Q2 2024 Fomento Económico Mexicano SAB de CV Earnings Call

Operator: Good day, ladies and gentlemen; we're awaiting the arrival of additional participants, and we will be starting shortly. We thank you much for your patience, and please continue to hold. Thank you. Hello, and welcome to the FEMSA's second quarter 2024 results conference call. My name is George.

Speaker Change: Good day ladies and gentlemen, we're awaiting the arrival of additional participants and we will be starting shortly.

We thank you much for your patience and please continue to hold. Thank you.

George: Hello, and welcome to the FEMSA's second quarter 2024 results conference call. My name is George. I'll be a coordinator for today's event.

Operator: I'll be a coordinator for today's event. Please note, this conference is being recorded, and for the duration of the call, your lines will be in a listen-only mode. However, you will have the opportunity to ask questions once we end the presentation, and this can be done by pressing Star 1 on your telephone keypad to register your question. If you require assistance at any point, please press Star zero, and you will be connected to an operator. And I'd like to hand the call over to your host today, Mr. Juan Fonseca, Head of Investor Relations, to begin today's conference. Please go ahead, sir.

Speaker Change: Please note, this conference is being recorded and for the duration of the call, your lines will be in a listen-only mode. However, you will have the opportunity to ask questions once you end the presentation, and this can be done by pressing star 1 on your telephone keypad to register your question.

Speaker Change: If you require assistance at any point, please press star zero and you will be connected to an operator.

Speaker Change: And I'd like to hand the call over to your host today, Mr. Juan Fonseca, Head of Investor Relations, to begin today's conference. Please go ahead, sir.

Juan F. Fonseca: Thank you, George. Good morning, everyone. Welcome to FEMSA's second quarter 2024 results conference. Today we are joined by Martin Arias, our CFO, and Jorge Collazo, who heads Copicola Fentos Investor Relations. The plan is for Martn to open the conversation with some high-level comments on our strategic progress and business trends, followed by a more detailed discussion of the results, and finally, to open the call to your questions. Before I hand over the call to Martn, I want to address a disclosure at the end of today's press release related to changes to our first quarter results as reported.

Juan F. Fonseca: Thank you, George.

Juan F. Fonseca: Good morning, everyone. Welcome to FEMSA's second quarter 2024 results conference call.

Speaker Change: Today we are joined by Martin Arias, our CFO , and Jorge Collazo, who heads Copecola Fences Investor Relations Team.

Speaker Change: The plan is for Martín to open the conversation with some high-level comments on our strategic progress and business trends, followed by a more detailed discussion of the results, and finally opening the call for your questions.

Juan F. Fonseca: In the press release for the first quarter of 2024, we classified certain results related to non-core discontinued operations on several incorrect lines, and we are reclassifying them today. The changes only impact the consolidated income statement and mainly cause a decline in income from operations.

Speaker Change: Before I hand over the call to Martín, I want to address a disclosure at the end of today's press release related to changes to our first quarter results as reported.

Speaker Change: In the press release for the first quarter of 2024, we classified certain results related to non-core discontinued operations on several incorrect lines, and we are reclassifying them today.

Martin Arias: The changes only impact the consolidated income statement and mainly cause a decline in income from operations.

Juan F. Fonseca: However, they do not impact consolidated net income and do not impact any of the results of the business units, which will be reported separately at the end of today's press release. Martin, please go ahead. Thank you, Juan. Good morning, everyone.

Martin Arias: However, they do not impact consolidated net income and do not impact any of the results of the business units report separately.

Martin: You can find the detailed table at the end of today's press release, and Martín will briefly explain the main differences before we open the call for your questions.

Martin Arias: Before we review our quarterly results, I would like to update you on the most recent steps we have taken as we continue to execute on the FEMSA Forward Strategy regarding initiatives related to capital returns for shareholders, as well as asset divestitures. As you are aware, we remain actively engaged in a share buyback. In the second quarter, we completed our first accelerated share repurchase program for $400 million and initiated a new program for $600 million.

Martin: Martín, please go ahead.

Martin: Thank you, Juan. Good morning, everyone. Before we review our quarterly results, I would like to update you on the most recent steps we have taken as we continue to execute on the FEMSA Forward Strategy regarding initiatives related to capital returns for shareholders, as well as asset divestitures.

Martin: As you are aware, we remain actively engaged in shared buybacks.

Martin: In the second quarter, we completed our first accelerated share repurchase program for $400 million and initiated a new program for $600 million.

Martin Arias: Additionally, during the first six months of 2024, we bought back approximately $180 million in shares on the Mexican stock market. Earlier this year, we also secured shareholder approval for an extraordinary dividend of approximately $600 million, half of which has already been paid. This brings our extraordinary return of capital to shareholders for 2024 to nearly $1.8 billion, equal to approximately 60% of what we committed to by the end of 2026. These figures do not include the ordinary dividend of approximately $800 million, half of which has been paid to date.

Martin: Additionally, during the first six months of 2024, we have bought back approximately $180 million in shares in the Mexican stock market.

Martin: Earlier this year, we also secured shareholder approval for an extraordinary dividend of approximately $600 million, half of which has already been paid.

Martin: This brings our extraordinary return of capital to shareholders for 2024 to nearly 1.8 billion dollars equal to approximately 60% of what we committed to by the end of 2026.

Martin: These figures do not include the ordinary dividend of approximately $800 million, half of which has been paid to date.

Martin Arias: This is all consistent with the Capital Allocation Framework we communicated last February, and we will continue to advance towards our stated objectives in terms of our progress on asset divestitures. We announced last week that we have reached a definitive agreement to divest our refrigeration and food service equipment operations in Vera and Torrey for a total amount of approximately $450 million. This transaction is expected to close before the end of the year. And finally, in the first week of July, we received the remaining payments from our divestment in Jetro Restaurant Depot, totaling $945 million. This means we have now received the full amount from the JETRO transaction.

Martin: This is all consistent with the capital allocation framework we communicated last February , and we will continue to advance towards our stated objectives.

Martin: In terms of our progress on asset divestitures.

Martin: We announced last week that we have reached a definitive agreement to divest our refrigeration and food service equipment operations, Imbera and Torrey, for a total amount of approximately $450 million.

Martin: This transaction is expected to close before the end of the year.

Operator: And finally, in the first week of July, we received the remaining payments from our investment in General Restaurant People, total $945 million. This means we have now received the full amount from the general transaction.

Martin: And finally, in the first week of July , we received the remaining payments from our divestment in Jethro Restaurant Depot totaling $945 million.

Martin: This means we have now received the full amount from the JETRO transaction.

Martin Arias: This is not reflected in our financials recorded today, but the cash is now on it. We will continue to analyze opportunities to return capital to shareholders beyond our ordinary dividends, consistent with our stated objective of a total of approximately $3 billion by the end of 2026.

Operator: This is not reflected in our financials report today, but the cash is now on hand.

Martin: This is not reflected in our financials report today, but the cash is now on hand.

Operator: We will continue to analyze opportunities to return capital to shareholders beyond our ordinary duty, consistent with our statehood objective of the total of approximately $3 billion by the end of 2026. In addition, as we gain greater clarity and all the organic and strategic opportunities available, and in light of developments on the macro front in the coming years, we will analyze the possibility of launching additional capital return initiatives.

Martin: We will continue to analyze opportunities to return capital to shareholders beyond our ordinary dividend, consistent with our stated objective of a total of approximately $3 billion by the end of 2026.

Martin Arias: In addition, as we gain greater clarity on all the organic and strategic opportunities available, and in light of developments on the macro front in the coming years, we will analyze the possibility of launching additional capital return initiatives. Now, let me turn to the general trends we saw in our operation. In the second quarter, we continued to see good momentum and strong performance from our core business unions. Once again, most of our operations, including the two that contribute most to our results, delivered a solid set of numbers.

Martin: In addition, as we gain greater clarity on all the organic and strategic opportunities available, and in light of developments on the macro front in the coming years, we will analyze the possibility of launching additional capital return initiatives.

Operator: Let me turn to the general trends we saw in our operations. In the second quarter, we continue to see good momentum and strong performance from our core business units. Once again, most of our operations, including the two that contribute most to our results, delivered a solid set of numbers. Maximum America saw a deceleration in the pace of the same solar sales growth in Mexico. Against the tough comparison base, doing part to a shift in the timing of holy week's celebrations relative to last year, as well as volatile weather, but offset by a stellar growth margin and solid historic expansion.

Speaker Change: Let me turn to the general trends we saw in our operations.

Speaker Change: In the second quarter, we continue to see good momentum and strong performance from our core business units.

Speaker Change: Once again, most of our operations, including the two that contribute most to our results, delivered a solid set of numbers.

Martin Arias: Proximity Americas saw a deceleration in the pace of the same-source sales growth in Mexico against a tough comparison base due in part to a shift in the timing of Holy Week celebrations relative to last year, as well as Volatile Weather, but offset by stellar gross margin and solid store expansion. On its part, Coca-Cola FEMSA delivered a remarkable performance.

Speaker Change: Proximity Americas saw a deceleration in the pace of the same source sales growth in Mexico against a tough comparison base due in part to a shift in the timing of Holy Week celebrations relative to last year, as well as volatile weather.

Speaker Change: but offset by a stellar gross margin and solid store expansion.

Operator: For its part, over a couple of times, not delivered a remarkable performance, showing double-digit increases across its own income statement, driven once again by strong volume and revenue growth in its major markets. We continue to see good results at Valora and Oxogaz, with both businesses delivering double-digit growth and income from operations. At our health division, we saw a sequential improvement in our fast growing retail operation in Colombia, combined with stable results from Chile.

Speaker Change: For its part, Coca-Cola FEMSA delivered a remarkable performance, showing double digital increases across its own income statement, driven once again by strong volume and revenue growth in its major markets.

Martin Arias: Showing double digital increases across its own income state, driven once again by strong volume and revenue growth in its major markets. We continue to see good results at Valora and OxoGas, with both businesses delivering double-digit growth in income from operations. In our health division, we saw sequential improvement in our fast-growing retail operation in Colombia combined with stable results from Chile, but we again faced competitive headwinds in Mexico. And we are laser focused on our plans to change the trajectory of that market and bring it in line with the positive dynamics we see elsewhere at FEMSA.

Speaker Change: We continue to see good results at Valora and Oxogas, with both businesses delivering double-digit growth in income from operations.

Speaker Change: At our Health Division, we saw sequential improvement in our fast-growing retail operation in Colombia, combined with stable results from Chile, but we again faced competitive headwinds in Mexico.

Operator: But we again face competitive headwinds in Mexico, and we are laser-focused with our plans to change the trajectory in that market to bring it in line to the positive dynamics we see elsewhere at FEMC. Finally, at digital, we continue to add users and advance source our ecosystem objectives.

Speaker Change: And we are laser focused with our plans to change the trajectory in that market.

Speaker Change: To bring it in line with the positive dynamics we see elsewhere at Pemson.

Martin Arias: Finally, at Digital, we continue to add users and advance towards our ecosystem of, Now, let me go over the quarter's results in more detail. Let's begin with the census consolidated second quarter results. Total revenues increased 12.2% and operating income rose 15.8% compared to the second quarter of 2023, driven largely by strong growth in proximity, fuel, and currcula fensa and despite weaker performance in our health division. Net Consolidated Income increased 75.5% to $15.7 billion.

Speaker Change: Finally, at Digital, we continue to add users and advance towards our ecosystem objectives.

Operator: Now, let me go over a quarter's results in more detail. Let's begin with Census consolidated second quarter results. Overall revenues increased 12.2%, and operating income rose 15.8% compared to the second quarter of 2023. Driven largely by strong growth at Proximity, Fuel, and Corvala, FEMC, and despite weaker performance in our health division. Net consolidated income increased 75.5% to 15.7 billion pesos. Mainly explained by improved operating income, a non-cash foreign exchange gain of 6.1 billion pesos related to our US dollar denominator and cash position and derivative financial instruments. And a higher interest income related to an increase in our average cash balance.

Speaker Change: Now let me go over the quarter's results in more detail.

Speaker Change: Let's begin with Census Consolidated Second Quarter Results.

Speaker Change: Total revenues increased 12.2% and operating income rose 15.8% compared to the second quarter of 2023.

Speaker Change: Driven largely by strong growth of proximity, fuel, and currícula fensa and despite weaker performance in our health division.

Speaker Change: Net consolidated income increased 75.5% to 15.7 billion pesos, mainly explained by improved operating income.

Speaker Change: A non-cash foreign exchange gain of 6.1 billion pesos related to our U.S. dollar-denominated cash acquisition and derivative financial instruments.

Speaker Change: And a higher interest income related to an increase in our average cash balance.

Operator: This was all offset by a significant shift from a large, other non-operating income to a small non-operating expense. Related to the receipt of highly condivident and the gain from the sale of JRD in the second quarter of 23. And was also offset by higher interest expense, reflecting a benefit in the second quarter of 23 from a one-time gain related to the purchase of debt.

Speaker Change: This was all offset by a significant shift from a large other non-operating income to a small non-operating expense.

Speaker Change: related to the receipt of Heineken dividends and the gain from the sale of JRD in the second quarter of 23.

Speaker Change: And was also offset by higher interest expense, reflecting a benefit in the second quarter of 23 from a one-time gain related to the purchase, repurchase of debt.

Operator: Now turning to our operational results, Proximity America delivered a solid performance in the second quarter. Oxos saved the same store sales increased 4.1% in the first quarter. I'm sorry, in the second quarter, driven by an increase of 4.7% in average customer ticket and a decrease of 0.6% in traffic.

Martin Arias: This was mainly explained by improved operating income, a non-cash foreign exchange gain of 6.1 billion pesos related to our U.S. dollar denominated cash position and derivative financial instruments, and a higher interest income related to an increase in our average cash balance. This was all offset by a significant shift from a large other non-operating income to a small non-operating expense. Related to the receipt of Heineken dividends and the gain from the sale of JRD in the second quarter of 23 and was also offset by higher interest expense Reflecting a benefit in the second quarter of 23 from a one-time gain related to the purchase repurchase of debt, Now turning to our operational results.

Martin Arias: Proximity Americas delivered a solid performance in the second quarter. Oxo Same Store Sales increased 4.1% in the first quarter. A I'm sorry in the second quarter, driven by an increase of 4.7% in average customer ticket and a decrease of 0.6% in traffic. The second quarter was an atypical one, where each month reflected a unique set of mixed effects, generally more negative than positive. For example, the month of April had a tough calendar effect due to the shift in the Holy Week celebration.

Speaker Change: Now turning to our operational results.

Speaker Change: Proximity Americas delivered a solid performance in the second quarter. OXO's same-store sales increased 4.1% in the first quarter.

Speaker Change: I'm sorry, in the second quarter.

Speaker Change: Driven by an increase of 4.7% in average customer ticket and a decrease of 0.6% in traffic.

Operator: The second quarter was an atypical one, where each month reflected a unique set of mixed effects generally more negative than positive. For example, the month of April had a tough calendar effect. Do the shift in the Holy Week celebrations. While May benefited from extremely high temperatures across Mexico. And June faced a comparison base of approximately 20% growth in 23, as well as some early tropical storms, and the restriction of alcohol sales ahead of the national elections. Ultimately, these factors combine to contribute to the deceleration of same-source sales. However, growth margin expanded by 310 basis points to reach 44.1%.

Speaker Change: The second quarter was an atypical one where each month reflected a unique set of mixed effects generally more negative than positive

Speaker Change: For example, the month of April had a tough calendar effect due to the shift in the Holy Week celebrations.

Martin Arias: While many benefited from extremely high temperatures across Mexico, June faced a comparison base of approximately 20% growth in 23, as well as some early tropical storms and the restriction of alcohol sales ahead of the national election. Ultimately, these factors combine to contribute to the deceleration of same-store sales. However, Gross Margin expanded by 310 basis points to reach 44.1%. Strong trend driven by strong trends in commercial revenue, income, I'm sorry, in commercial income, a positive contribution from financial services, and revenue management initiatives.

Speaker Change: While many benefited from extremely high temperatures across Mexico.

Speaker Change: And June faced a comparison base of approximately 20% growth in 23, as well as some early tropical storms and the restriction of alcohol sales ahead of the national elections.

Speaker Change: Ultimately, these factors combine to contribute to the deceleration of same-store sales.

Speaker Change: However, gross margin expanded by 310 basis points.

Operator: Strong driven by strong trends in commercial revenue income, I'm sorry, in commercial income, a positive contribution from financial services and revenue management initiatives. Income from operations increased 7.6%. While the operating margin contracted 10 basis points to 9.9%.

Speaker Change: to reach 44.1 percent.

Speaker Change: Driven by strong trends in commercial income, a positive contribution from financial services, and revenue management initiatives.

Martin Arias: Income from operations increased 7.6% while the operating margin contracted 10 basis points, to 9.9%, reflecting higher operating expenses as we build our platform in South America, higher labor costs across markets, and investment behind capability building and strategic initiatives such as store segmentation and revenue management on the North Store Expansion Front. Also, added 404 new stores during the quarter, of which 332 were opened in Mexico and 72 in South America.

