience and ensuring a seamless interaction between our physical and digital network.
We are encouraged by these early signs and we'll keep you posted on the progress going forward.
Before before I turn it over to Daniel I want to recognize the remarkable job done by our team and positioning our business unit for sustained growth and performing at a high level during the first quarter.
The outlook is compelling and we look to the rest of this year and beyond and.
And with that let me turn it over to Kenya.
Thank you Michael and good morning, good Monday to everyone on the line.
Starting with census, consolidated quarterly numbers total revenues during the first quarter increased 18, 6% while income from operations increased 24, 9% compared to the first quarter of 2021.
On organic basis total revenues increased 15, 2% and income from operations increased 22, 2%.
Census, net income decreased six 6% and reached $5 8 billion pesos, reflecting higher income from operations and increasing our participation in associates results, which mainly reflects the improved results of our investment in Heineken relative to the first quarter of 'twenty, one and a decrease in net interest expense. This was.
Offset by a noncash foreign exchange loss related to <unk> dollar denominated cash position as impacted by appreciation of the Mexican peso during the quarter.
Moving on to discuss our operations beginning with proximity we opened 69 net new OXXO stores during the first quarter to reach 794 net openings for the last 12 months openings.
Openings for the quarter were below trend coming after a very active fourth quarter of last year during which we opened more than 400 Sports League.
Leaving our pipeline a little depleted at the start of this year.
However, the pipeline has been replenished.
And we are confident back on trend in the coming months.
And certainly expect to hit our target of 800 net new stores in Mexico for this year.
OXXO same store sales were up 12, 7% for the first quarter driven by an increase of 10, 7% in average customer ticket and a one 8% growth in traffic, which reflects the sustained recovery of mobility and gathering consumption during February and March coupled with a relatively on demanding comparison base in the first.
Quarter of 2021, which was affected by Covid related restrictions.
Gross margin increased 110 basis points to reach 41, 1%, reflecting a strong recovery in commercial income from propulsion for promotional programs with key suppliers income from operations increased 54, 6%, while operating margin increased 190 basis points compared to the same period of 2021, two which says.
One 5% these are record numbers and well above our pre COVID-19 levels, driven by a leaner expense structure and the resulting operating leverage.
At OXXO that revenues increased 27, 7% and same station sales grew 18, 5% relative to the first quarter of 2021 at vehicle mobility continues to recover.
During this quarter gross margin was 12, 3%, while operating margin reached three 5%, reflecting tight expense control and improved operating leverage.
Moving onto census, health operations during the first quarter, we expanded our drugstore com by 66 net additions to reach a total of 3718 units across our territories at the end of March and 313 total net new stores for the last 12 months revenues increased five 1% while same store.
<unk> increased an average of three 5%.
On a currency neutral basis revenues did grow 12, 5% and same store sales increased by nine 5% as we continued to see good momentum across our operations, even if the comparison base becomes more demanding.
Gross margin increased 60 basis points during the quarter, reflecting improved efficiency and more effective collaboration and execution with key supplier partners across all our operations and particularly in Mexico, where the team has had success applying some of the commercial strategies that have served us well in other markets.
Operating margin expanded 110 basis points, reflecting improved operating leverage and tight expense control across our territories.
Moving onto our logistics and distribution business revenues increased 48, 3% relative to the first quarter of 2021, reflecting the steady pace of acquisitions made in the past 12 months by Amber solutions.
On an organic basis total revenues increased 12, 2%, reflecting a gradually recovering facility supply segments at envoy driven largely by people going back to the office coupled with good demand dynamics in our operations in Latin America, particularly in the warehousing business.
Operating margin expanded 120 basis points, reflecting improved operating leverage across our operations, which was partially offset by an increase in labor and transportation expense.
Finally, moving on to Coca Cola FEMSA volumes grew 10, 1% with most markets contributing to the growth revenues increased 14, 6% and gross profit grew 13, 5% despite supply chain disruptions and cost pressures on certain raw materials.
Operating income increased 16%, reflecting solid topline favorable raw material hedging strategies, coupled with operating expense efficiencies.
All in all Coke FEMSA showed strong results.
In the business, even in such a volatile environment you.
You can listen to the webcast of this quarterly call that took place last Friday.