Speaker Change: Income from operations increased 7.6% while the operating margin contracted 10 basis points to 9.9% reflecting higher operating expenses

Operator: Reflecting higher operating expenses, as we build our platforms up America, higher labor costs across markets, and investment behind capability building and strategic initiatives, such as store segmentation and revenue management. On the our store expansion fund, also added 404 net news storage during the quarter, of which 332 were open in Mexico and 72 in South America. This figure includes 14 openings by group net loss in Brazil. Historically, store openings typically have lagged in the first half of the year, complicating our operations in the second half and resulting in lower incremental revenues from those stores for the full year.

Speaker Change: As we build our platform in South America, higher labor costs across markets.

Speaker Change: An investment behind capability building and strategic initiatives such as store segmentation and revenue management.

Speaker Change: North Store Expansion Front

Speaker Change: ARPSO added 404 net new stores during the quarter of which 332 were opened in Mexico and 72 in South America

Martin Arias: This figure includes 14 openings by Grupo NOS in Brazil. Historically, store openings typically have lagged in the first half of the year, complicating our operations in the second half and resulting in lower incremental revenues from those stores for the full year. Therefore, in an effort to improve the shape of our annual expansion curve, we have shifted our focus this year to opening as many stores as we can during the first half.

Grupo NOS: This figure includes 14 openings by Grupo NOS in Brazil.

Grupo NOS: Historically, store openings typically have lagged in the first half of the year, complicating our operations in the second half, and resulting in lower incremental revenues from those stores for the full year.

Operator: Therefore, in an effort to improve the shape of our annual expansion curve, we have shifted our focus this year to opening as many stores as we can during the first half. This approach will have the efficiency and productivity of the new stores and avoid the operational congestion in the key fourth quarter. This means a full year target for also Mexico remains between 1,100 net news stores, which is the sweet spot for which our growth engine is currently up.

Grupo NOS: Therefore, in an effort to improve the shape of our annual expansion curve, we have shifted our focus this year to opening as many stores as we can during the first half.

Martin Arias: This approach will enhance the efficiency and productivity of the new stores and avoid operational congestion in the key fourth quarter. This means the full-year target for OXO Mexico remains between 1,000 and 1,100 net new stores, which is the sweet spot for which our growth engine is currently operating. Moving to Proximity Europe, total revenues increased by 5.8% based on. This positive performance was driven by growth in all business lines. Gross profit increased 8.8% in pesos, while gross margin improved by 120 basis points, reaching 43.3%. At the operating income level, Valora again delivered strong growth with 41% growth and a 100 basis points margin expense.

Grupo NOS: This approach will enhance the efficiency and productivity of the new stores and avoid the operational congestion in the key fourth quarter.

Grupo NOS: This means our full year target for OXO Mexico remains between 1,000 and 1,100 net new stores, which is the sweet spot for which our growth engine is currently optimized.

Operator: Domest. When we get proximity to Europe, total revenues increased by 5.8% in basis. His father's performance was driven by growth in all business lines. Growth's profit increased 8.8% in basis of growth margin improved by 120 basis points, reaching 43.3%. At the operating income level, Alota again delivered strong growth with 41% growth and 100 basis points margin expansion, reflecting the continued performance of the B2B2B2B operation, health and results from the retail and food service businesses, and consistent cost management.

Grupo NOS: Moving to Proximity Europe .

Speaker Change: Total revenues increased by 5.8% in basis.

Speaker Change: This positive performance was driven by growth in all business lines.

Speaker Change: Gross profit increased 8.8% in pesos, while gross margin improved by 120 basis points, reaching 43.3%.

Speaker Change: At the operating income level, Valora again delivered strong growth with 41% growth and 100 basis points margin expansion.

Martin Arias: Reflecting the Continued Ad Performance of the B2B Operation, Healthy Results from the Retail and Food Service Businesses, and Consistent Cost Management. Turning to the Health Division, total revenue showed a slight contraction of 0.4%. The same store sales decreased 1.1%. This outcome was primarily driven by a highly competitive environment in Mexico and Ecuador, which was offset by stable performance in Chile and continued good momentum in the Colombian region. As a result, operating income fell by 14.8% in pesos, and the operating margin contracted by 70 basis points, reaching 4.1%.

Speaker Change: Reflecting the continued ad performance of the B2B operation, healthy results from the retail and food service businesses, and consistent cost management.

Operator: Turning to the health division, total revenue showed a slight contraction of 0.4% to the same source; sales decreasing 1.1%. This outcome was primarily driven by a highly competitive environment in Mexico and Ecuador, which was offset by stable performance in Chile and continued good momentum in Colombia, retail. As a result, operating income fell by 14.8% in basis, and the operating margin contracted by 70 basis points, reaching 4.1%.

Speaker Change: Turning to the Health Division.

Speaker Change: Total revenue showed a slight contraction of 0.4 percent.

Speaker Change: For the same store sales decreasing 1.1%.

Speaker Change: This outcome was primarily driven by a highly competitive environment in Mexico and Ecuador which was offset by stable performance in Chile and continued good momentum in Colombia region.

Speaker Change: As a result, operating income fell by 14.8% in pesos, and the operating margin contracted by 70 basis points reaching 4.1%.

Operator: While these numbers show as the functional improvement from the first quarter, this challenging dynamic continues to highlight the need for strategic adjustments to overcome the challenges and change its trajectory of our business, particularly in Mexico. As we have mentioned before, we are dedicating considerable efforts to addressing the issues within the health division. In Colombia, we continue to see encouraging results from our strategic acceleration of the retail component of our business, making us the retail leader in that market and reducing our exposure to the institutional sector. This transition is steering us towards a more profitable and structurally robust operation, enhancing our overall performance and stability.

Martin Arias: While these numbers show a sequential improvement from the first quarter, this challenging dynamic continues to highlight the need for strategic adjustments to overcome the challenges and change the trajectory of our business, particularly in Mexico. As we have mentioned before, we are dedicating considerable efforts to addressing the issues within the health division. Columbia, we continue to see encouraging results from our strategic acceleration of the retail component of our business, making us the retail leader in that market and reducing our exposure to the institutional sector. This transition is steering us towards a more profitable and structurally robust operation. Enhancing our overall performance and stability. Meanwhile, in Mexico, we are undertaking several significant strategic measures.

Speaker Change: While these numbers show a sequential improvement from the first quarter, this challenging dynamic continues to highlight the need for strategic adjustments to overcome the challenges and change the trajectory of our business, particularly in Mexico.

Speaker Change: As we have mentioned before, we are dedicating considerable efforts to addressing the issues within the health division. In Colombia, we continue to see encouraging results from our strategic acceleration of the retail component of our business.

Speaker Change: Making us the retail leader in that market.

Speaker Change: and Reducing Our Exposure to the Institutional Sector.

Speaker Change: This transition is steering us towards a more profitable and structurally robust operation.

Operator: Meanwhile, in Mexico, we are undertaking several significant strategic measures, including the launch of a new store format following a successful template used in our building personal categories and strengthens consumer promotional activities.

Speaker Change: Enhancing our overall performance and stability.

Speaker Change: Meanwhile in Mexico we are undertaking several significant strategic measures including the launch of a new store format following the successful template used in our South American markets.

Martin Arias: Including the launch of a new store format following a successful template used in our South American market, which among other things emphasizes the beauty and personal care categories and strengthens consumer promotional activities. We will keep you posted as these initiatives progress.

Speaker Change: which, among other things, emphasizes the beauty and personal care categories and strengthens consumer promotional activities.

Operator: We will keep you posted as these initiatives progress.

Speaker Change: We will keep you posted as these initiatives progress.

Operator: Turning to also gas, we posted a notable 15.9% increase in the same station sales and 16.2% in total revenues, reflecting solid performance in retail and institutional sales.

Martin Arias: We posted a notable 15.9% increase in same-station sales and 16.2% in total revenues, reflecting solid performance in retail and institutional sales. During the quarter, the gross margin reached 11.6%.

Speaker Change: Turning dogs to a gas.

Speaker Change: We posted a notable 15.9% increase in same station sales.

Speaker Change: and 16.2% in total revenues, reflecting solid performance in retail and institutional sales.

Operator: During the quarter, the gross margin reached 11.6%. While the operating margins stood at 4.2%. Although the structure profitability from our fast-growing institutional businesses lower than that of retail, this was offset by operational efficiencies.

Speaker Change: During the quarter, the gross margin reached 11.6%.

Martin Arias: Well, the operating margins stood at 4.2%. Although the structure profitability from our fast growing institutional business is lower than that of retail, this was offset by operational, Turning to digital at FEMSA. You continue to make significant progress during the quarter. The number of active users for SPIN by OXO reached 7.9 million, marking a 37% year-on-year increase in your growth. This demonstrates consistent customer adoption and an increase in transactions per user. Our Spin Premium Loyalty Program also showed impressive growth, with a 44.3% year-on-year increase, reaching 22.8 million active users.

Speaker Change: Well, the operating margin stood at 4.2%.

Speaker Change: Although the structure profitability from our fast-growing institutional business is lower than that of retail, this was offset by operational inefficiencies.

Operator: Turning to digital FMSA, you continue to make significant progress during the quarter. The number of active users for spin-by-oxyl reached 7.9 million, marking a 37% year-on-year growth.

Speaker Change: Turning to digital at FEMSA.

Speaker Change: We continue to make significant progress during the quarter.

Speaker Change: The number of active users for SPIN by OXO reached 7.9 million, marking a 37% year-on-year growth.

Speaker Change: This demonstrates consistent customer adoption and an increase in transactions per user.

Speaker Change: Our Spin Premium Loyalty Program also showed impressive growth, with a 44.3% year-on-year increase, reaching 22.8 million active users.

Martin Arias: Approximately 36% of OXXO Mexico sales and 40.6% of OXXO gas sales are now linked to SPIN premium. This integration strengthens our data gathering and utilization capabilities. We expect to gradually focus less on total users with a shift towards a higher number of transactions per user. Finally, Convergola FEMSA reported another impressive quarter.

Speaker Change: Approximately 36% of OXO-Mexico sales and 40.6% of OXO-Gas sales are now linked to SPIN Premium.

Speaker Change: This integration strengthens our data gathering and utilization capabilities. We expect to gradually focus less on total users with a shift towards a higher number of transactions per user.

Martin Arias: Achieving Double-Digit Growth Across Its Income Stakes. This remarkable performance was driven by consistent volume growth across most of its markets coupled with effective revenue growth management initiatives and despite the challenges faced through the flooding of its plant in Porto Alegre, Brazil, and the Holy Week calendar show. Repel A, of course, quarterly call was held last Friday and is available on their website.

Speaker Change: Finally, Convergola FEMSA recorded another impressive quarter, achieving double-digit growth across its income statement.

Speaker Change: This remarkable performance was driven by consistent volume growth across most of its markets.

Speaker Change: coupled with effective revenue growth management initiatives and despite the challenges faced to the flooding of its plant in Porto Alegre, Brazil and the Holy Week calendar shift.

Speaker Change: The replay of COPS quarterly call, which was held last Friday, is available on our website.

Martin Arias: Regarding CAPEX deployment, our key priorities remain to enhance our operational capabilities, drive innovation, and sustain organic growth across our operations. In the second quarter, our CAPEX reached 11.3 billion pesos, representing 5.7% of total revenue and a 35.1% increase over the same period last year. This growth was driven by the expansion and remodeling of stores at OXXO Mexico, continued development of OXXO LATAM, increased investments in production and distribution capacity, as well as continued investment in our FEMSA-wide digital transformation.

Speaker Change: Regarding CAPEX deployment, our key priorities remain to enhance our operational capabilities, drive innovation, and sustain organic growth across our operations.

Speaker Change: In the second quarter, our capex reached 11.3 billion pesos, representing 5.7% of total revenue and a 35.1% increase over the same period last year.

Speaker Change: This growth was driven by the expansion and remodeling of stores at OXXO-México, the continued development of OXXO-LATAM,

Speaker Change: Increased investment in production and distribution capacity at COF as well as continued investment in our FEMSA-wide digital transformation initiatives.

Martin Arias: Let me go over the table that we included at the back of our press release, which presents in detail a comparison between the first quarter 2024 consolidated income statement and a comparable first quarter 2023 result and the reclassified statement published today. The main effect of these changes is the following. Total revenues grew 10.5% in the new numbers, as opposed to 11.3%. Gross margin was 38.7% in the new numbers, as opposed to 39.4%.

Speaker Change: Finally…

Martin Arias: Income from operations was 12,935 million pesos versus 14,767 million pesos and reflected a margin of 7.3% in the new numbers versus 8.3%, relative to the reclassified 2023 figure. Income from operations grew 12.2% in the new numbers as opposed to 14.4%. Other operating expenses, or other non-operating expenses, were only $487 million instead of $2.4 billion.

Speaker Change: Let me go over the table that we included at the back of our press release.

Speaker Change: presents in detail a comparison between the first quarter 2024 consolidated income statement and a comparable first quarter 2023 results.

Speaker Change: and the reclassified statement published today.

Speaker Change: The main effect of these changes are the following.

Speaker Change: Total revenues grew 10.5% in the new numbers, as opposed to 11.3%.

Speaker Change: Gross margin was 38.7% in the new numbers, as opposed to 39.4%.

Speaker Change: income from operations were $12,935 million pesos versus $14,767 million pesos.

Speaker Change: and reflected a margin of 7.3% in the new numbers versus 8.3%.

Speaker Change: relative to the reclassified 2023 figure.

Speaker Change: Income from operations grew 12.2% in the new numbers as opposed to 14.4%.

Speaker Change: Other non-operating expenses were only $487 million instead of $2.4 billion.

Operator: As mentioned in our press release, this does not impact the consolidated net income figures, nor does it impact the results of the businesses reported individually in either period and does not affect the 2023 audited state. And with that, let's open the call for questions. Operator, please. Thank you very much, sir. Ladies and gentlemen, as a reminder, if you wish to ask any questions, please press star 1 on your headphone keypad and just make sure your mute function is not activated in order to let your equipment, sorry, still reach your equipment.

Speaker Change: As mentioned in our press release, this does not impact the consolidated net income figures, nor does it impact the results of the businesses reported individually in either period, and does not affect the 2023 audited statements.

Speaker Change: And with that, let's open the call for questions. Operator, please.

Speaker Change: Thank you very much sir. Ladies and gentlemen, as a reminder, if you wish to ask any questions, please press star 1 on your headphone keypad, and just make sure your mute function is not activated in order to let your equipment, sorry, still reach your equipment.

Benjamin M. Theurer: The first question today is coming from Ben Tourer, coming from Barclays. Please go ahead, sir. Your line is open. Yeah, good morning. Thank you very much for taking my question, Martin. So one thing I wanted to follow up on is just the strength of the gross margin at OXO. I mean, that was obviously, as you've highlighted in your prepared remarks, a lot driven by commercial initiatives, but it also feels like financial services.

Speaker Change: The first question today is coming from Ben Tourer coming from Barclays. Please go ahead sir, your line is open.

Benjamin M. Theurer: Good morning. Thank you very much for taking my question, Martin.

Benjamin M. Theurer: So one one thing I wanted to follow up is just the strength of the gross margin at OXO I mean that was obviously as you've highlighted in your prepared remarks a lot driven By the commercial initiatives, but it also feels like the financial services So I wanted to understand if you can help us bridge the success that you're having at your digital Initiatives be it spent by OXO, but also premia as it relates to that Boost on the gross margin. So how sustainable is that boost and how much of that is really related and interconnected? With all the success you've pointed out in the press release when it comes to the digital initiatives. Thank you very much

Benjamin M. Theurer: So I wanted to understand if you could help us bridge the success that you're having with your digital initiatives, be it SPIN by OXO and PREMIA, as it relates to that boost in gross margin. But how sustainable is that boost? And how much of that is really related to and interconnected with all the success you've pointed out in the press release when it comes to the digital initiatives? Thank you very much.

Martin Arias: Yeah, just to clarify, I mean, the digital initiatives, many of them are housed in digital themselves and are not reflected in the proximity numbers, per se. What you will see in proximity that is related to digital is that the initiatives of many of our efforts benefit the store and tend to drive traffic and consumer engagement. As I have said in the past, if tomorrow, for any reason, we decided that Digital at FEMSA should be reintegrated into OXO, a significant portion of the initiatives that Digital at FEMSA undertakes would have to continue to exist exactly as they continue to exist. For example, PREMIA, spun by OXO.

Speaker Change: Yeah, just to clarify, I mean the digital initiatives, many of them are housed in digital at FEMSA and are not reflected in the proximity numbers per se.

Speaker Change: What you will see in proximity that is related to digital is the initiatives of many of those efforts

Speaker Change: Benefit the store and tend to drive traffic and consumer engagement, although I said in the past

Speaker Change: If tomorrow, for any reason, we decided that digital FMSA should be reintegrated into OXO, a significant portion of the initiatives that digital FMSA undertakes would have to continue to exist exactly as they continue to exist. For example, PREMIA, spin by OXO.

Martin Arias: So, we are still not, I would say, seeing the full potential of digital at SAMHSA, monetization of data, or consumer promotions through the app at the level that we expect they will occur in the future. That's an ongoing process. So the improvement in the growth margin that you're seeing today is really very typical work of retailers gaining commercial income from suppliers to promote their products and to give them prominent placements and to drive promotion. In the case of financial services, as you may know, financial services have a relatively higher gross margin because it's a service. So it doesn't really have a very large number of cogs associated with it.

Speaker Change: So, um...

Speaker Change: We are still not, I would say, seeing the full potential of the digital offensive

Speaker Change: monetization of data or consumer promotions through the app at the level that we expect they will occur in the future.

Speaker Change: That's an ongoing process. So the improvement in the gross margin that you're seeing today is really very typical work of retailers.

Speaker Change: of Gaining Commercial Income from Suppliers to promote their products and to give them prominent placements and to drive promotions.

Speaker Change: In the case of financial services, as you may know, financial services has a relatively higher gross margin. It's a service, so it doesn't really have a very large COGS associated with it.

Martin Arias: And so when that business does well, it tends to improve the overall gross margin of the business. Uh, That effort on commercial income relating to suppliers, I would tell you, is a product of many years of capability building and focus. And as you know, the history of OXO has been one of every year creating a series of initiatives that create new layers of value. And we're always thinking one, three, five, 10 years out. What do we need to be doing today?

Speaker Change: And so when that business does well, it tends to improve the overall gross margin of the business.

Speaker Change: That effort on the commercial income relating to suppliers, I would tell you, is the product of many years of capability building and focus.

Speaker Change: And as you know the history of OXO has been one of every

Speaker Change: year, creating a series of initiatives that create new layers of value. And we're always thinking one, three, five, ten years out, what do we need to be doing today? So today you're seeing the harvest of

Martin Arias: So today, you're seeing the harvest of years of capability building, hiring people, and developing the system so that we can offer suppliers very varied and segmented opportunities for consumer promotion. That is, we're harvesting that today. I don't know if you have anything to add. Yeah, I've been just one.

Speaker Change: Years of capability building, hiring of people, development of the system, so that we can offer suppliers, you know, very varied and segmented opportunities for consumer promotions.

Martin Arias: I mean, I would just add within that role that OXO has increasingly played as a partner of our suppliers' marketing efforts. You are seeing kind of the early days of, not just in the physical store, obviously, banners on the walls, decals on the doors of the coolers, that sort of thing, displays, kiosks, but, you know, the early days of digital, screens at the stores, and other ways through which commercial income is being expanded into the digital realm.

Speaker Change: That is, we're harvesting that today.

Speaker Change: I don't know if you have anything to add Juan. Yeah, hi Ben, this is Juan. I mean, I would just add within that role that OXO has increasingly played as, you know, as a partner of our suppliers' marketing efforts.

Speaker Change: You are seeing kind of the early days of

Speaker Change: Not just, you know, in the physical store, obviously, you know, banners on the walls, decals on the doors of the coolers, that sort of thing, you know, displays, kiosks.

Speaker Change: But, you know, the early days of digital.

Speaker Change: Screens of the Stores and other ways through which the commercial income is being expanded.

Martin Arias: And, of course, this also will involve, you know, digital FMSA in larger ways. The other comment I wanted to make is on the kind of the old school services, which to Martin's point continues to perform well, in addition to whatever is happening on the digital FMSA side. We did see double-digit growth in financial services, but that's just kind of, you know, more people going to the store and paying their bills and paying for their Temu and Shane purchases and other, you know, different things that we're doing with Amazon.

Speaker Change: into the digital realm. And of course, this also will involve, you know, digital FEMSA, in larger ways. The other comment I wanted to make is in the kind of the the old school

Speaker Change: Services, which to Martin's point, continues to perform well.

Speaker Change: In addition to whatever is happening on the digital offensive side

Speaker Change: We did see double-digit growth in financial services, but that's just kind of, you know, more people going to the store and paying their bills and paying for their Temu and Shane purchases and other, you know, different things that we're doing with Amazon. And so, you know, kind of the same old.

Martin Arias: And so, you know, kind of the same old bricks and mortar, you know, giving people more reasons to come to the store. And we are being, you know, our colleagues are being very successful with that. Okay, perfect. Thank you very much. Thank you, sir. Ladies and gentlemen, if your question has been answered, you may remove yourself from the queue by pressing star 2.

Speaker Change: Bricks and mortar give people more reasons to come to the store and our colleagues are being very successful on that front.

Speaker Change: Perfect. Thank you very much.

Speaker Change: Thank you, sir. Ladies and gentlemen, if your question has been answered, you may remove yourself from the queue by pressing star 2.

Operator: We'll now move to Rodrigo Alcantara, calling from UBS. Please go ahead; your line is open. Hi, thanks for checking my question. Just a follow-up here on the gross margin. It was quite impressive. I mean, maybe you could just break down, I mean, how much of a proportion would you say could be attributed to the commercial income and how much would you say could be attributed to the services, which is also very interesting what you commented, Juan.

Speaker Change: We'll now move to Rodrigo Alcantara, calling from UBS. Please go ahead, your line is open.

Rodrigo Alcantara: Hi, thanks for checking my questions.

Rodrigo Alcantara: Just a follow-up here on the cross-margin, it was quite impressive. I mean, maybe you can just break down, I mean, how much of a proportion would you say

Speaker Change: Could be attributed to the commercial income and how much would you say could be attributed

Operator: I mean, 50-50, 40-60. If you could give us some more granularity on that, just for us to assess the sustainability of the gross margin expansion, it would be very helpful. That would be my question. Hey, Rodrigo, this is Juan. I could tell you, but then I'd have to kill you, right?

Speaker Change: to the services, which is also very interesting what you commented, Juan. I mean, 50-50, 40-60, if you could give us some more...

Speaker Change: More granularity on that, just for us to assess the sustainability of the gross marine expansion would be very helpful. That would be my question. Thank you.

Rodrigo Alcantara: So look, commercial income is very relevant, right? I would say, and you know, some of you will remember my comments from a year ago, or, you know, a year and a half ago. Having opened the stores to both brewers, opening the stores to the Molelo portfolio always held potential in the sense of having the two large brewers competing for space in what is the most important channel for them. That is beginning to actually take place.

Speaker Change: Hey Rodrigo, this is Juan. I could tell you, but then I'd have to kill you, right? So, look, commercial income is very relevant, right? I would say, and you know, you some of you will remember my comments from a year ago or, you know, a year and a half ago.

Speaker Change: Having opened the stores to both brewers right I mean opening the stores to the Modelo portfolio always held potential you know in the sense of having the two large brewers

Speaker Change: competing you know for space in what is the most important channel for them.

Rodrigo Alcantara: We've become important for a number of suppliers for a number of categories for whom OXO is, bar none, the most important place to deploy resources because we are not just a double-digit but a significantly double-digit part of their channel structure in Mexico. It works as a partnership, obviously. Again, I'm not going to tell you a number, but it's very relevant.

Speaker Change: So that is beginning to actually take place.

Speaker Change: we you know we've become important for a number of

Speaker Change: Suppliers of a number of categories.

Speaker Change: For whom OXO is, you know, bar none the most important place to deploy resources because, you know, we are a

Speaker Change: Not just a double-digit, but a significantly double-digit part of their channel structure in Mexico.

Speaker Change: You know it works as a partnership obviously and it is I mean again I'm not going to tell you a number

Juan F. Fonseca: I did mention a few moments ago that after some years, also for many of you who have been observers of the company for a long time, we had seen financial services plateau. We are seeing a resurgence, but certainly, having brought Manorte back, we made some changes to our relationship with BBVA. I mentioned a few moments ago some of these bigger e-commerce players for whom a lot of the purchases are people will make a purchase online, but then they prefer to pay in cash at the store because they don't want to provide their data online or for whatever reason, they feel more comfortable paying in cash.

Speaker Change: But it's very relevant. Now, I did mention a few moments ago that after some years, also for many of you who have been observers of the company for a long time, where we had seen financial services kind of plateau,

Speaker Change: We are seeing, I don't know if resurgence is the right word, but certainly, you know, having brought, you know, Manorte came back, you know, we made some changes to our relationship with BBVA. And, you know, I mentioned a few moments ago.

Speaker Change: Some of these bigger e-commerce players.

Speaker Change: For whom a lot of the purchases are, you know, people will do a purchase online, but then they prefer to pay in cash at the store.

Juan F. Fonseca: Things that did not exist two or three years ago are happening now on the financial services side. I would say those two are obviously the bulk of what's driving the expansion, but that's been true for a long time. If I had to say which is bigger, I would say commercial income is bigger. That's as far as I would say.

Speaker Change: Because they don't want to provide their data online, or for whatever reason, they feel more comfortable paying in cash. So, you know, things that did not exist two, three years ago are happening now on the financial services side.

Speaker Change: So, I would say those two are obviously the bulk of what's driving the expansion. But that's been true for a long time, right? And I would say, if I have to say which is bigger, I would say commercial income is bigger. But yeah, that's I think as far as I would take it.

Juan F. Fonseca: That's helpful, Juan. Also, on this front, a couple of quarters ago, months ago, you announced kind of a partnership with Amazon Mexico on that. I mean, is this something you could give us any update on? Is this something that is also contributing to the service income line? That would be all. Thank you very much.

Speaker Change: That's helpful, Juan. Also on this front, I mean, a couple of quarters ago, months ago, you announced kind of like a partnership with Amazon Mexico on that. I mean, is this...

Speaker Change: Could you give us any update on this? Is this something also that is, you know, contributing to the service income line? That would be all. Thank you very much.

Juan F. Fonseca: I mean, we've been working with Amazon for a while, as you know, in terms of the click and collect and having packages kind of, you know, under the counter. We are making some efforts to see whether there's a locker alternative that we can deploy at some of the stores. You know, we work with not just Amazon. We work with other e-commerce players where you can pay for your purchase. As I mentioned, some of them, but, you know, people like Mercado Libre, where you can also do that now.

Speaker Change: I mean we've been working with Amazon for a while as you know you know in terms of the click and collect and having packages kind of you know under the counter we we are making some efforts to see whether there's a lockers

Speaker Change: alternative that we can deploy at some of the stores

Speaker Change: We work with not just Amazon, we work with other e-commerce players where you can pay for your purchase as I mentioned some of them, but people like Mercado Libre where you can also do that now, you can obviously do gift cards and other products.

Operator: You can obviously do gift cards and other other products. I mean, it's it's a very dynamic part of the business, right? Where every every month, every quarter, we try to have more, again, more at the end of the day. They generate profit streams, but they also bring footfall. Right. So it will work out for us. Great. Thank you, Juan. Sure. Thank you very much, sir. We'll now move to Ricardo Alves calling from Morgan Stanley. Please go ahead. Hi everyone, I had some technical issues.

Speaker Change: I mean it's it's a it's a very dynamic

Speaker Change: part of the business, right, where every month, every quarter, we try to have more. Again, at the end of the day, it's more reasons for people to come to the store. They generate profit streams, but they also bring a footfall, right? So it works out for us.

Ricardo L. Alves: Yes, yes, Ricardo. Thank you very much. Thanks for the call. Thanks for the, Unknown Speaker What's even more impressive was about your growth, that you delivered that line of words, not above What are you? So I wanted to talk about your average ticket, as well. I appreciate already the comments you made on expansion, but thinking about your same source is in the average ticket.

Juan F. Fonseca: Great. Thank you, Juan.

Mr.: Sure. Thank you, Mr.

Mr.: We will now move to Ricardo Alves calling for Morgan Stanley . Please go ahead.

Martin Arias: What were the main drivers in your to deliver above inflation for the second quarter and, in turn, what were the drivers for you to perform just in line with inflation in the second quarter? I'm just trying to think of reasons that impaired that performance in the second quarter so that we can see above inflation figures as we move into the second half. I mean, I would understand the traffic being down because of the holiday shift, but maybe there's more details on products and maybe categories that were underperforming because of the holiday or maybe because of the election, that maybe there's going to be a way and we could go back. So that's my first question, kind of related to same-store sales going forward, but focused on average ticket.

Ricardo L. Alves: Hi everyone, I had some technical issues. Can you hear me?

Ricardo L. Alves: Yes, yes Ricardo. Thank you very much. Thanks for the call. Thanks for the opportunity. What's even more impressive to...

Speaker Change: to us about your gross margin expansion is that you deliver that in the context of average tickets.

Speaker Change: that were in line with inflation and not above inflation as we've seen

Speaker Change: Consistently over the past few quarters, so I wanted to talk about your average ticket as well Appreciate already the comments you made on the gross margin expansion But thinking about your same store sales and the component of average ticket

Speaker Change: What were the main drivers, in your view, to deliver above inflation before the second quarter, and then in turn, what were the drivers for it to perform just in line with inflation in the second quarter? I'm just trying to think.

Speaker Change: You know of reasons that impaired that performance in the second quarter so that we can see above inflation figures as we move into the second half.

Speaker Change: I mean, I would understand the traffic being down because of the holiday shift, but maybe there's more details on the mix.

Speaker Change: Of products and maybe categories that were underperforming because of the holiday or maybe because of the election that maybe it's going to be a way and we could go back to

Speaker Change: Above Inflation Ticket

Martin Arias: My second question: we've been positively impressed with the past... The shareholder remuneration, over $2.5 billion. Buybacks and dividends. When you reflect, I think that maybe this is a question to Martin, when you reflect on the announcement made in February versus your current situation. In my opinion, these above, What are the key learnings?

Speaker Change: So that's my first question kind of related to same-store sales going forward, but focused on average ticket.

Speaker Change: My second question, we've been positively impressed over the past few months on the shareholder remuneration front, over 2.5 billion dollars of

Martine: Buybacks and Dividends. When you reflect, I think that maybe this is a question to Martin, when you reflect on the announcement made on February versus your current execution, which in my opinion is is above expectations,

Martin Arias: or with the learnings that you've had. Are you willing to change in any way the announcement that you made, you know, in terms of your cash allocation down the road? You did another accelerated share repurchase. Is that the main focus going forward, or perhaps another dividend? Early next year and specifically for 2024, can we be getting closer to three billion dollars in total return based on everything that you did, and you can still be active on local buyback? Sorry for the long question and thanks again for the time.

Speaker Change: What are the key learnings, or with the learnings that you've had...

Speaker Change: Are you willing to change in any way the announcement that you made, you know, in terms of your cash allocation down the road? You did another accelerated share repurchase. Is that the main focus going forward or perhaps another dividend?

Speaker Change: early next year? And specifically for 2024? Can we be getting closer to $3 billion in total in total return based on everything that you did, and you can still be active on local buybacks in Mexico? Sorry for the long question. And thanks again for the time.

Martin Arias: So on the capital allocation, I mentioned it in, like comments. We will always consistently re-evaluate capital return to shareholders, which is one of the core commitments made during FEMSA forward. That is a story that will never end.

Speaker Change: So on the capital allocation, I mentioned it in

Speaker Change: We will always consistently re-evaluate capital return to shareholders which is one of the core commitments made during FEMSA forward so

Martin Arias: There's no final chapter on capital return, so as we gain clarity on the organic and inorganic opportunities available to us. As we understand the macro environments in which we're operating and the challenges or opportunities that those create, And as we see the cash generation that our businesses are generating, and, in particular, the return that we're getting from the organic investments that we're making, we will have to re-evaluate this considerably. But we now our dividend is up to over $800 million. That's the ordinary.

Speaker Change: That is a history that will never end. There's no final chapter on capital return. So as we gain clarity on organic and inorganic opportunities available to us

Speaker Change: as we understand the macro environments in which we're operating and the challenges or opportunities that create.

Speaker Change: and as we see the cash generation that our businesses are generating and in particular

Speaker Change: The return that we're getting from the organic investments that we're making, we will have to re-evaluate this consistently.

Speaker Change: But now our dividend now is up to over $800 million. That's the ordinary.

Martin Arias: That's, you know, a sacred number that, going forward, we will protect and maintain as much as that is possible for us. As for the Extraordinary, again, of the $3 billion that we promised that we would return to the markets in an extraordinary fashion, we've returned $1.8 billion. As to whether we will accelerate the remaining 1.2, that is yet to be seen, and the determination of whether it will be dividends or shares will be determined by market conditions generally. So when we see opportunities to buy our shares at a compelling price, we will do so. And if not, we always have available to us the ability to repay through extraordinary dividends.

Speaker Change: you know.

Speaker Change: [inaudible]

Speaker Change: sacred number that going forward you know it's we will protect and maintain as much as that is possible for us

Speaker Change: As to the Extraordinaries, again, of the $3 billion that we promised that we would return to the markets in an extraordinary fashion, we've returned $1.8 billion.

Speaker Change: As to whether we will accelerate the remaining 1.2, that is yet to be seen, and the determination of whether it will be dividends or shares will be determined by market conditions generally.

Speaker Change: So when we see opportunities to buy our shares at a compelling price, we will do so. And if not, we always have available to us the ability to repay through extraordinary dividends.

Martin Arias: Um, and I make this judgment almost every month. We meet, we discuss what our plans are, how our results are coming, how we see the markets, how we see the opportunities in the short, medium term, and on the basis of that. So I don't want to tell you whether we will or will not return the additional 1.2 because that's the decision that's made when we return that 1.2 because that's the decision that's going to be made based on market conditions. Um, so I hope that's helpful and that answers your question.

Speaker Change: I make this judgment almost every month. We meet, we discuss.

Speaker Change: What our plans are, our results are coming.

Speaker Change: How we see the markets, how we see the opportunities in the short-medium term.