Wrapping up and as Michael mentioned before we are off to a promising start across all of our operations certainly we must remain vigilant as we learn to coexist with Covid and we cannot trivialize macro headwinds like inflation and supply chain shocks, but in terms of what we can control and the level of fitness of our business units, we feel good about the <unk>.
Out ahead.
And with that we'll open up the call for your questions operator.
Thank you.
Question and answer session will begin at this time I would like to ask a question. During this time simply press star.
And then number one on your telephone keypad.
If you would like to withdraw your question. Please.
To start too.
Joe a question will be taken in the order that is.
It is received and the interest of time, we ask that you. Please limit yourself to one question at a time in order to allow for democracy will number callers to ask that question.
Yes.
First question comes from the line of Ben Torres from Barclays.
Perfect. Thank you very much.
Good morning, just wanted to ask about what you laid out with all the acquisitions in the U S. Sigma supply just recently and then obviously how it combines together we've seen very strong results coming from our from a growth perspective, and as well underlying growth here.
From an operating income perspective on the logistics segment. So can you guide us a little bit of how you think about this segment.
Coming years.
What size do you want to take this too on how do you think about a future development is it a balanced strategy with building out which you have a portfolio through M&A.
In your own expertise and maybe some incremental organic investments just to understand from a capital allocation is all M&A and will there be some organic and where do you think there is going to where do you think that's going to stand and maybe two years ago.
<unk>.
Sure and happy to answer that.
I mean as you know what we got into the segments. We were attracted by the dynamics of an industry that contains the same as in the rest of our business small drop sizes are big product bundle that allows us to segment that market then and obtain good results, but also in an industry that was highly fragmented throughout the United States.
Besides ongoing there are another couple of platforms that are following a similar strategy and we still believe that there is a long road ahead of consolidation as a law.
These regional distributors are both on the Jan San side.
<unk>.
The foodservice disposable side and the packaging side.
Our widely distributed across.
The United States with small distributors. So we feel that there is a long way still ahead in terms of consolidation there.
And that consolidation is usually immediately accretive.
As you can bundle on the on.
On the supply side bundle some of our supplier partners and create value relatively quickly there.
So we do still do believe that the secular trends in the business can probably result in mid single digit growth for a number of years to come and then if you add the potential for inorganic growth. This could continue to grow at.
At mid double digit growth. So we still believe that there are significant capital allocation opportunities out there that can be value accretive relatively quickly. So.
So we will continue again to be disciplined both from a valuation perspective as well as from a capital allocation perspective, the balance of the portfolio, but we do still believe that we could.
We could grow this business significantly and really become this fourth platform for FEMSA.
And just to add to that Ben.
The most recent acquisition SYGMA as you mentioned.
It is in the <unk>.
Right.
Consolidate consolidating or national platform in all the categories and importantly, as we mentioned it allows us to enter the Saudi.
In a stronger way, particularly in Texas.
Okay.
Perfect. Thank you very much and Congress on those results.
Thanks, Dan.
Your next question comes from the line of Bob Ford from Bank of America.
Good morning, everybody and congratulations on the results.
Can you talk a little bit about how.
Spin and maybe premia are impacting the way you're capturing data.
And maybe how.
Thats evolving.
Within the business.
And.
You have pretty big Bill payments.
Activity at the stores and certainly a correspondent banking and other services as well and I was wondering if you are now able to identify those transactions with specific clients.
Yes, absolutely.
Thanks for the question.
I mean, we have had so much success, especially on the premium side in terms of.
How easy it is for customers to get in and affiliate themselves and what we're seeing is not necessarily I think a strong pickup in traffic, but what we are seeing is that the customers that argues in premier and the tender as of the first quarter was 6% at this point, we're closer to 10% given how fast it's growing but we.
Now lets you said.
Able to.
The tax not only what tickets are in the store and what kind of.
Buying patterns customer having to start but who it is and what time. He is doing and how frequently comes back and those premier customers are consistently increasing their ticket.
<unk> way above the average ticket price that that.
I'd also so we're talking about the average premier customer being closer to an 80 peso ticket rather than a much lower average ticket for OXXO and we will.