Speaker Change: And on the basis of that, so.

Martin Arias: Let me take a stab, Ricardo, this is Juan, on the same-store sales conversation. Certainly, the quarter, as Martin described in his opening remarks, was a very strange quarter in terms of each month having one-offs or tough comparisons.

Speaker Change: So I hope that's helpful and that answers your question.

Speaker Change: Let me take a stab, Ricardo and Juan, on the same store sales conversation.

Speaker Change: and many more.

Speaker Change: Certainly, the quarter, as Martin described in the opening remarks, is a very strange quarter in terms of each month having

Juan F. Fonseca: Generally, I think the subject of tough comparisons is a bit of a constant. I think we mentioned at the outset that for the month of June, we were lapping 20% growth for same-store sales. This was both in terms of the ticket that you focus on in the question, but also in terms of traffic.

Speaker Change: Juan Fonseca, Jose Garza, Eugenio Garza, Jose Carbajal, Eugenio Garza, Jose Carbajal, Eugenio

Speaker Change: It's a bit of a constant. I think we've mentioned at the outset that for the month of June , we were lapping a 20% growth for same-store sales, and this was

Speaker Change: You know both in in terms of the ticket that you you focus on on the question, but also traffic, right? So, you know

Juan F. Fonseca: We've talked a little bit about segmentation and revenue management capabilities being developed at OXO. Obviously, that should continue to help us drive pricing, hopefully, above inflation. If I take a step back and I look at how the year is evolving, even thinking about margins for a second, in the first quarter, we saw the contraction at the operating level be bigger, and hopefully, it's getting smaller now. Certainly, sequentially, from the first quarter to the second quarter, it did get smaller, and hopefully, we can continue to shoot for that flat margin for the full year.

Speaker Change: We've talked a little bit about segmentation and revenue management capabilities being developed at OXO. Obviously, that should continue to help us drive pricing, hopefully, above inflation. If I take a step back and I look at kind of how the year is evolving,

Speaker Change: You know, even thinking about margins for a second, you know, we in the first quarter.

Speaker Change: We saw the contraction at the operating level.

Speaker Change: [inaudible]

Juan F. Fonseca: But on the same-store sales front as well, we are getting into easier comps. We're getting into the second half, and we are getting into easier comps, so that should help in terms of the number that we print for the third and fourth quarters.

Speaker Change: Right, as we get into the second half, we're getting into easier comps.

Speaker Change: So that should help, you know, in terms of the number that we print for third and fourth quarter. You know, one thing that is true though, and that's kind of bigger than FEMSA, is that just historically, you know, after elections, second half after elections,

Juan F. Fonseca: One thing that is true though, and that's kind of bigger than FEMSA, is that just historically, after elections, second halves after elections, sometimes there's a bit of softness out there in terms of the consumer environment. We'll see what happens this time around, but we're optimistic that the tools that we have and the capabilities that we have today that we maybe didn't have a year ago, two years ago, combined with a more normal comp base, where we're not lapping 15s and 17s and 18s, should make for a set of numbers for the second half that is kind of, you know, more normal.

Speaker Change: Sometimes there's a bit of softness out there in terms of the consumer environment.

Speaker Change: We'll see what happens this time around, but...

Speaker Change: We're optimistic that the tools that we have and the capabilities that we have today

Speaker Change: That we maybe didn't have a year ago, two years ago, combined with a more normal comp base where we're not lapping 15s and 17s and 18s should make for a set of numbers for the second half.

Juan F. Fonseca: And as I've said before, we'll see if the new algorithm for same store sales ends up being better than what we used to have, you know, before COVID, when we talked about 5% same store sales. It's kind of, you know, the mid single digit that many of you have heard me say 1000 times. We'll see where we end up if we can do a little bit better than that. But then we'll also make some assumptions about inflation and what inflation ends up being. Obviously, we got some news this morning about inflation, you know, picking up a little bit. So we'll have to deal with that.

Speaker Change: That that is kind of you know, which is more normal and as I've said before We'll see if we you know, the new algorithm for same-store sales

Speaker Change: And so being better than what we used to have, you know, before COVID when

Speaker Change: We talked about 5% same-store sales. It's kind of, you know, the mid-single digit that many of you have heard me say a thousand times.

Speaker Change: We'll see where we end up, if we can do a little bit better than that. But then we'll also make some assumptions about inflation, right? And what inflation ends up. Obviously, we got some news this morning about inflation, you know, picking up a little bit.

Martin Arias: But generally speaking, I think we feel good about our ability to structurally improve on the algorithm with these new capabilities that are being developed at all. Yeah, I would just add, look, in a competitive environment, and we live in a competitive environment, our policy is not just to look at inflation and to say, I'm going to increase it above inflation. I mean, that's an unsustainable business because part of the secret that OXO has always had is that it is price competitive with other alternative retailers, but it is extremely convenient.

Speaker Change: So, we'll have to deal with that, but generally speaking, I think we feel good about our ability to structurally improve on the algorithm with these new capabilities that are being developed at OCSL.

Speaker Change: I would just add, look, in a competitive environment, and we live in a competitive environment, our policy is not just to look at inflation and to say, I'm going to increase it above inflation. I mean, that's an unsustainable business model.

Speaker Change: Because part of the secret that OXO has always had is that it is price competitive to other alternative retailers, but it is extremely convenient.

Martin Arias: And so, respectful of that principle of our success, what we need to do is drive more traffic into our stores. We need to drive more opportunities for consumers to come to our store to do more things in that store, be they services, be they food, be they other solutions that we can bring to them. And so we tend to focus really on revenue growth generally, more than the ticket per se and that ticket relative to inflation because that is dictated, in many instances, by market conditions as opposed to whatever we feel we want to do or not do.

Speaker Change: And so, be respectful of that principle of our success.

Speaker Change: What we need to do is drive more traffic into our stores. We need to drive more opportunities for

Speaker Change: Consumers to come to our store to do more things in that store. Be they be services, be they food, be they other solutions that we can bring to them.

Speaker Change: And so we tend to focus really on revenue growth.

Speaker Change: Generally, more than the ticket per se.

Speaker Change: And that ticket relative to inflation, because that is dictated in many instances by market conditions as opposed to whatever we feel we want to do or not do.

Martin Arias: And we focus a lot more on margin. As a good retailer, it's about the gross margin and maximizing that as much as possible. So I understand your question and I know it's a figure that people from the outside look a lot at because it's easy to understand, it's publicly available, you can compare across retailers, but the formula, the secret sauce, is a little bit more complex, and to be honest, if you ask me all the ingredients, I could tell you all the ingredients, but the components of the mix actually change, and it's changing over time, it So our secret sauce is always getting better, and the mix of the ingredients is always changing. That's a very fair point, and Juan as well.

Speaker Change: And we focus a lot more on margin, as a good retailer, it's about the gross margin and maximizing that as much as possible.

Speaker Change: So, I understand your question and I know it's a figure that people from the outside look a lot at because it's easy to understand, it's...

Speaker Change: Publicly available. You can compare across retailers.

Speaker Change: But the formula, the secret sauce.

Speaker Change: is a little bit more complex. And to be honest, if you asked me all the ingredients, I could tell you all the ingredients.

Speaker Change: But the components of the mix actually changes, and it's changing over time, it changes by season, it changes as we develop new... So our secret sauce is always getting better, and the mix of the ingredients is changing.

Ricardo L. Alves: So thanks for the call. It really helped. Thank you very much, Mr. Alves. We'll move to Bob Ford of Bank of America. Please go ahead, sir.

Speaker Change: That's a very fair point, Martin, and Juan as well, so thanks for the caller, really helpful.

Speaker Change: Thank you very much, Mr. Alves.

Robert Erick Ford Aguilar: Hey, thank you. Excuse me. Good morning, Martin, Juan, and thanks for taking my question. How were same-store sales in July at OXO Mexico? And how are you thinking about the legislative proposals to limit the work week and the funding or process changes to accommodate those? And then Juan, you touched on the change in the relationship with BBVA, and I had read that they placed 45,000 NFC devices in your stores, and I was curious if you could expand on the comment about the change in the relationship and maybe how these MPOS devices are playing into that. Thank you.

Speaker Change: We'll move to Bob Ford of Bank of America. Please go ahead, sir.

Robert Erick Ford Aguilar: Hey, thank you.

Robert Erick Ford Aguilar: Good morning, Martin, Juan, and thanks for taking my question.

Robert Erick Ford Aguilar: How are same-store sales in July at OXO Mexico?

Speaker Change: And how are you thinking about the legislative proposals to limit the work week and the funding or process changes to accommodate those? And then Juan, you touched on the change in the relationship with PPPA and I had read that

Speaker Change: They positioned 45,000 NFC devices in your stores, and I was curious if you could expand on the comment about the change in the relationship and maybe how these MPOS devices are playing into that. Thank you.

Juan F. Fonseca: Let me maybe start, hey Bob, this Juan, maybe start with the end of your question and we'll, you know, we'll try to cover everything. You know, generally, I think that the relationship with our partners on the financial services side is, It's interesting over time how it changes, right, because it's, you know, the type of customer that we serve, that we service in the financial services, you know, the different banks have different Positions I guess in terms of how much of that they want also, you know kind of outsourced to OXO So it ebbs and flows and we have really good relationship with BBVA You know the number of transactions that each one of their customers can perform at OXO per month increased recently It does cover over other aspects in terms of you know, having having the devices at the stores But it's a very dynamic process, right?

Juan F. Fonseca: Let me maybe start with the end of your question and we'll try to cover everything. Generally, I think the relationship with our partners on the financial services side is

Juan F. Fonseca: It's interesting over time how it changes, right, because it's, you know, the type of customer that we serve, that we service in the financial services, you know, the different banks have different...

Juan F. Fonseca: positions I guess in terms of how much of that they want also you know kind of outsourced to OXO

Juan F. Fonseca: So it ebbs and flows, and we have a really good relationship with BBVA. You know, the number of transactions that each one of their customers can perform at OXXO per month.

Juan F. Fonseca: Increased recently. It does cover over other aspects in terms of, you know, having having the devices at the stores.

Juan F. Fonseca: I won't say love-hate, but certainly different amounts of love in terms of the role that OXO plays for these retail banks in terms of large chunks of the population that can eventually see OXO as kind of you know, the place where they bank And so that's that's very much a story that is evolving But right now and I think I connect this to my earlier comment I think we are going to a really good phase of how we're interacting with our with our banking partners, In terms of July, I think, I mean, we don't have, obviously, you know, the month is not over yet, but I go back to the comment I made a few months ago that, you know, Second half of election years, there's plenty of data that shows that, you know, it would not be surprising to see a bit of a deceleration. We'll have to wait to see if that materializes.

Juan F. Fonseca: But it's a very dynamic process, right? It's, I won't say love-hate, but certainly different amounts of love in terms of the role that also plays.

Juan F. Fonseca: For these retail banks in terms of large chunks of the population that can eventually see OXO as kind of, you know, the place where they bank.

Juan F. Fonseca: and so that's that's very much a story that is evolving but right now and I think I connect this to my earlier comment I think we are going through a really good phase of how we're interacting with our with our banking partners

Operator: In terms of July, I think, I mean, we don't have obviously, you know, the months and not over yet, but I go back to the comment I made a few months ago that, you know, second half of election years, there's plenty of data that shows that, you know, it would not be surprising to see a bit of a deceleration. We'll have to wait to see if that materializes, but, yeah, I would say what we've seen is consistent with that.

Juan F. Fonseca: In terms of July , I think, I mean, we don't have, obviously, you know, the month's not over yet. But I go back to the comment I made a few months ago that, you know,

Speaker Change: Second half of election years, there's plenty of data that shows that, you know, it would not be surprising to see a bit of a deceleration. We'll have to wait to see if that materializes. But yeah, I would say what we've seen is we'll be consistent with that.

Juan F. Fonseca: But yeah, I would say what we've seen is consistent with. Yeah, I just emphasize what Juan said, normally as a new government administration takes over. Transcripts provided by Transcription Outsourcing, LLC.

Operator: Yeah, I just emphasized what Juan said. Normally, as a new government administration takes over, it tends to be a little less execution on the budget and as new authorities come in and make judgments about priorities and understanding where they stand. So, it would not be surprising to the second half of the Mexico. Obviously, this should be a much softer landing in terms of a transition of government, given that the same local party.

Speaker Change: Yeah, I just emphasize what Juan said, normally as a new government administration takes over

Juan F. Fonseca: There tends to be a little bit less execution on the budget and as new authorities come in and make judgments about priorities.

Speaker Change: and understanding where they stand so it would not be surprising for the second half of Mexico. Obviously this should be a much softer landing in terms of a transition of government given that the same political party.

Juan F. Fonseca: 1, and the close working relationship between the soon-to-be former president and the future president. So we'll have to wait and see on that side. And just lastly, how are you thinking about, you know, some of the proposals to reduce the work week? I mean, how, how abrupt do you think they can be?

Operator: Juan, and of course, the working relationship between the, uh, soon to be former president and the future president. So, we'll have to wait and see on that side.

Speaker Change: 1, and the close working relationship between the soon-to-be former president and the future president. So we'll have to wait and see on that side.

Operator: And then just lastly, how are you thinking about, you know, some of the proposals to reduce the work we're coming out, how abrupt you think they can be and, and how do you think you can fund those. Look, our, I'm literally we're just reading bubbly available information.

Juan F. Fonseca: And how do you think you can fund those? [inaudible] We're literally just reading publicly available information. It's our understanding that the work week will not be addressed in this short legislative session that will happen in September.

Speaker Change: And just lastly, how are you thinking about, you know, some of the proposals to reduce the work week? I mean, how, how abrupt do you think they can be and how do you think you can fund those?

Operator: It's our understanding that the work we will not be treated in this short legislative session that will happen in September. I understand that's off the table, but again, this, I'm reading whatever the else is reading. We do expect in the medium term that this, the, the reduction of the work we can Mexico. Laura has been very clear that it's an agenda, and as always we will respect the law and the requirements of the law. Generally, we're sort of a not because of these things as long as it's equally applied across the competitive environment, because then everybody has to react with the appropriate hours and many of their outlets and dealing with the cost impact of those issues.

Speaker Change: Go Cards!

Speaker Change: And literally, we're just reading publicly available information.

Speaker Change: It's our understanding that the work week will not be treated in this short legislative session that will happen in September .

Juan F. Fonseca: I understand that's all off the table. But again, I'm reading what everybody else is reading. We do expect, in the medium term, the reduction of the work week in Mexico. The government has been very clear that it's an agenda, and, as always, we will respect the law, and we will implement the requirements of the law.

Speaker Change: I understand that's off the table, but again, I'm reading what everybody else is reading. We do expect...

Speaker Change: In the medium term, the reduction of the work week in Mexico, the government has been very clear that it's an agenda, and as always, we will respect the law and we will implement the requirements of the law.

Juan F. Fonseca: Generally, we're sort of agnostic as to these things as long as they're equally applied across the competitive environment because then everybody has to react with the appropriate hours and many of their outlets and deal with the cost impact of those issues. Until now, all of these issues have been implemented in that fashion, and they haven't been particularly targeted towards a particular industry or a particular type of retail, so long as it's applied equally and across the board.

Speaker Change: Generally, we're sort of agnostic as to these things as long as it's equally applied.

Speaker Change: Across the competitive environment because then everybody has to react with the appropriate hours and many of their outlets and dealing with the cost impact of those issues and

Operator: And until now, all of these issues have been implemented in that fashion, have been particularly targeted towards a particular industry or a particular type of retail. So long as it's applied equally and across the board, we will react, and we believe that at the end of the day, we're in a position to continue to compete as well as we've competed against everyone else.

Speaker Change: Until now, all of these issues have been implemented in that fashion, haven't been particularly targeted towards a particular industry or particular type of retail. So, as long as it's applied equally and across the board.

Juan F. Fonseca: We will react, and we believe that at the end of the day, we're in a position. Continue to compete as well as we've competed against everyone else as to the minimum wage. Again, during the campaign, reading exactly the same thing everybody else is reading, the future president announced that it was her intention to continue to increase the minimum wage, albeit at a slower rate than it was in the last five or six years.

Speaker Change: We will react and we believe that, at the end of the day, we're in a position to continue to compete as well as we've competed against everyone else. As to the minimum wage...

Operator: As to the minimum wage, again, during the campaign, reading exactly the same thing everybody else is reading. The future president announced that it is her intention to continue to increase the minimum wage, albeit at a slower rate than it was in the last five or six years. So we continue to expect that to happen. We acting to that, you know, we are being proactive and every quarterly business reuse that we do. The oxo team is doing an amazing job of finding areas of opportunity for efficiencies to technology through dynamics scheduling through shifting responsibilities between store leaders and store area supervisors.

Speaker Change: Again, during the campaign.

Speaker Change: Reading exactly the same thing everybody else is reading. The future president announced that it is her intention to continue to increase the minimum wage, albeit at a slower rate than it was in the last five or six years. So we continue to expect that to happen.

Juan F. Fonseca: So we continue to expect that to happen. Reacting to that, you know, we are being proactive in every quarterly business review that we do. The OXO team is doing an amazing job of finding areas of opportunity for efficiencies through technology, through dynamic scheduling, and through shifting responsibilities between store leaders and store area supervisors.