Obviously slowly, but surely doing a beta testing to start to have promotions targeted at the individual customer level. So clearly that is giving us a whole lot of new data that we're starting to use more efficiently as we would try to extract value from from that proposition and given how fast it's growing we will likely.
See those results coming through.
Again, hopefully on the on the traffic side, but at least in the short term on the gross margin side on the spin product as we've said before right now it's a relatively simple product, it's basically a wallet with bill payments and what it is doing I think it's capturing the marginal consumer that otherwise.
<unk> would have would have would have not done the transaction at the store. So it is capturing that margin of consumer and without that changing our pricing architecture for the services segment. It is it is making our market in that category I think wider the more that we start to put functionality.
Into this beam products.
Staff such as.
Remittances from the U S. Eventually a partnership on credit we believe that the use case for the product will start to become I think more and more compelling and the fact that you also earning but EMIR points by using the <unk> product is allowing us to do the cross selling of the services category along with the other categories at OXXO. So.
Overall, we believe it's super accretive to the entire <unk>.
OXXO ecosystem.
Just to add to that to complement that both I think that is worth mentioning that.
Not surprisingly this tour is proving to be a tremendous.
Source of competitive advantage is obviously a lot of the transactions continue to be.
Not only in the digital world, but also in the physical world and a lot of people get into the program by visiting the store. So the combination of having the stores having the digital platform.
<unk> is just in <unk>.
Great way to work on senior yields.
Thanks.
Super interesting.
And as you look at your earlier cohorts particular cohorts, particularly with what's been.
Ill hand, you I think you mentioned that Theres some evolution in terms of frequency or average ticket right there.
They are becoming more important clients can you talk about that evolution that youre seeing in the early cohorts in and why you expect that to be replicated in more subsequent cohorts as you acquire new users.
I think on that point, Bob right now the average spend user is transacting about 10 times per month, which is up significantly from where our early cohorts were and I think it's basically just the network effect as more people become.
Spinners.
Peer to peer function of sending money across peers is starting to become a lot more valuable so more and more we are seeing that are part of the value proposition play out in terms of just the sheer network effect.
I would add Barbara Hi, this is Juan.
We're seeing people realize that they can do other things with Spain and here I would highlight.
There is a certain kind of power user that's that's differentiating themselves.
All of them are women.
<unk>.
They sell.
Some products, maybe it's beauty products, maybe it's some other type of product.
Really entrepreneurial and they're realizing that this facilitates our life in a big way and so they are using the product.
Much more than your average.
Joe just sending money to respond.
So I think people are realizing how useful something like this can be for their for their for that.
Professional lives and Thats something that we didn't necessarily anticipate.
That's very interesting thank you very much.
Thanks, Bob.
And your next question comes from the line of all on the line is from Santa.
Thank you good morning, everyone and congratulations again for the results I have a question regarding traffic.
Your same store sales of OXXO, I mean, basically youre, capturing clearly inflation.
Sure.
And the average ticket was positive traffic compare versus 2019.
We see inflation, becoming more pervasive with Mexico and everywhere.
How should how are you thinking about the business going forward with this higher levels of inflation. Thank you.
Sure Hi, Alan on the <unk> question, we are still well below 2019 levels on a traffic basis on a same store sales basis were up why because the ticket as you know went up as people started shifting their their view of the OXXO store into other categories.
In terms of I mean.
Home replenishment.
But now some of the more traditional categories, such as gathering et cetera are coming back having said that the profit number actually you need to drill down on the average it.
Still a mixed bag I would say that the locations closer to traffic.
Traffic levies patients such as bus stations.
The more urban cities et cetera, those traffic levels are coming back up but we still have certain locations within schools that are still not back to 100%.
Yes.
Present process or office buildings that are now adapting to a hybrid model those are locations where traffic patterns still continued to lag. So it is it is a little bit of a mixed bag.
With regards to that having said that the store has been resilient in terms of making sure that we are keeping the cost at the level of the new reality in terms of traffic patterns in the ticket is obviously, helping so we're being very strategic about how we staff the stores the product bundle that we put on it et cetera.
And then Patrick I don't know if you want to pick the inflation and further inflation.
Alan the reality is that proximity.
A very good channel channel for consumers to spend there.
Their money wisely.