Speaker Change: Reacting to that.

Speaker Change: You know, we are being proactive in every quarterly business reuse that we do.

Speaker Change: The OXO team is doing an amazing job of finding areas of opportunity.

Speaker Change: for Efficiencies.

Speaker Change: through technology, through dynamic scheduling, through shifting responsibilities between store leaders and store area supervisors, the use of part-time work.

Juan F. Fonseca: The use of part-time work. The other day, they were showing us a mapping that they're doing. They did it across two, three hundred types of stores with different segmentation to figure out where the peaks were versus the quote-unquote labor capacity in a store at any given moment. And despite what you would imagine, they saw an enormous number of opportunities where, hey, do we really need everybody to start their shift at exactly the same time? Or can we have some people starting the shift at eight o'clock in the morning and finishing at four or five, and have other people start at ten but finish at six?

Operator: The use of a part-time work. They have a day they were showing us a mapping that they're doing. They did it across 2,300 types of stores with different segmentation. Figure out where the peats were versus the quote unquote labor capacity in a store at any given moment. And despite what you would imagine, they saw an enormous number of opportunities where, hey, do we really need everybody to start their shift at exactly the same time, or can we have some people starting their shift to clock in the morning and finishing it, you know, four or five, and have other people start at 10 but finish at six.

Speaker Change: The other day they were showing us a mapping that they're doing.

Speaker Change: They did it across two, three hundred Texas stores.

Speaker Change: With different segmentation to figure out where the peaks were versus the quote-unquote labor capacity in a store at any given moment

Speaker Change: And despite what you would imagine, they saw an enormous number of opportunities where, hey, do we really need everybody to start their shift at exactly the same time? Or can we have some people starting the shift at 8 o'clock in the morning and finishing at, you know, 4 or 5 and have other people start at 8?

Operator: And they're, they're playing around with all these mixed, again, that segmentation that we always talk about in the perspective of the value proposition is that segmentation that's also happening in an operational level. And again, that we believe will give us flexibility and opportunity. And as I said in the past, the increase of the minimum wage for us, as long as it's applied equally, we see it as a positive. It's got to help consumers. It's going to be good for consumers, and consumers who are making more money will be spending more money at oxos, and we'll be buying more soft currents, and we'll be going to more of our pharmacies and taking more trips and using more our gasoline.

Juan F. Fonseca: And they're playing around with all these mixed – again, that segmentation that we always talk about from the perspective of the value proposition, this is a segmentation that's also happening at an operational level, and again, that we believe will give us flexibility and opportunity. And as I have said in the past, the increase in the minimum wage for us, as long as it's applied equally, we see it as positive. It's going to help consumers.

Speaker Change: 10, but finish at 6.

Speaker Change: And they're playing around with all these mixed, again, that segmentation that we always talk about from the perspective of the value proposition. This is that segmentation that's also happening at an operational level.

Speaker Change: And again, that we believe will give us flexibility and opportunity.

Speaker Change: And as I've said in the past,

Juan F. Fonseca: It's going to be good for consumers. And consumers who are making more money will be spending more money at Oxos and will be buying more soft drinks and will be going to more of our pharmacies and taking more trips and using more of our gasoline. So we are in the segments of the economy that generally benefit from the policies that the current government is implementing. That makes sense. Thank you so much.

Speaker Change: The increase of the minimum wage for us, as long as it's applied equally, we see it as a positive, it's going to help consumers.

Speaker Change: It's going to be good for consumers and consumers who are making more money will be spending more money at Oxos and will be buying more soft drinks.

Operator: And so we are in the segments of the economy, which generally benefit from the policies that turn government into.

Speaker Change: And we'll be going to more of our pharmacies and taking more trips and using more of our gasoline. So we are in the segments of the economy which generally benefit from the policies that the current government is implementing.

Operator: Thank you so much.

Robert Erick Ford Aguilar: Thanks, Bob. Thank you, Mr. Ford. We'll now move to Thiago Bortoluci calling from Goldman Sachs. Please go ahead. Good morning, everyone.

Operator: Thank you. Thank you, Mr. Ford.

Thiago Bortoluci: We're now move to Thiago Bortoluci, Clarem Goldman Sachs. Please go ahead. Yes, good morning, everyone. Thanks for taking the questions. My first one is a follow-up on Oxford traffic, right? When we try to isolate here for calendar on average, you grew traffic by 0.8% in the first half of the year. This is acceleration from last year, clearly, and it still puts you way below where you used to be pre-pandemic, right? If this is a reasonable base. I know who one mentioned in one of the answers how important it is traffic to sustain the business model profitability going forward.

Speaker Change: That makes sense. Thank you so much.

Speaker Change: [inaudible]

Mr. Ford: Thank you, Mr. Ford.

Thiago A. Bortoluci: Thanks for taking the questions. My first one is a follow-up on OXO traffic, right? When we try to isolate here for the calendar, on average, you grew traffic by 0.8% in the first half of the year. This is a deceleration from last year, clearly, and it still puts you way below where you used to be pre-pandemic right if this is a reasonable assumption. I know Juan mentioned in one of the answers how important it is for traffic to sustain the business model and profitability going forward.

Mr. Ford: We'll now move to Thiago Bortoluci calling from Goldman Sachs. Please go ahead.

Thiago A. Bortoluci: Yes, good morning everyone. Thanks for taking the questions. My first one is a follow-up on OXO traffic, right?

Speaker Change #100: When we try to isolate here for calendar on average you grew traffic by 0.8% in the first half of the year

Speaker Change #101: This is a deceleration from last year, clearly, and it still puts you way below where you used to be pre-pandemic, right? If this is a reasonable base.

Thiago Bortoluci: But given this relatively low run rate that you're printing, how realistic is it to expect an acceleration in traffic in the back end and in 2025? And what are the drivers for this?

Thiago A. Bortoluci: But given this low run rate, the relatively low run rate that you're printing, how realistic is it to expect an acceleration in traffic in the back end and in 2025, and what are the drivers for this? This is the first one.

Speaker Change #102: I know Juan mentioned in one of the answers how important it is traffic to sustain the business model and profitability going forward, but given this...

Speaker Change #103: Relatively low run rate that you're printing. How realistic it is to expect an acceleration in traffic in the back-end and in 2025? And what are the drivers for this? This is the first one.

Thiago Bortoluci: This is the first one.

Thiago Bortoluci: And the second one is still on Oxford, but now on profitability. You posted more than 300 basis points, expansion and growth margin, but essentially flatish operating margin, right? I know in the press release, you mentioned labor in Latin America as directionally the headwinds, but if you could help us quantify those, which one is the most important. If it's labor, this pressure should be next year; if it's Latin America, it could be more structural.

Thiago A. Bortoluci: And the second one is still on OXO but now on profitability. You posted more than 300 basis points of expansion in gross margin but essentially a flattish operating margin, right?

Speaker Change #104: And the second one is still on OXO, but now on profitability. You posted more than 300 basis points expansion in gross margin.

Thiago A. Bortoluci: I know in the press release you mentioned labor in Latin America as directionally the most important, but if you could help us quantify which one is the most important. If it's labor, this pressure should ease next year. If it's latent, it could be more structural. So just to help us frame the evolution of SGNA in oxo. Thank you very much. Just one second, please.

Speaker Change #105: but essentially flattish operating margin, right? I know in the press release...

Speaker Change #106: You mentioned Labor and Latin America as, directionally, the headwinds.

Speaker Change #106: But if you could help us quantify those, which one is the most important, if it's labor, this pressure should ease next year, if it's latent, it could be more structural. So just to help us frame the evolution of SGNA and OXO. Thank you very much.

Thiago Bortoluci: So just to help us frame the evolution of SDNA in Oxford.

Thiago Bortoluci: Thank you very much.

Operator: Just one second, please. One will take the part of the traffic, and then I'll take the one on the operating margin, operating margin.

Speaker Change #107: Just one second, please.

Martin Arias: One, we'll take the part on the traffic, and then I'll take the one on the operating margin. Yeah, so let me start. Hey, Thiago.

Speaker Change #107: 1 will take the part on the traffic, and then I'll take the one on the operating margin, operating income margin.

Operator: So let me start hate you. I mean, on the traffic side, if we go kind of back a few years to when you were talking about pre-COVID, and I think that is very relevant. You know, we had, we had this conversation. I'm sure with many of you before COVID, you know, we would talk about within that 5% same-store sales that I mentioned a few minutes ago that was kind of my, my go to number, assuming the, you know, the bank of the Mexico, the ban for inflation between 3 and 4, we would get, you know, of that 5, it would be basically 4% ticket and 1% traffic, right?

Juan F. Fonseca: I mean, on the traffic side, if we go kind of back a few years to when you were talking about pre-COVID, I think that is very relevant. You know, we had this conversation, I'm sure with many of you before COVID, you know, we would talk about, Within that 5% same-store sales that I mentioned a few minutes ago that was kind of my go-to number, assuming the Banco de Mexico, the ban on inflation between three and four, of that five, it would be basically 4% ticket and 1% traffic. 1% traffic was kind of what we aspired to back then, and I would say it probably continues to be what we would aspire to right now. Traffic is a lot harder to come by than tickets.

Juan F. Fonseca: So let me start, Thiago. I mean, on the traffic side, if we go kind of back a few years to when you were talking about pre-COVID, and I think that is very relevant, you know, we had

Juan F. Fonseca: We have this conversation, I'm sure with many of you, before COVID, you know, we would talk about

Speaker Change #108: Within that 5% same-store sales that I mentioned a few minutes ago that was kind of my my go-to number assuming the you know Banco de Mexico the ban for inflation between three and four

Operator: 1% traffic was kind of what we aspire to back then. And I would say probably continues to be what we would aspire to right now. I mean, traffic is a lot harder to come by than ticket. There's also the, you know, the factor of how the fact that we're adding, you know, 4%, somewhere between 4% and 5% new stores every year; you know, what does that mean for the individual traffic of a store? But, you know, I would, I would personally sign on the dollar line if we could, if we could get to that 1 point of incremental traffic, because to Martin's earlier comment, I mean, at the end of the day, getting more products and services and just figuring out more needs to satisfy at the store is really hard, right?

Juan F. Fonseca: We would get, you know, of that five, it would be basically 4% ticket and 1% traffic.

Juan F. Fonseca: Right? 1% traffic was kind of what we aspired to back then, and I would say it probably continues to be what we would aspire to right now. I mean, traffic is a lot harder to come by than ticket.

Juan F. Fonseca: There's also the fact that we're adding 4%, somewhere between 4% and 5%, new stores every year. What does that mean for the individual traffic in a store? But I would personally sign on the dotted line if we could get to that one point of incremental traffic because, to Martin's earlier comment, at the end of the day, getting more products and services and just... Figuring out more needs to satisfy at the store is really hard, right?

Juan F. Fonseca: There's also the, you know, the factor of how

Juan F. Fonseca: The fact that we're adding, you know, 4%, somewhere between 4% and 5% new stores every year, you know, what does that mean for the individual traffic of a store?

Martin Arias: I would personally sign on the dotted line if we could get to that one point of incremental traffic because, due to Martin's earlier comment, at the end of the day, getting more

Martin Arias: Products and services and just

Operator: And we do it well, and we've done it for a long time. We expect to continue to do it, but generally, it will be, you know, I'm talking to you about 20% of the same store sales number. If you can do 20% of that being traffic, I think you're doing a great job. Quite frankly, what we've seen the last couple of years is just not, you know, where we were doing 15% sensor sales growth, where 8% was taken and 7% was traffic. That's just not replicable, and it was; it certainly had a component, as we discussed at the time, that had to do with recovery, both COVID, right?

Juan F. Fonseca: And we do it well, and we've done it for a long time. We expect to continue to do it, but generally, it will be, you know, I'm talking to you about 20% of the safe store sales number. If you can do 20% of that be traffic, I think you're doing a great job. Quite frankly, what we've seen the last couple of years is that It's just not, you know, when we were doing 15% center sales growth, where 8% was tickets and 7% was traffic. That's just not replicable.

Martin Arias: Figuring out more needs.

Martin Arias: To satisfy at the store is really hard.

Speaker Change #109: Right and we we do it well and we've done it for a long time. We expect to continue to do it But generally it will be you know I'm talking to about 20% of the of the safe store sales number if you can do 20% of that being traffic I think you're doing a great job

Juan F. Fonseca: And it certainly had a component, as we discussed at the time, that had to do with recovery, post COVID, right, people going back to certain activities, going back to certain places, going back to the office, which is something maybe that continues to happen as we speak. But, you know, I would expect traffic again to normalize, somewhere around one point within the same source sales calculation. And I think we'll be happy with that.

Speaker Change #109: Quite frankly, what we've seen the last couple of years is

Speaker Change #110: It's just not

Speaker Change #110: where we were doing 15% sales growth, where 8% was ticket and 7% was traffic.

Speaker Change #110: That's just not replicable and and it was it certainly had a component as we discussed at the time that had to do with recovery Both COVID right people going back to certain activities going back to certain Places going back to the office, which is something maybe the one that continues to happen as we speak

Operator: People going back to certain activities, going back to certain places, going back to the office, which is something maybe the one that continues to happen as we speak. But, you know, I would expect traffic again. And to normalize somewhere around one point within the same source sales calculation.

Speaker Change #110: But, you know, I would expect traffic, again, to normalize somewhere around one point within the same source sales calculation, and I think we'll be happy with that.

Operator: And I think we'll be happy with that as to the issue of expenses. Yes, they were 20, 20 plus percent this, this quarter. Part of what you're seeing is the acceleration of growth in that time. Oxo, where there has been. There's been an investment in people and capabilities, relating to the more accelerated expansion that we're trying to achieve in some of these countries, which are not in Mexico, without a doubt. Labor is an issue. But so the number, the total number for Mexico is actually below that by a, I would say 25%, so Mexico itself was more than that sort of 15% range.

Martin Arias: Um, As to the issue of expense, Yes, they were 20 20 plus percent this quarter. Part of what you're seeing is the acceleration of growth in LATAM OXO, where there has been an investment in people and capabilities relating to the more accelerated expansion that we're trying to achieve in some of these countries which are not Mexico. Without a doubt, labor is an issue, but the total number for Mexico is actually below that. [inaudible] by, I would say, 25%. So Mexico itself was more in that sort of 15% range.

Speaker Change #111: As to the issue of expenses.

Speaker Change #112: Yes, they were 20, 20 plus percent of this.

Speaker Change #113: This quarter, part of what you're seeing is the acceleration of growth in LATAM OXO.

Speaker Change #113: where there has been an investment in people and capabilities relating to the more accelerated expansion that we're trying to achieve in some of these countries which are not Mexico.

Speaker Change #113: Without a doubt, labor is an issue, but

Speaker Change #113: by a, I would say, 25% of Mexico.

Operator: And then what you're seeing is Oxo Latin and that investment taking up and causing the entire number to go up to 20%. And so I would say labor is a driver, and I would say capability capability building and building up the teams for more aggressive expansion for implementing some of the initiatives that were developing in Mexico, transporting them to the country.

Martin Arias: And then what you're seeing is OXO-LATEN and that investment taking up and causing the entire number to go up to 20%. And so I would say labor is the driver, and I would say capability building and building up the teams for more aggressive expansion, for implementing some of the initiatives that we're developing in Mexico and transporting them to the countries in Auxilio-Latam. That's what I would have to say about costs and expenses.

Speaker Change #113: itself was more than a sort of 15% range.

Speaker Change #113: And then what you're seeing is the OXO-LATAM and that investment taking up and causing the entire number to go up to 20%.

Speaker Change #113: and so I would say labor is the driver and I would say capability capability building and building up the teams for more aggressive expansion for implementing some of the initiatives

Operator: That's what I have to say on cost and expenses.

Martin Arias: And I would just connect, I mean that last comment on Oxalatam, I mean the reason this is beginning to move the needle a little bit here is that in some of these places, in particular I would say in Colombia, we have gotten to the place where the value proposition is we believe the right one and so the pace of growth is increasing and so the platform, the team that you need in place to kind of take that operation to the next stage in terms of just sheer scale, we are at that inflection point and so that's I think where Martin is coming from in terms of those expenses increasing in what is otherwise a very small part of the division, right? That we think about South America versus Colombia. Thanks both.

Operator: And I will just connect. I mean, that last comment on an Oxalata. I mean, the reason this is beginning to move the needle a little bit here is that in some of these places, in particular, I would say in Colombia, we have gone to the place where the value proposition is we believe the right one. And so the pace of growth is increasing.

Speaker Change #113: That's what I would have to say on costs and expenses.

Speaker Change #113: And I would just connect, I mean that last comment on Oxalatam, I mean the reason this is beginning to move the needle a little bit here is that in some of these places, in particular I would say in Colombia,

Speaker Change #113: We have gotten to the place where the value proposition is, we believe, the right one. And so the pace of growth is increasing. And so the platform, you know, the team that you need in place...

Operator: And so the platform, you know, the team that you need in place to kind of take that operation to the next stage in terms of just sheer scale, we are at that inflection point. And so that's I think where Martinez coming from it in terms of those expenses increasing in what is otherwise a very small part of the division, right, that we think about South America versus Mexico.