The out of pocket is more <unk>.
The right items in terms of cash outlay.
Another thing that is.
Very strong in Oxford.
How flexible on how fast we manage the portfolio of products that we offer so we will be.
We work and we will continue to work together with our commercial partners to make sure that we provide consumers with options.
Moving forward that perfect there.
The out of pocket and we are confident that.
There shouldnt be.
Difficulties that we cannot counsel.
The inflation persists.
Is it is it is lower.
Got it.
Just regarding the traffic still being weak.
Lower 2019, thank you.
Roughly how much in aggregate, we see traffic still below.
What's the Gaslog too.
To to go back to 2019 levels.
It's in the low double digits down from 2019 roughly across all of them.
Got it.
Thank you so much.
Thank you.
Your next question comes from the line of Sergio Matsumoto from Citi.
Yes, good morning, VAALCO had a new one.
I wanted to ask about the.
The premiere of spin.
<unk> success.
Youre seeing lately with the context.
For a long time.
Consumers.
Prefer the cash transaction.
But obviously things change.
<unk> and just wanted to.
Kind of hear from you what do you think has changed in the.
In the Mexico consumers because for a long time, they kind of went out of their way to circumvent the financial transaction being tracked.
Always preferred cash.
So in your mind, what do you think changed in the last couple of years, obviously that led you to launch the new products.
Yes, sorry.
Very good thank you for the question.
Luke.
Don't think that there is.
Major change our fundamental change at least for the time being in terms of the cash utilization.
That simply.
Consumers are seeing the opportunity to.
To use their money to transact differently with the opportunity as we're giving them.
I mean, just going back to the question that bulk bank regarding the cohorts I mean, it's clear that.
That's why I was highlighting we have.
New cohort when it comes to.
Tube ordinary sales with small businesses that can actually transact differently.
Using a spin and.
Some of those transactions are not in cash some of those transactions are are different.
Different in nature, So I guess what.
What I'm trying to tell you is that we continue to have.
The number of consumers that favor cash transactions. They are there we continue to serve them properly, but we are adding a number of other transactions some of them from the same consumers some of them from different consumers that are noncash.
And the nice thing that we move forward and as we add.
Different.
In transaction ability to our platform, we will see more of that.
But EMEA I mean, the fact that the consumers transact.
The way they have been doing it in the store they buy something and then they just accumulate points.
So that what they do with the point then that becomes a non transaction non cash transaction at some point.
But the origin of the <unk>.
I see what before its majority cash.
Is that going to change moving forward it is very likely.
But I think that when that happens we are perfectly positioned to also capture that.
That trend so all in all I would say that this is an evolution is very fluid.
And we are well positioned to capture any of the two.
As we move forward, putting it into context.
There is $1 3 million active users of <unk> right now and the active population economic activity in Mexico as nearly $60 million.
Again, it's still early stages with regards to this and I would say that it's not that they are changing but the use case right now for spin is primarily peer to peer set.
Sending money across Mexico, and that is just one functionality to the extent that number one we get a bigger network effect, there and number two we add more functionality. We feel that there is still a very long runway of people that again, maybe they will still use cash for their day to day activities, but especially for these kinds of.
Use cases, they will find the spin product to be a good plan.
Yes.
It's very interesting.
Thank you.
Your next question comes from the line of Alvaro Garcia.
Thank you Chi.
Hi, Good morning, <unk> hope you're well.
<unk> on gross margin proximity.
Can you you mentioned the pricing architecture it spins the same.
And we've seen obviously a big bump in users there. So I was wondering if that had something to do with.
Your gross margin gains.
Given how profitable that.
Businesses are.
Perhaps that has to do.
Maybe with beer better beer dynamics more commercial income there any more color on gross margin would be great. Thank you.
Sure I think Alberto it's a combination of a bunch of different initiatives that have been I mean, taking ground over the past few years that maybe were passed by because of the pandemic and whatnot, but we're seeing a big increase in commercial activity from a bunch of supplier partners. We're starting also to see.
Dale and beer.
And that category specifically.
Providing I think more headwinds in terms of a gross margin perspective.
We are also.
The gathering use case for OXXO is back and that usually includes higher tickets of higher gross margin products and the other hormones replenishment category also sticking in that and I think.