Speaker Change #113: to kind of take that operation to the next stage in terms of just sheer scale, we are at that inflection point. And so that's, I think, where Martin is coming from in terms of those.

Martin Arias: Expenses increasing in what is otherwise a very small part of the division right that you think about South America versus Mexico

Operator: Thanks both. If I may, just a quick follow-up when you frame your ambition right for Latin America, which is huge. Would you say you would need to invest more objects to get there, or you are ready for part where you, I mean, the more successful you are on the more stores you have, you have. When you reach a certain level, you get some operating leverage. But in the retail business, as compared to other businesses, the number of people in the stores is a function of the number of stores that you have. There's no, after you've found the right mix of people that you need in the store, ideally, it sort of starts being a bit variable.

Thiago A. Bortoluci: If I may just a quick follow up. When you frame your ambition, right for Latin America, which is huge, would you say, you would need to invest more OPEX to get there, or you are already at the ballpark where you were? I mean, it will definitely be an investment. I mean, the more successful you are, the more storage you have.

Speaker Change #114: Thanks both. If I may, just a quick follow up. When you frame your ambition, right, for Latin America, which is huge, would you say

Speaker Change #115: You would need to invest more OPEX to get there, or you are already ballpark where you want to be.

Juan F. Fonseca: I mean, when you when you reach a certain level, you get some operating leverage. But, you know, in the retail business, as compared to other businesses, the number of people in the stores is a function of the number of stores that you have. There's no after you find the right mix of people that you need in a store.

Speaker Change #116: I mean, it will definitely be an investment. I mean, the more successful you are, the more storage you have, you have. I mean, when you when you when you reach a certain level, you get some operating leverage.

Speaker Change #116: But, you know, in the retail business, as compared to other businesses,

Speaker Change #116: You know, the number of people in the stores is a function of the number of stores that you have.

Martin Arias: Ideally, it sort of starts being a bit variable. Your distribution costs. Yes.

Speaker Change #117: There's no After you found the right mix of people that you need in a store ideally it sort of starts being a bit variable Your distribution costs. Yes

Operator: Your distribution costs. Yes, it's sort of a step function because you build the distribution center. You have some extra space in you fill it up, but at some point you fill up your distribution center, and you ideally have enough stores that distribution center, which is peak efficiency. And then, every certain number of stores, you're going to be opening up a certain amount of distribution centers. So now, if you're growing your top line, you know, it will make sense. The beginning is the most painful.

Martin Arias: Serve a step-step function because you build a distribution center, you have some extra capacity, and you fill it up, but at some point, you fill up your distribution center, and you ideally have enough stores that that distribution center reaches peak efficiency. And then every certain number of stores, you're going to be opening up a certain amount of distribution centers. So, now, if you're growing your top line, you know, it will make sense. The beginning is the most painful.

Speaker Change #117: It's sort of a step step function, because you build a distribution center, you have some excess capacity, and you fill it up. But at some point, you fill up your distribution center, and you ideally have enough stores that that distribution center reaches peak efficiency.

Speaker Change #117: And then every certain number of stores, you're going to be opening up a certain amount of distribution centers.

Speaker Change #117: Bye.

Speaker Change #118: So, uh...

Martin Arias: The beginning is always the most painful because you have to invest ahead of the profitability that's coming from the new store, construct. The capability to open up hundreds of stores in a country. The lead time for opening up hundreds of stores will be a year, six months to a year.

Operator: The beginning is always the most painful, because you have to invest ahead of the profitability that it's coming from the new store. To construct a capability to be opening up hundreds of stores in a country. The lead time for opening up hundreds of stores will be a year, six months to a year. The negotiation of the rent, finding the right locations, getting the appropriate permits and plays. Negotiating with all the suppliers. So that that sort could open is a process. So, you know, the most painful part is at the beginning, and then thereafter operating expenses as a percentage of the tolls start coming out.

Speaker Change #118: Now, if you're growing your top line, you know, it will make sense. The beginning is the most painful.

Speaker Change #118: The beginning is always the most painful because you have to invest ahead of the profitability that's coming from the new store to construct.

Speaker Change #118: The capability to be opening up hundreds of stores in a country.

Martin Arias: The negotiation of the rent, finding the right locations, getting the appropriate permits in place, negotiating with all the suppliers so that that store can open is a process. So, you know, the most painful part is at the beginning, and then thereafter, operating expenses as a percentage of the total start coming down, and then you're normalized, and everything sort of starts growing relatively in line and related to each other. It's hard to predict the outcome.

Speaker Change #118: The lead time for opening up hundreds of stores will be a year, six months to a year. The negotiation of the rent, finding the right locations, getting the appropriate permits in place.

Speaker Change #118: Negotiating with all the suppliers so that that store could open is a process.

Operator: And then you're normalized that everything sort of starts growing relatively in line and related to each other.

Speaker Change #118: So, you know, the most painful part is at the beginning, and then thereafter, operating expenses as a percentage of the total start coming down, and then you're normalized, and everything sort of starts growing relatively in line and related to each other.

Thiago A. Bortoluci: Now, I will tell you, we always have the ability, if things are not working out, to turn off certain valves and certain costs. So these are not costs that will remain embedded with you for forever if you're not getting the level of success that you're expecting. Great. Thank you very much.

Operator: It's hard to predict now. I will tell you, we always have the ability to things are not working out to turn off certain valves and certain costs. So these are not costs that remain embedded with you for forever if you're not getting a level of success that you're expecting. That's great.

Speaker Change #118: It's hard to predict. Now, I will tell you, we always have the ability, if things are not working out, to turn off certain valves and certain costs. So, these are not costs that remain embedded with you for forever if you're not getting the level of success that you're expecting.

Operator: Thank you very much, both. Thank you very much.

Operator: Thank you. Thank you very much, sir. We'll now move to Alvaro Garcia of BTG Actual. Please go ahead. Hi, I'm Marking Juan.

Speaker Change #119: That's great. Thank you very much both.

Speaker Change #120: Thank you very much, sir.

Operator: Hi, Marathi. Thanks for the space for questions. My questions on other expenses. So on page 16 of your release where you walk through our sort of your net debt. The other expenses were $405 million versus $261.00 last quarter. So a big sort of sequential uptick there. It implies sort of $100,000.

Speaker Change #121: We now move to Alvaro Garcia of BTG Actual. Please go ahead.

Alvaro Garcia: Any questions on other expenses, so on page 16 of your release, where you walk. The other, $405 million Unknown Executive, Federico Galassi, Juan Fonseca, Ulysses Bolio, Fomento Economico Mexicano SAB, Company stuff, or maybe there is a potential change in your guidance? Please repeat those numbers just to make sure we can find the right place and make sure that we're sure it's page 16 of the X-Coff and there's another one. When you walk through your EBITDA of $405,000,000, that's the other...

Speaker Change #121: Hi, I'm Martin Juan. Thanks for the space for questions. My question is on other expenses. So on page 16 of your release

Juan F. Fonseca: Where you walk through our sort of your net debt

Speaker Change #122: The other expenses were $405 million versus $261 million last quarter, so a big sort of sequential uptick there.

Operator: I was learning if that's related. Maybe it's a major company stuff, or maybe there is a potential change in your guidance for. Expensive debt digital and corporate going forward. Thank you.

Speaker Change #122: It implies sort of a hundred million dollar run rate. I was wondering if that's related maybe to some intercompany stuff or Or maybe is there a potential change in your guidance for? Expenses at digital and corporate going forward. Thank you

Operator: Could you repeat those numbers just to make sure we can find the right place and make sure that we're in the future. Sure. It's page 16 of the release. It's where you walk through your net debt and adjust the EBITDA X-Coff, and there's another, when you walk through your EBITDA 45 million dollars, that's the other sort of referring to.

Speaker Change #123: Please repeat those numbers just to make sure we can find the right place and make sure that we're sure it's page 16 of the release it's where you walk through your your net debt and adjusted EBITDA X cost

Speaker Change #124: And there's an other, when you walk through your EBITDA of $405 million, that's the other I'm sort of referring to. I suppose I could also refer to the difference between your consolidated EBITDA and your EBITDA of all your reported subsegments.

Operator: I suppose I could also refer to the difference between your consolidated EBITDA and your EBITDA of all your reported sub-segment, which also seems to be inching closer to a hundred million bucks a quarter.

Alvaro Garcia: I suppose I could also refer to Consolidated EBITDA of All Your Reported Subsegments, which also satisfies ADR Class B. I just wanted to really just clarify that guidance for Cash Burn at Digital. Okay, yeah, again. I'll respond quickly. I'll let team members jump in here.

Operator: Did you want to really just clarify that guidance for the cash burn at digital and corporate going forward?

Speaker Change #125: Which also seems to be inching closer to 100 million bucks a quarter So just wanted to really just clarify that guidance for the cash burn at digital and and corporate going forward

Operator: Okay, yeah, again, I'll respond quickly. I'll let team members jump in here.

Martin Arias: This other, if you look at the footnote, it includes FEMSA's other businesses, so it includes BARA and digital and FEMSA corporate expenses. I would tell you the bulk of that is digital at FEMSA and FEMSA corporate expenses. FEMSA corporate expenses, as we've mentioned in the past, are we have an expectation. Again, non-reimbursable expenses, and by non-reimbursable expenses, expenses where the business is, we're not providing a service to the business that, if it weren't here, would, by definition, need to be in the operations.

Operator: This other, if you look at the footnote, includes the Femesos other businesses, who includes Bata and Digital, and Femesac corporate expenses. I would tell you the bulk of that is digital at Femesan and Femesac corporate expenses. Femesac corporate expenses, as we mentioned in the past, as we have an expectation.

Speaker Change #126: Okay. Yeah, again, I'll respond quickly. I'll let team members jump in here. This other, if you look at the footnote, it includes FEMSA's other businesses, so it includes Bada and Digital.

Speaker Change #127: In terms of corporate expenses.

Speaker Change #129: I would tell you the bulk of that is to do with FEMSA and FEMSA corporate expenses. FEMSA corporate expenses, as we've mentioned in the past.

Operator: Again, non-reversible expenses, and by non-reel, virtual expenses, expenses, where the business is, we're not providing a service to the business that, if it weren't here, would by definition need to be in the operation. For example, we have a centralized mergers and acquisitions team. We have a centralized treasury that provides services to the operations. We provide our security arm that provides security to executives and to many of our facilities. Here, all that gets reimbursed to us. And again, if we didn't have the security here, each one of the operations would have to have the security.

Speaker Change #129: as we have an expectation.

Speaker Change #127: Again, none.

Speaker Change #127: Reimbursable Expenses

Speaker Change #127: and by non-reimbursable expenses.

Martin Arias: For example, we have a centralized mergers and acquisitions team. We have a centralized treasury that provides services to the operations. We provide our security arm that provides security for executives and for many of our facilities is here. All that gets reimbursed to us, and again, if we didn't have the security here, each one of the operations would have to have security. So, there's a sort of 100 million dollars in corporate expenses that I've mentioned in the past.

Speaker Change #127: expenses, where the business is, we're not providing a service to the business that if it weren't here would by definition need to be in the operation. For example, we have a centralized mergers and acquisitions team.

Speaker Change #127: We have a centralized treasury that provides services to the operations.

Speaker Change #127: Our security arm that provides security to executives and to many of our facilities is here. All that gets reimbursed to us. And again, if we didn't have the security here, each one of the operations would have to have the security.

Operator: So, there's a sort of 100 million of corporate expenses that I've mentioned in the past. And there is the burn rate for digital is around 250 million dollars. That $250 million dollars does not include the benefits that it brings to Oxo. It does include some things that Oxo makes, for example, the loyalty program points, because it's an arm joint transaction between the loyalty program and Oxo and the loyalty program and the Gap. But the burn rate is around 2 or so.

Martin Arias: And the burn rate for digital is around $200 to $250 million. That $200 to $250 million does not include the benefits that it brings to OXO. It does include some payments that OXO makes for, for example, loyalty program points because it's an arm's length transaction between the loyalty program and OXO and the loyalty program and the GAF, but the burn rate is around $200 million.

Speaker Change #128: Thank you.

Speaker Change #130: There's sort of a hundred million of corporate expenses.

Speaker Change #128: that I've mentioned in the past and there is the burn rate for digital

Speaker Change #128: is around 200 to 250 million dollars.

Speaker Change #128: That's $200 to $250 million.

Speaker Change #128: does not include the benefits that it brings to OXO.

Speaker Change #128: Okay, it does include some payments that OXO makes for, for example, the loyalty program points.

Speaker Change #128: because it's an arm's length transaction between the loyalty program and OXO and the loyalty program and the GAF, but the burn rates are out to us. So right there, you probably have 300 to 350 of the total

Operator: Right there, you probably have 350 of the total of the total 405 number that you see there. Yeah, I would not have a, you know, in terms of some of the things that are being divested that, you know, we're part of the other. You think about Solistic; you think about embed. I mean, those are even deposited companies that are being sold. And so in the comparison, we're losing some of the entities that contributed to, you know, positive numbers to that other.

Martin Arias: So right there, you probably have 300 to 350 of the total 405 number that you see there. Yeah, I would add Alvaro, you know, in terms of some of the things that are being divested that, you know, were part of the other, like if you think about Solistica, you think about Embed, I mean, those are EBITDA positive companies that are being sold. And so, in the comparison, we're losing some of the entities that contributed to, you know, positive numbers for that other. So, that's also, I think, impacting the number. [inaudible] Sure. Thank you, sir.

Speaker Change #128: of the total 405 number that you see there.

Speaker Change #128: Yeah, I would add Alvaro, you know, in terms of

Speaker Change #131: Some of the things that are being divested that you know, we're part of the other that you think about

Alvaro Garcia: Solistica, I mean those are EBITDA positive companies that are being sold and so in the comparison we're losing some of the entities that contributed positive numbers to that other. So that's also I think impacting the number.

Operator: So that's also, I think, impacting the number.

Operator: Great. Thanks.

Operator: Thank you, answer.

Carlos Laboy: We'll move down to Carlos Laboy of HSBC. Please go ahead. Yes, thank you. Juan, on Ben's question earlier, you may want to give some context of how OXO's margins have expanded since you arrived at the firm, right? Because the scale up that this business has to go through is an important context. My question was a different one. Um, Carlsberg just paid 14 times EBITDA for a weak Pepsi bottler with an unclear strategic purpose. So, you know, With one of the best Coke bottlers in the world sitting right there at half the valuation next to you, why isn't it cheap enough for you to buy out the float?

Carlos Laboy: We'll move down to Carlos Laboy of HSBC. Please go ahead. Yes, thank you.

Alvaro Garcia: Great. Thanks for everything, Juan. Appreciate it.

Juan F. Fonseca: Sure. Thank you, sir.

Carlos Alberto Laboy: One, on Benz question earlier, you may want to give some context of how Alcantara's margins have expanded since you arrived at the firm, right? Because it's the scale up, the business has to go through is important context.

Speaker Change #136: We'll move down to Carlos Laboy of HSBC. Please go ahead.

Carlos Laboy: Yes, thank you. Juan, on Ben's question earlier, you may want to give some context of how OXXO's margins have expanded since you arrived at the firm, right? Because it's...

Carlos Alberto Laboy: My question was a different one.

Carlos Laboy: The scale-up that this business has to go through is important context. My question was a different one.

Operator: Carlosburg just paid 14 times EBITDA for a weak Pepsi bottler with an unclear strategic purpose. So, you know, with one of the best co-botters in the world sitting right there at half the valuation next to you, why isn't it cheap enough for you to buy out the problems, that relationship with Fonseca, the Hitton and Coke Femse, raises. Take Carlos, I mean, on your comments about what happened to the margins inside out here, I would like to take some credit for that. I just have really, really good colleagues. I mean, I'll let Marcine talk a little bit about the, you know, the strategic part of the cost conversation. You know, maybe just set it up by saying, you know, obviously you saw the numbers and you wrote on the numbers that Coltrance of the liver, the current place where the system is, is so good and the level of alignment is so good between the balkers and the partners over in Atlanta that is just everything is working so well.

Speaker Change #134: Charlesburg just paid 14 times EBITDA for a weak Pepsi bottler with an unclear strategic purpose.

Speaker Change #135: You know, with one of the best coke bottlers in the world sitting.

Speaker Change #137: Right there at half the valuation next to you. Why isn't it cheap enough for you to to buy out the float?

Speaker Change #138: and and deal with the governance problems that that

Carlos Laboy: and deal with the governance problems that that relationship with FEMSA, DHTAL, and COC-FEMSA raises. Hey, Carlos. I mean, on your comment about what's happened to the margin since I got here, I would like to take some credit for that. But I just have really, really good colleagues.

Speaker Change #138: Relationship with FEMSA, DHCAL, and COC-FEMSA raises.

Carlos Laboy: Hey Carlos, I mean on your on your comment about the what what's happened to the margin since I got here I would like to take some credit for that, but I Just have really really good colleagues

Carlos Laboy: I mean, I'll let Martin talk a little bit about the, you know, the kind of the strategic part of, you know, the cost conversation. You know, maybe just set it up by saying, you know,

Juan F. Fonseca: I mean, I'll let Martin talk a little bit about the, you know, the kind of strategic part of the cost conversation. You know, maybe just set it up by saying, You know, And obviously, you saw the numbers and you wrote on the numbers that Cochrane has delivered. The current place where the system is... The level of alignment is so good between the buffers and our partners over in Atlanta that everything is working so well.