Lot of the efficiencies that were baked in on the distribution side and.
In other categories within the core offering of the core OXXO store I think are starting to pay off as the <unk>.
Traffic slowly, but more importantly, the overall consumption starts to kick in so it's a combination of a bunch of little factors how about them.
Great.
Follow up on the pricing architecture, it's been is there any.
Maybe thinking internally on.
Maybe changing that pricing architecture as you move.
Sort of into a more digital sphere on things like bill payments, maybe subsidizing a bit of it those.
Those transactions.
The transaction costs.
Traffic or we did not there yet.
Yes. The digital team is actively engaged in the navy testing strategies precisely to figure out what the elasticity of those products would be so we are we are actively engaging in those kinds of experiments to come up with.
With the best solution, obviously to continue to create value for the consumer but also try to cannibalize in as little as possible of our business there.
Great. Thank you very much.
Thank you.
Your next question comes from the line of Louise.
BPM group.
Good morning.
Thanks for taking my questions.
Quick ones actually.
Joseph you've already discussed this earlier.
From the from the 2 million users.
It's been users of the year.
The new stores that you are in your report.
Can you share with us.
If there are if they are 100% organic or there are some conversions.
From.
Previous solid vessel.
The customers that will be the first.
Okay.
Hey, Louis So this is one.
This is organic in defense that everybody from <unk>.
Whether they had a previous product.
They lost their Carter already expired and they want to open a new one.
Or they've never had a card like this right. So.
There isn't.
And automatic transmission of NFL vessel users of that.
Yes.
The consumers are going to look at spin and hopefully see that it's a compelling product and then they're going to.
Obtaining filling application and get their card. So the numbers you're seeing are mostly organic I think in the sense, you're asking the question there might be some of that in the past were sold after users.
But this is basically people that have requested or half half.
<unk>.
Talked positively about opening an account there is no there is no.
Most of the cell dose the users are still using their fadesa card.
As we speak.
So procurement.
Yes, yes.
Just to complement is that now we actually we actually that customer belongs to us we have their data we have their consumption pattern, whereas before with us adapt to customers.
I mean, a lot of information on the customer.
I think from their perspective, obviously, they have the automatic enrollment and premier.
And they begin to accrue rewards hopefully will keep improving the value proposition, but it's up to the consumer to reach.
Individual consumer.
Whether to open an account or not.
Perfect.
Very clear thank you.
Yes.
Okay.
And your next question comes from the line of Rodrigo Alcantara from UBS.
Hi.
Bonding.
My question on <unk>.
On the logistics and distribution.
We are quite active.
Lots of insight.
Seek module supplier.
Smaller companies are just curious if this was the main reason.
Reached behind the sequential contraction on the margins that we saw and also thinking more on very long term basis.
How should we think about the LNG logistics distribution.
Sure.
Like our new core or or or.
Samsung or.
You generate synergies create the larger platform could be a potential strategic sale.
Absolute passion that all of.
Hi, Jordan.
I know that it's quite like a long term question, but just wanted your thoughts Bob Thank you very much.
Sure on your first question just with regards to <unk> EBITDA margins. If you absolutely look at the EBIT margin that is actually I think reflecting a little bit of kind of what we're doing and the synergies that we were able to accrue.
The issue on the EBITDA line is that.
Mexican.
Our logistics business, we did a lease sale leaseback transaction of certain trucks that were being used in our direct contract carrier business.
<unk>.
And that clearly affected the depreciation line and Thats why you see a contraction in EBITDA margin, but that is more I think a financial transaction and it doesn't reflect the underlying economics of the business.
I don't know Pat or <unk>.
One do you want to take the long term view of the logistics Division.
Yes.
Look thank you for the question Rodrigo.
First of all.
Just to put it in context, when we decided to enter the <unk>.
The U S market as <unk> said before we still have tremendous opportunity.
Consolidating an industry that was highly fragmented and silly to some extent.
To leverage the knowledge, we have of the distribution of.
<unk>.
Items, two different two different points in different industry.
And as.
As we see what we have learned over the last.
18 to 24 months since we decided to do this all those premises.
<unk> proven to be true.
We have broad we have I would say combined the expertise of the company that we have acquired under the same time the expertise that we have a sensor to.
To integrate those businesses.
What is becoming a very powerful national platform.
So.
Also as we said before.
There are there continue to be opportunities to consolidate the industry and now also work on the packaging platform, which is what the peak is.
Providing and that is going to take some time I mean, we see the opportunities we see the way into a strengthening or national platform. So the long term proposition that we envisioned when we started this.
Continues to be to be there we are confident that the strategies, we have to capture that value.
As we said before also.
The opportunities for cross selling.
But we have for these three categories <unk> foodservice and packaging our environment because the customers usually by those.
Those three platforms. So at this stage, we see very strong opportunity on the organic side as we consolidate and integrated platform and we also see a lot of inorganic opportunities. So longer term, we are confident that we.
We are in the business that we continue to provide value to two <unk> to our shareholders.
We'll continue to work with strategic partners, we have.
Figure it out for that business.
Sure.
That's exactly.
Exactly right back on I think you said earlier as well the.
The potential.
For meaningfully increasing the size of the operation is very very real.
Right now we're already.
Just look at the U S business.
Once the Sigma transaction closes we will be north of 2 billion in revenues in that business. So.
Very quickly doubled from the original Washington, both North American transaction.
And I don't know that we're going to continue to grow at the same pace, but certainly it's a pretty steep growth curve still.
That's very clear thank you very much.
One for that.
For the complement on that thank.
Thank you.
Good morning.
And your next question comes from the line of Thiago first total achieved from Goldman Sachs.
Yes, hi, good morning, everyone and thanks for taking our question I would like to shift the conversation a little bit to star expansion.
Secondly, when it comes to the growth from Mexico.
Retail.
And <unk> are scaling up.
Lastly, so in the very long term lets say 510 years down the road.
Very good.
Compared to the Clorox George in Mexico.
Okay.
Hey, Thiago this is Juan.
I think if you look at store growth.
Other than what we described in terms of the hiccups.
Maybe coming after a very active fourth quarter, where we opened I think something like 450 stores in Mexico in one quarter and that has kind of flowed into the start of the year out of the pipeline.
Gets rebuilt and the confidence level is high that we're going to hit something that's very close to 800 stores in Mexico. This year.
The way you framed the question I mean, what's happening is.
Obviously the growth the slope of the curve in Mexico has flattened a little bit and I think.
800 would be the number that I would put in my model for the next few years.
In Mexico, but what's happening outside of Mexico, I think is.
It's remarkable.
Especially I mean, certainly you've talked about Grupo north and I think thats relevant.
And the fact that we already opened our hundred OXXO store basically a year or a little over a year. After the first OXXO what's opened in Campinas.
If you just look at overall OXXO International Youre, looking at Chile, and Colombia, which together should contribute.
Anywhere between 150 or 180 stores per year right now.
And then you have Brazil, which yes, it's a joint venture. So I guess, you can say, we only get credit for half of those but.
They have a plan for more than 200. This year, so already youre looking at a scenario where.
Outside of Mexico, Youre going to add.
Something like 400 stores.
The 800 in Mexico, and those curves are going to continue to convert right not.
Because Mexico I don't think were going to be opening fewer stores in Mexico, but I do think we're going to be opening a lot more stores in South America. So.
In a five year timeframe.
Can you describe I think it's definitely possible that international would be adding an equivalent number of stores as Mexico right. So so thats I think thats pretty powerful, especially because we continue to.
To see that.
As soon as you get to a certain scale.
Of course, assuming you have your value proposition right you begin to make money.
And we're already beginning to see that in Chile, and Colombia, where the revenue per store is already above what it is in Mexico and Europe . Obviously, there is you need more scale there in Chile now we're going to have more than 200 stores and you are very very close to beginning to have some some.
Sure.
Profitability not just at the store level, but at the company level. So we're very very optimistic that international will increasingly contribute to the profitability of the company.
And scale is a big part of it and so yes I think.
In five years time, you could be having south America contributing an equal number.
Mexico, and then of course, we will keep looking for other places where the model could work.
Yeah, just to add a little bit of additional perspective on that.
I think that yes, I agree with one that definitely when you look in the next 10 to five years, which is the.