Martin: You saw the numbers and you wrote on the numbers that Codefensa delivered. The current place where the system is...

Martin: [inaudible]

Juan F. Fonseca: And this obviously takes us back to the conversations about animal spirits and consolidation and things that could happen. And so those are questions that I know you've all been asking Ian and his team, but it's good times in Coca-Cola land. But I'll turn over to Martin to maybe make a comment about why the current structure makes sense and what we might be thinking about. Yeah, I mean, in effect, you seem to be suggesting a taking private transaction for FEMSA.

Operator: And, you know, this obviously takes us back to the conversations about animal spirits and consolidation and things that could happen.

Operator: And so those are, I'm sure, you know, those are questions that I know that you've all been asking of Ian and his team, but, you know, it's good times in, in, in Coca-Cola line. But I was there no bit more keen to maybe make a comment about how, you know, why the current structure makes sense and what we might be thinking about. Yeah, I mean, and in fact, you seem to be suggesting it's taking private transition for a topic and fence, everything is always on the table of disgust and debated. So, I can't tell you this is not an idea, but at any given time, we've discussed and debated.

Speaker Change #139: Take us back to the conversations about animal spirits and the consolidation and things that could happen And so those are those are questions that I know that you've all been asking of Ian and and his team But you know, it's it's good times in in in in Coca-Cola, but I'll turn it over to Martin to maybe make a comment about

Martin: How we, how, you know, why the current structure makes sense and what we might be thinking about.

Juan F. Fonseca: And as happens with any topic in FEMSA, everything is always on the table, discussed, and debated. So I can't tell you this is not an idea that we've discussed and debated at any given time. What part of this has weighed historically in our thinking?

Martin: Yeah, I mean, in effect, you seem to be suggesting a taking private transaction for the Vela Femse.

Martin: As happens with any topic of FEMSA, everything is always on the table, discussed and debated. So, I can't tell you this is not an idea that at any given time we've discussed and debated.

Operator: And, what part of what has waited historically in our thinking has generally been, there are events you're having of what a fence up publicly traded. One, it provides a currency for which, in the past, we've been able to offer borrowers the opportunity to participate in the equity of whatever combination results from transactions that we undertake. And those borrowers have not always historically wanted to participate in other parts of our, necessarily, participate in other parts of our business. Number two, well, what a fence that has historically its balance sheet has historically been a stronger balance sheet than fences.

Martin Arias: has generally been, there are advantages to having COVAXOLA FEMSA publicly traded. One, it provides a currency through which, in the past, we've been able to offer bottlers the opportunity to participate in the equity of whatever combination results from transactions that we undertake. And those bottlers have not always historically wanted to participate in other parts of our – necessarily participate in other parts of our business. Number two, Coca-Cola FEMSA has historically, its balance sheet has historically, been a stronger balance sheet than FEMSA. In the regard that it has a slightly better rating, it has a slightly better cost of funding, driven by the participation of Coca-Cola and the stamina of a bottling business, which has slightly different dynamics.

Martin: Part of what has weighed historically in our thinking

Martin: has generally been, there are advantages to having Corporal FM South publicly traded.

Martin: One, it provides a currency through which in the past we've been able to offer bottlers.

Martin: The opportunity to participate in the equity of whatever combination results from transactions that we undertake and those bottlers have not always historically wanted to participate in other parts of our necessarily participate in other parts of our business.

Martin: Number two, Coca-Cola FEMSA has historically, it's balance sheet has historically

Operator: In the regard that it's slightly better rating, it has slightly better cost of funding driven by the participation of the Coca-Cola and the stand on any of the bottling business, which has slightly different dynamics than retail business and retail business of the nature such as retail.

Martin: been a stronger balance sheet than FEMSA's.

Martin: In the regard that it's slightly better rating, it has slightly better

Martin: Cost of funding driven by the participation of the Coca-Cola and the standard identity of a bottling business which has slightly different dynamics.

Martin Arias: Then a retail business and a retail business of the nature such as retail, so there are numbers three. I think FEMSA has always felt that Coca-Cola FEMSA being a publicly traded company has generally helped the governance of Coca-Cola FEMSA itself and its relationship with Coca-Cola and with the public, because it requires everything to be discussed through a public board. And I think everybody has seen the merit of that. So, it's not, taking private credit or FEMSA is not merely a financial decision.

Operator: So, there are, number three, I think fence has always felt that Coca-Cola fence is being a publicly traded company, has generally helped the governance of Coca-Cola fence itself in its relationship with Coca-Cola and the public.

Martin: than a retail business and a retail business of the nature such as retail.

Martin: Number three.

Speaker Change #140: I think FEMSA has always felt that Coca-Cola FEMSA being a publicly traded company has generally helped the governance of Coca-Cola FEMSA itself and its relationship with Coca-Cola and with the public.

Speaker Change #140: Because it requires everything to be discussed through a public board and that I think everybody has seen the merit of that.

Martin Arias: There are other elements that one has to think about. If you find someone as to the 14 times EBITDA, again, sometimes one pays a higher EBITDA for a lower performing business, not because it's a particularly good business, but because it's such a bad business that you believe that you can improve its profitability so much that you can grow yourself into a lower multiple. And although I do strongly believe, as you suggest, that Covid-19 FEMSA should be better valued than it currently is, given its returns on invested capital and its cash flow generation and its capability building, we could go on and on.

Speaker Change #140: So it's not that the taking private credit or FEMSA is not merely a financial decision. There are other elements that one has to

Speaker Change #140: Think about, um...

Speaker Change #141: If you find someone, as to the 14 times, Ibiza.

Speaker Change #142: Again, sometimes one pays a higher EBITDA for a lower performing, for a business, not because it's a particularly good business, but because it's

Speaker Change #142: Such a bad business that you believe that you can improve so much profitability

Speaker Change #142: that you can grow yourself into a lower multiple.

Speaker Change #143: And although I do strongly believe, as you suggest, that COGAR-VALOFEMSA should be better valued than it currently is, given its returns on invested capital and its cash flow generation and its capability building, I mean, we could go on and on, and I'm sure both of us would agree, because I know that you're a fan of COGAR-VALOFEMSA,

Martin Arias: And I'm sure both of us would agree, because I know that you're a fan of Coca-Cola FEMSA. The reality is that the opportunities for dramatically improving the performance, simply because we bought out Coca-Cola and the public, or just bought out the public, are probably more limited than the example that you're highlighting. But I will tell you, we discussed it, and certainly in the panoply of investment ideas that we consider, and maybe it's not even taken in private, buying more, leveraging the balance sheet, which is a form of buying back shares or buying back, quote-unquote, equity, buying a portion of what Coca-Cola, I think, Part of what Coca-Cola owns, doing share buyback generally, or all things that What does that work?

Speaker Change #143: The reality is the opportunities for dramatically improving the performance.

Speaker Change #144: simply because we bought out Coca-Cola and the public or just bought out the public probably is more limited than the example that you're highlighting.

Speaker Change #145: But I will tell you, we discuss it certainly in the panoply of investment ideas that we consider.

Speaker Change #145: And maybe it's not even taking products, buying more, you know, buying some for the...

Speaker Change #145: Leveraging the balance sheet, which is a form of buying back shares or buying back, quote unquote, equity, buying a portion of what Coca-Cola, I think,

Speaker Change #145: Part of what Coca-Cola owns, doing share buyback generally, or all things that are constantly and repeatedly discussed.

Martin: Martin, how do you value the data from Coke FEMSA and the relationship information from Coke FEMSA that FEMSA de Gital needs or could need in the future? What is that worth?

Martin Arias: Oh, if I had the answer to that, I'd be a venture capitalist. And I'd be raising billions on dreams. I can't assign a value to it, and I think we won't know for years what that will eventually be valuable to the entire ecosystem. That was a tough one to assign a specific number to. I do think we have a conviction that runs through all of our business. Coca Cola, FEMSA, FEMS, and FEMSA in all its iterations.

Martin: Oh, if I had the answer to that I'd be a venture capitalist and I'd be raising billions on dreams.

Speaker Change #146: I can't assign a value to it and I think we won't know for years what that eventually will be valuable to the entire ecosystem.

Speaker Change #147: That was a tough one to assign a specific number to. I do think we have a conviction that through all of our businesses,

Martin Arias: You know, our pharmacy business is one of the businesses that has the best data. The problem is it's a significantly smaller business, but I believe it has 6 million people in its loyalty program. But even here, even here.

Speaker Change #148: Coca-Cola, FEMSA, and FEMSA in all its iterations. You know, our pharmacy business is one of the businesses that has the best data. The problem is that it's a significantly smaller business, but I believe it has six million people in its loyalty program. And Chile, uh, um...

Martin Arias: Just in Mexico, I think they may have six million members in their loyalty program. And that's an incredible source of information on consumption patterns and needs of the consumer. Digital FMSA, that is the mission of Digital FMSA because it's a long-term bet. It's going to require a lot of work, by the way, just standardizing the data so that when a consumer buys an OXXO gas, we understand that it's the same consumer that's buying an OXXO Mexico, that we understand it's the same consumer that's buying at Farmacias ISA, that we know that they're a mom-and-pop in Coca-Cola FMSA.

Speaker Change #148: But even in here, even in here, it makes me want to...

Speaker Change #148: Just in Mexico, I think they may have six members in their loyalty program.

Speaker Change #148: And that's an incredible source of information on consumption patterns and needs of the consumer.

Speaker Change #149: Digital at FEMSA, that is the mission of Digital at FEMSA.

Speaker Change #148: Because it's a long-term bet. It's going to require a lot of work, by the way, just...

Speaker Change #148: Standardizing the data so that, you know,

Speaker Change #148: When a consumer buys an OXXO gas, we understand that it's the same consumer that's buying an OXXO Mexico, that we understood it's the same.

Speaker Change #148: Consumer that's buying at Farmacia ISA that we know that they're a mom-and-pop.

Martin Arias: I mean, that is a significantly larger undertaking that I think people understand in the integration of systems and standards, and then using that information for, amongst other things, consumer promotions and selling the opportunity to make promotions to those consumers, or to extend credit because you have a very clear understanding of spending patterns, or to develop loyalty programs that drive traffic or consumption or give benefits to mom-and-pop stores. I know that it sounds easy to say, but when you understand the intricacies of that, what that involves, you understand that it's a huge task ahead of us.

Speaker Change #148: in Coca-Cola FEMSA.

Speaker Change #148: I mean, that is a significantly larger undertaking that I think people understand in integration of systems and standards.

Speaker Change #148: and then using that information.

Speaker Change #148: For amongst other things, consumer promotions and selling the opportunity to make promotions to those consumers or to extend credit because you have a very clear understanding of

Speaker Change #148: Spending Patterns

Speaker Change #148: Developing loyalty programs that drive traffic or consumption or give benefits to a mom-and-pop

Speaker Change #148: I know that it sounds easy to say it, but when you understand the intricacies of that, what that involves.

Martin Arias: And as with many huge tasks, the tasks FEMSA takes, you know, sometimes they take years to develop and to come to fruition. Thank you. Thank you very much, sir. We'll now go to Hctor Maya, a colleague from Scotiabank. Please go ahead.

Speaker Change #150: You understand that it's a huge task ahead of us, and as many huge tasks that FEMSA takes, you know, sometimes they take years to develop and to come to fruition.

Speaker Change #150: Thank you.

Speaker Change #151: Thank you very much, sir.

Hctor Manuel Maya Lpez: Hi, thank you very much for taking my question. Could you please update us on how you have been thinking about transactions in the US? I mean, if your conviction regarding inorganic growth and convenience stores has changed, or the timing to eventually pull the trigger has evolved considering the local and US political environments this year, and also on how you're thinking so far in terms of store sizes or exposure to gas stations, because from what we see in the US market, stores are much larger in size, like 250 square meters at a minimum, and over 80% of stores sell fuel. So I was wondering how you feel thank you.

Speaker Change #151: We'll now go to Hctor Maya, calling from Scotiabank. Please go ahead.

Hector Maya: Hi, thank you very much for taking my question. So, could you please update us on how you have been thinking about transactions in the U.S.?

Hector Maya: I mean, if your conviction regarding inorganic growth in convenience stores has changed or the timing to eventually pull the trigger has evolved considering the local and U.S. political environment this year, and also on how you're thinking so far in terms of store sizes or exposure to gas,

Hector Maya: stations because from what we see in the U.S. market, stores are much larger in size, like 250 square meters at a minimum, and over 80% of stores sell fuel. So I was wondering on how you're thinking that PEMSA could tackle these peculiarities in the U.S. market. Thank you.

Martin Arias: I mean, we've spoken about this in various forums, and we continue to believe that there's an opportunity for FEMSA to contribute value and to create value with its capabilities by entering the convening U.S. Store Sector. In the U.S., we've had that conviction for many years, but, obviously, we had a structural issue relating to the Heineken shares that made it impossible. I would tell you the issue of political environments in Latin America generally is not the driver. We wouldn't diversify if we didn't think we could create value. I think Hctor was talking about the U.S. legal environment, but I think that has nothing to do with it. To be honest...

Speaker Change #153: We've spoken about this in various forums. We continue to believe that there's an opportunity for FEMSA to contribute value and to create value with its capabilities by entering the convenience

Speaker Change #154: Store Sector in the U.S. We've had that conviction for many years, but obviously we had a structural issue relating to the Heineken shares that made it impossible.

Speaker Change #154: I would tell you, I don't, the issue of political environments in Latin America generally are not the driver, we wouldn't diversify if we didn't think we could create value. I think Hctor was talking about the US legal environment, but I think that has nothing to do with it. To be honest,

Martin Arias: Compared to what we deal with on a daily basis and interact, I know that what's happening in the U.S. creates an enormous amount of passion and opinions about issues, and we all probably listen to the U.S. news more than we should. People will continue to go to convenience stores, will continue to have to have gasoline, will continue to eat snacks on their way to and from work, and FEMSA has thrived in many different types of environments, and we're highly confident that, Nothing that's going to happen in the US is going to be so surprising to us relative to other experiences in other countries, so, You highlighted some important differences between what is the business in the U.S. and what is the business in Mexico, and we are well aware of them, and we debate them frequently.

Speaker Change #155: Compared to what we deal with on a daily basis and interact, I know that what's happening in the U.S. creates an enormous amount of passion and opinions about issues and we all probably listen to the U.S. news more than we should, you know.

Speaker Change #155: People will continue to go to convenience stores, will continue to have to have gasoline, will continue to eat snacks on their way to and from work and FEMSA has thrived in many different types of environments. We're highly confident that

Speaker Change #156: You highlighted some important differences between what is the business in the U.S. and what is the business in Mexico.

Martin Arias: But, you know, one thing I would just note about gasoline. We own gas stations in Mexico. So, it's a very different business, but it's not like we're new to the gasoline business. Number two, they are bigger stores, and they require more investment, so it requires much more careful thought as to how you expand and the speed with which you expand and the level of certainty that you need to have with regard to the value proposition that you have. It is very different to open up 100 stores where the investment is three to 400,000 versus a store where the investment can be four or $5 million.

Speaker Change #157: and we are well aware of them and we debate them frequently, but you know one I would just note on the gasoline we own gas stations in Mexico so and it's a very different business but it's not like we're new to the gasoline business

Speaker Change #157: Number two, they are bigger stores and they require more investment. So it requires.

Speaker Change #157: Much more careful thought as to how you expand and the speed with which you expand and the level of certainty that you need to have with regards to the value proposition that you have.

Martin Arias: So it's a point well taken and one that we are certainly aware of. As we've said, we are looking for opportunities in what we call the southern belt that sort of starts through Texas and then goes to the south to the east, excluding Florida and excluding the Southwest, such as California.

Speaker Change #157: Very different to open up 100 stores where the investment is $300,000 to $400,000 versus a store where the investment can be $4 or $5 million. So it's a point well taken and one that we are certainly aware of.

Speaker Change #157: As we've said, we are looking for opportunities in what we call the southern belt that sort of starts through Texas and then goes to the south to the east.

Martin Arias: There's where we believe, particularly in Texas and the border states, that we can add value, particularly complementing whatever we acquire with trying to develop a proposition with the Hispanic market. Again, we are not looking to open up a Hispanic value proposition in the United States as the sole and primary convenience store consumer proposition. But it will certainly be part of it.

Speaker Change #157: Excluding Florida and excluding the Southwest.

Speaker Change #157: such as California

Speaker Change #157: There is where we believe, particularly in Texas.

Speaker Change #157: and Border States that we can add value, particularly complementing whatever we acquire.

Speaker Change #157: With trying to develop a proposition with the Hispanic market again We are not looking to open up a Hispanic value proposition in the United States as a

Speaker Change #157: Sole and Primary Convenience Store Consumer Proposal, but it will certainly be part of it and we think we could sort of add value to that.

Martin Arias: And we think we could sort of add value to that. We are intrigued by the possibility of trying out what has been extremely successful for us in the United States, which is a standalone convenience store value proposition. But we understand that that is something new, and gasoline will be part of the mix. So whatever opportunities we're looking at, almost all of them include a gasoline proposition.

Speaker Change #157: We are intrigued by the possibility of

Speaker Change #157: Trying out what has been extremely successful to us in the United States, which is a standalone convenience store value proposition but we understand that that is something new and Gasoline will be part of the mix

Speaker Change #157: So whatever opportunities we're looking at, almost all of them include a gasoline proposition.

Martin Arias: Again, in terms of the size of opportunities, we've spoken about sizes that would be considered small relative to the size of all of FEMSA. I cannot..., don't have on our radar right now opportunities that exceed the billion billion and a half numbers. We would like to start out with something smaller, get our feet on the ground, test out opportunities and possibilities before we undertake a very large transaction, and we've been, until now, very disciplined in how we've gone about that, and our board and our strategy committee have been very clear about that, and we've listened, and we always pay attention to our board and our strategy committee. I hope that's helpful.

Speaker Change #157: Again, in terms of size of opportunities, we've spoken about sizes which would be considered small relative to the size of all of FEMSA.

Speaker Change #157: I don't have in our radar right now opportunities that exceed the billion, billion and a half numbers. We would like to start out with something...

Speaker Change #157: Smaller.

Speaker Change #157: Get our feet on the ground, test out opportunities and possibilities.

Speaker Change #157: before we would undertake a very large transaction.

Speaker Change #157: And we've been, until now, very disciplined in how we've gone about that, and our board and our strategy committee have been very clear about that, and we've listened, and we always pay attention to our board and our strategy committee.

Juan F. Fonseca: I think just, I would just, connect in a way to close the comment on the U.S. But, you know, in terms of just giving the market the comfort that we will be very, very deliberate and thoughtful in terms of how we go out. Thank you. Thank you very much. Very clear. Thank you, Thank you, Shemaya. We have time for only one question at this time.

Speaker Change #157: I hope that's helpful.

Speaker Change #158: I think just, I mean, I would just...

Speaker Change #158: connect a kind of a way to close the the comment

Speaker Change #158: To what Jose said on the call three months ago, right, in terms of, you know, the thoughtfulness and the prudence and the, as compelling as the industry is, and the, you know, the overall size of the U.S. market, there's a lot of reasons why it's attractive.

Speaker Change #158: But, you know, in terms of just giving the market the comfort that we will be very, very deliberate and thoughtful in terms of how we go after it.

Luis Yance: The last question in the queue today will be from Luis Yance, a colleague from Santander. Please go ahead. Hi guys, thanks a lot for taking the time to answer my questions. Quick one on same-store sales. I mean, I appreciate all the detail you gave about, you know, the one-off events that impacted second quarter. But as we think about the second half, when you put into the balance what you said, on the one side, you know, easier comps going into the second half, but on the other side, you know, historically having a top for the second half after the first year of elections. Just wondering.

Speaker Change #159: Thank you very much. Very clear. Thank you.

Sumayya: Thank you, Somaya.

Speaker Change #161: We have time for only one question at this time. The last question in the queue today will be from Luis Yance, a colleague from Santander. Please go ahead.

Luis Yance: Hi guys, thanks a lot for taking my questions. Quick one on same-store sales, I mean I appreciate all the callers you gave about

Speaker Change #163: you know the one-off events that impacted second quarter but as we think about second half when when you put into the balance what you said on one side you know easier comps going into the second half but on the other side you know historically having a

Speaker Change #164: A Top First, Second Half after the First Year of Elections. Just wondering, where does that take you? I mean, especially relative to the formula you gave, the 5% safe source growth on a normalized basis. Does that take you to that number? That's kind of sort of your expectation, or perhaps a bit lower than that and closer to inflation. So just try to get a sense of where you think, if things.

Speaker Change #164: You know will happen the way you think could happen, you know where we might end up in terms of our growth And maybe if you can comment on the differences between the formats because I guess a lot of the focus has been on OXO Mexico but on the other side, you know, you have LATAM

Speaker Change #165: Thanks to ourselves going closer to flat, but then, you know, Bahrain, maybe Brazil still growing double digits. So if you can comment on the difference in performance on those and maybe the expectations going forward, that will be helpful. Thanks.

Luis Yance: Where does that take you? I mean, especially relative to the formula you gave the 5% safe-for-sell growth of a normalized base. Does that pay you that number? That's sort of your Expectation, or perhaps a bit lower than that and closer to inflation. So just try to get a sense of where you think if things happened the way you think they could happen, you know where we might end up in terms of growth and maybe if you could comment on the differences between the formats because I guess a lot of the focus has been on Oxxo Mexico, but on the other side, you have a lot of time think about ourselves going closer to flat. But then, you know Bada and maybe Brazil are still growing double Thanks. You know, hi, Luis, it's Juan. I mean, in terms of the same store sales numbers. That five, that have kind of been my historical go-tos, obviously based on what the operation has done.

Speaker Change #166: You know, hi Luis and Juan, I mean in terms of the same store sales number

Juan F. Fonseca: Once you isolate a lot of the one-offs, Again, if you're charting the numbers, that dip that we saw this quarter, a lot of it can be explained by comp days and some of these one-offs, right? So I think there's still the sentiment that we could end up at a slightly higher number than the historical average, but the way you phrase the question is the right one, right? There are unknowns in terms of the macro, what happens in the second half. We know how the comparable base evolves, right?

Speaker Change #167: That five, that have kind of been my historical go-tos and obviously based on what the operation has done. Once you isolate a lot of the one-offs,

Speaker Change #168: You know, again, if you're just charting the numbers.

Speaker Change #168: That dip that we that we saw this this quarter a lot of it can be explained by by comp days and and some of these one-offs right so there's I think there's still the sentiment that we could end up at a slightly higher number than the historical average

Speaker Change #168: But the way you phrase the question is the right one, right? I mean, there are unknowns.

Speaker Change #167: In terms of the macro, you know, what happens in the second half. We know how the comparable base evolves, right? We know that. The one thing we know is the consumer is going to be there, just generally.

Juan F. Fonseca: We know that. The one thing we know is that the consumer is going to be there, just generally. So right now, I would be optimistic, but that's just one guy's opinion. It really depends on whether the macro in the second half, to Martin's earlier point, is this a different transition because there's a lot of continuity, and so does that mean that the budget gets allocated, and money continues to flow? Or do we live again something like what we lived six years ago, right, where, as you all remember, a lot of things were brought to a stop?

Speaker Change #167: So, right now I would be optimistic.

Speaker Change #169: But, you know, that's that's one guy's opinion. We it really does depend.

Speaker Change #169: On whether the macro in the second half, to Martin's earlier point, is this a different

Martin: Transition because it's you know there's a lot of continuity

Speaker Change #170: And so, does that mean that the budget gets allocated and, you know, money continues to flow?

Speaker Change #170: Or do we live again something like what we lived six years ago, right?

Juan F. Fonseca: I think we're going to be somewhere in between. So right now, my bias would be for an optimistic one, but we're going to have to wait and see. Great, thanks.

Speaker Change #171: As you all remember, a lot of things kind of were brought to a stop. I think we're going to be somewhere in between.

Luis Yance: And if you could comment on the difference in the format of the LATAM sensor cells, you know, on the lower end, maybe, you know, the double digit ones that we saw at BATAM Brazil. I mean, I think there we can't really leave out of the analysis just how new these value propositions are, right? And how much of the outside growth has to do with that?

Speaker Change #172: If you could comment on the on the difference on the format, you know, LATAM thinks or so, you know, on the lower end, maybe, you know, the double-digit ones that we saw in Brazil.

Speaker Change #173: I mean I think there we can't really leave out of the analysis just the

Juan F. Fonseca: I mean, you know, OXO in Brazil or even BARA, those are not normalized. Same store sales numbers. So yes, I think in both cases, there's a good tailwind.

Speaker Change #174: How new these value propositions are, right, and how much of the outside growth has to do with that. I mean, you know, OXO in Brazil, or even BARA, those are not normalized.

Speaker Change #175: Same store sales numbers.

Speaker Change #175: So, yes, I think in both cases there's a good tailwind.

Speaker Change #175: You know, finding a niche or finding a need.

Speaker Change #175: That was not being properly satisfied, right? I think the strength that we see in OXXO Brazil or the strength that we see in the discount sector in Mexico has a lot to do with

Speaker Change #175: A consumer that is, that is, you know, avid or thirsty for

Martin Arias: [inaudible] The formats are pretty similar in many respects operationally, but in terms of, for example, we would love to have the mix of food that we have in Colombia versus what we have in Mexico. When that proposition was developed in Colombia, the value proposition that we're going with in terms of our expansion became clear after some trial and error that the Colombian consumer, in that format, community format, needed significantly more food offerings than what we were offering in Mexico at the time. The types of food offerings that you make are completely different. Pao de Queso in Brazil is sort of like a staple comfort food.

Speaker Change #176: isolate how much is coming just from the the sheer growth

Speaker Change #176: And again, the fact that this is new to the consumer.

Speaker Change #176: and how much of it is just that you play in a different part of the of the economy.

Speaker Change #176: And maybe, you know, maybe discounts in Mexico is going to bring better numbers.

Speaker Change #176: Big Box Retail for the foreseeable future.

Speaker Change #177: But I, you know, I don't know that.

Speaker Change #178: The formats are pretty similar in many respects operationally, but in terms of what gets sold in the store, there's a different mix.

Speaker Change #178: For example,

Martin Arias: Well, you know, the rest of Latin America means absolutely nothing. So, in none of the stores in Latin America, for example, we have services. One, because we don't have the scale for those services to really pay for themselves.

Martin Arias: There are countries with different levels of banking penetration. You know, Brazil is a country which, in financial terms, is quite different from Mexico. And so the value proposition on services is not going to come really from services, but food tends to be a higher-margin business, and so you want to focus on food. So the propositions, each one of them, are different.

Martin Arias: I would tell you if we've battled more in Chile, then we're battling more in Chile today than we are in Brazil and Colombia. That's good news because Brazil and Colombia are the bigger countries. But Chile is a more challenging environment for us, with significantly more sophisticated retailers who have a significantly more developed convenience value proposition than I would say that we're finding in either Colombia or Brazil.

Martin Arias: So we're optimistic about the, particularly those two larger countries, Colombia and Brazil, but this is slow, this is slow, difficult work until you create that virtuous circle that you currently have in OXF. The value of the brand and what people associate with OXO in Mexico creates an opportunity where you could quickly acquire the right to win in many new things that you propose to the consumer and just the presence that OXO has. That's why we've dedicated so much time to building out our expansion specifically in cell polymers.

Speaker Change #178: Columbia or Brazil, So we're optimistic on those particularly those two larger countries, Colombia and Brazil.

Speaker Change #178: But.

Speaker Change #178: This is so this is slow difficult work until you create that virtuous circle that you currently have in OXXO I mean, the value of the brand and what people associated with OXXO in Mexico is.

Speaker Change #178: Create an opportunity where you could quickly acquire the rights to win and many new things that you proposed to the consumer.

Speaker Change #178: Just.

Speaker Change #178: The presence at OXXO has.

Speaker Change #178: That's why we dedicate so much time in building out our expansion or specifically in Sao Paolo because we wanted to create that sense throughout how far below.

Martin Arias: We want to create that sense throughout Sao Paulo, the state, not the city, the state of Sao Paulo, which, you know, represents an outside percentage of GDP and population. Because if we can make that work in Sao Paulo, that will give us enormous comfort to then roll it out to many other cities. And we've resisted the temptation and the pressure from many different forums to say, "Why don't you go to Rio? Why don't you go to another city?"

Speaker Change #178: The state that the city the state of Sao Paulo, which represents an outside percentage of GDP and population because if we can make that work in Sao Paolo that will give us an enormous comfort to then rollout to many other cities and we've resisted the temptation and the pressure from many different forums.

Martin Arias: No, no, no, no, we got to, we want to create that sense of presence in the state of Sao Paulo to see how the Brazilian ultimately reacts. Also, I would tell you the same store sales, I believe we calculated on the basis of sort of 18 months, 13, the public number is 13. Sorry, 13.

Speaker Change #178: Once you go to Rio why don't you go to different cities.

Speaker Change #178: We want to create that sense of presence in state of Sao Paulo to see how the Brazilian ultimately.

Speaker Change #179: Ah react although I would tell you the same store sales I believe we calculate on the basis of sort of 18 months 13, the public numbers 13, sorry, 13 months and so it's a little bit of the history of FEMSA and OXXO and so on but.

Martin Arias: And so it's a little bit of the history of PEMSA and OXOs and so on, but you know, the maturity curve of different stores in different countries is quite different. So what you would define as a mature store versus not a mature store makes a difference. And in Mexico, generally, 13 months was perceived as the proper level of maturity, particularly the size and presence that we have. But when you're developing a value proposition, the maturity may be different.

Speaker Change #180: Charity curve of different stores in different countries is quite different.

Speaker Change #180: So what you would define as they mature store versus not a mature store. It makes a difference in Mexico generally 13 months was perceived as a.

Martin Arias: So we may still see growth. It's really just the normal maturity of a store as opposed to the steady state sales of a store, where you then are measuring the same store sales to see the continued health of that store relative to other alternatives.

Speaker Change #180: The proper level of maturity, particularly of size and presence that we have but when you are developing a value proposition. The maturity may be different. So we may still see growth. It's really just the normal maturity of the store as opposed to the steady state sales.

Speaker Change #180: A store where you then are measured in the same store sales to see that.

Martin Arias: And so I support a little bit of what Juan is saying that, you know, the focus on that number in these new operations can be a little difficult to interpret. Now, I would add, Luis, and this is, you know, we're getting to this through the Sink Store Sales question, but something we haven't really talked about a lot today that I expect we'll be talking about a lot in calls and, you know, conversations in the future is prepared food, right? And Martino will be made a reference to that.

Speaker Change #180: The continued health of that store relative to other alternatives.

Speaker Change #180: And so.

Speaker Change #181: Port a little bit of one wanted saying that.

Speaker Change #182: The focus on that number in these new operations can be a little difficult to interpret at times.

Luisa: No I would add Luisa.

Luisa: We're getting to this through the through the same store sales.

Speaker Change #184: A question, but it's something we haven't really talked about a lot today that I expect we'll be talking a lot in coles.

Martina: Conversations in the future is prepared food right and Martina will be made.

Juan F. Fonseca: You know, we, We've done quite well in Colombia, we're doing well in Brazil, obviously Valora, it's one of the things they do best is prepared food, the whole food convenience concept, they're very advanced in some of their value propositions, but in Mexico where we've been the longest time and we have the biggest scale, I think there's still opportunity for an improvement of the prepared food category that would then open or supercharge this vector to bring more people into the store, and I would ask you to stay tuned on that because we are working internally a lot on improving and approaching it in different ways, the prepared food opportunity in Mexico, so even as we kind of think about the U.S. as a future opportunity, certainly prepared food plays an important role in U.S. convenience as you all know, so again, stay tuned for more and more conversations on prepared food and how we are improving our capabilities on that front. Great.

Made reference to that.

Martina: We.

Speaker Change #186: We've done quite well in Colombia, we are doing well in Brazil.

Speaker Change #187: Obviously the Lora.

Speaker Change #187: It's one of the things they do best is prepared food the call.

Speaker Change #187: For the <unk> concept that they are very advanced in and some of their value propositions, but.

Speaker Change #187: But in Mexico, where we've been the longest time and where the have the biggest scale I think there's still opportunity for improvement of the prepared food category that would then open or kind of supercharge.

This vector to bring more people into the store.

Speaker Change #187: And I would ask you to stay tuned on that because we are working internally a lot on kind of.

Improving and.

Speaker Change #187: Approaching it a different different ways the prepared foods opportunity in Mexico.

Speaker Change #187: So that is even even as we kind of think about the USS as a future opportunity certainly prepared food plays an important role in youth convenience as you all know so.

Speaker Change #187: Again stay tuned for more and more conversations on prepared food and how we are.

Juan F. Fonseca: Thanks a lot, guys, for the call. Thank you, Luis. Thank you, Mr. Yance. We do not appear to have any further questions at this time. I'd like to call back over to Mr. Juan Fonseca for any additional or closing remarks. Thank you. I mean, just thank you for your interest in joining us today. As always, you know, the team and I, Pamela, Alex, and myself are always around to, you know, try to help, and, you know, we'll speak soon. Thank you. Thank you very much. That will conclude today's conference. Thank you very much for your attendance. You may now disconnect. Have a good day, and goodbye.

Speaker Change #187: Moving our capabilities on that front.

Speaker Change #187: Yeah.

Speaker Change #188: Great. Thanks, a lot guys for the color.

Speaker Change #189: Thank you rich thank you Michelle.

Speaker Change #190: Certainly sir.

Speaker Change #190: So we did not appear to have any further questions. At this time I turn call back over to Michelle <unk> for any additional or closing remarks.

Speaker Change #190: <unk>.

Michelle: I mean, just to thank you for your interest for joining us today as always.

Michelle: The team and I are familiar Alex and myself are always around to try.

Operator: Thank you very much.

Operator: That was through today's conference; thank you very much for your attendance. May let's connect.

Speaker Change #192: <unk> help.

Speaker Change #193: And we'll speak soon thank you.

Operator: Have a good day, and goodbye.

Thank you very much.

Speaker Change #192: Today's conference. Thank you so much your tenants that disconnect have a good day and goodbye.