As your question there is no reason to two.
Without that we have the opportunity.
To see the same number of stores.
In Latin America, as we see in.
In Mexico today, that's on one hand on the sector and more specifically about Brazil, I think that.
The fact is that.
When we look at.
The numbers, we have today in terms of number of stores.
It goes beyond that then it goes to the point of what is the value proposition and how strong it is in Brazil today, and the fact that the OXXO model actually travels very well across different countries.
And in Brazil in just 10 months.
Market.
The teams have been able to.
I would say tweak and modify it.
Improve on the on the value proposition, we have in Mexico to adaptive properly to the different markets and the different consumer needs we have.
In each market and also importantly to adapted to.
The way consumers, leaving those CD 70, so when you look at the <unk> store in Brazil for example, and you see that.
We have a lot of our stores are in vertical developments, where.
A lot of people leave close by we have adapted the proposition to reflect that.
And he is doing very well so.
You can see that when you go to a store in San Pablo for example, Sao Paolo for example, so.
That is giving us the confidence.
Two look very positively at the chances and opportunities we have to expand our ultra platform OLED, Mexico. So the next five to 10 years.
Would be very exciting for our business in proximity in Latin America, and I would say, particularly in Brazil.
I think you had mentioned items clearing exciting forward. Thank you very much and congrats for the results.
Thanks Garen.
And your next question comes from the line of Carlos Laboy from HSBC.
Yes.
Good morning, everyone I'd like to hear from.
Hey, I'm back on this.
Gentlemen.
We all know that the operators.
Arkansas and Coke FEMSA.
Are great and they keep doing a great job and the business models are great, but what does the board think about the source.
FEMSA share price discount to NAV.
And is there any insight you can give us on how the board may approach a repair to this discount.
Yeah sure Hi, Carlos how are you.
Listen I mean, clearly that's top of mind right now for us.
If you think about kind of the <unk> debt.
FEMSA for the longest time, I think being a being a multi business company involved in several several different businesses has bode well for us for the longest time because it has given us in the market where capital was obviously much more difficult to come by there is today it has given us.
As to capital a lower cost of capital and also because giving us the umbrella to really be able to incubate initiatives that require patients to play out such as OXXO.
What might I think for the longest time, we've proven that that those.
That those initiatives and that patients in that cost of capital has proven to be valuable for all shareholders.
Now we do realize that the board is obviously pricing was honored.
As our portfolio has gotten a lot more complicated on the one hand and on the other hand also the the nature of our shareholder base.
And who they are and what they are interested is evolving that there is a disconnect between what the value of the individual businesses are and what we're getting in the market. So I think more importantly, this year with Daniels new role. The board has entrusted came with running a comprehensive strategic review.
All of the different business units, and obviously of FEMSA as a holding company and as a portfolio. So we're beginning that work.
And we'll probably be working on that throughout the year and that work will focus on some of these pain points, which include.
Ask trading at what we believe as well as you do to be structural.
<unk> discount to the sum of the parts. So we will be sharing with you. The results of that analysis I do think that there are a lot of levers where.
Where we could probably in the short term extract some more value, but there are also I think longer term considerations that we need to take in mind, but.
There are issues such as simple as just giving more disclosure are.
And being a lot more transparent about each one of our individual business units that were trying to do slowly as you have seen in the past couple of years.
But I think overall that they are very confident as a board that we will be able.
<unk>.
Yes.
To crystallize the value of all these initiatives.
Through.
Through different mechanisms as we go forward.
Do you think they would even consider breaking up the group or is that off the table.
Nothing is off the table at this point that Carlos and then we will be reviewing all different options considering both short term.
Value creation implications as well as long term structure.
Structural advantages that holding the group together can base.
Thank you.
Yeah.
Ladies and gentlemen that is all the time, we have for questions today.
I'll turn the conference back to Francisco come onshore for closing additional remarks.
Thank you very much for participating in the call today.
Thank you for your continued support to FEMSA.
Businesses.
Teen.
See you next time.
Ladies and gentlemen, if you wish to replay the webcast for this call you may do so at <unk>.
<unk> Investor Relations website.
This concludes our conference for today. Thank you for your participation and have a nice day all parties may now disconnect.