Q4 2023 BBB Foods Inc Earnings Call
Mode. Later, you will have the opportunity to ask questions. During the question and answer session.
Speaker Change: Ray do you start to ask questions by pressing the star one on your telephone keypad.
Speaker Change: We draw yourself from the queue by pressing star two.
Speaker Change: Please note. This call is being recorded and I will be sending by should you need any assistance.
Speaker Change: It is now my pleasure to turn the conference over to Anthony Khartoum CEO. Please go ahead.
Good morning, everybody.
Speaker Change: Welcome to our first earnings conference call.
We will begin by reviewing our key accomplishments from our fourth quarter of last year.
Speaker Change: We will review 2023.
Speaker Change: We will next look at the importance of operational milestones.
Speaker Change: Our CFO will follow presenting our financial results.
Speaker Change: In our planning our guidance for 2024.
Speaker Change: We will conclude with a Q&A session to answer as many questions as we can.
Speaker Change: Sure.
Speaker Change: As expected we delivered strong results in the fourth quarter and for the full year 2023.
Speaker Change: Sales grew by 38% for the fourth quarter and by 35, 3% for the full year.
Speaker Change: We opened a record 396 stores in the year.
Speaker Change: 153 alone in the last quarter.
Speaker Change: In terms of cash flow from operations in 2023, they reached $3 1 billion vessels a growth of 48% for the year.
This is driven by improvements in our EBITDA and our favorable working capital dynamics.
Speaker Change: Post IPO, we have a very robust balance sheet, having fully repaid our outstanding dollars deck.
Speaker Change: Let's turn to operational performance.
In terms of store expansion 2023 was a landmark for our company.
Speaker Change: We opened a record breaking 396, new stores, bringing our total to 2288 stores that is a growth of 21%.
Speaker Change: Of these 396 stores, we opened 153 in the fourth quarter alone that's 39% of the total.
Speaker Change: We have been very consistent with our growth from 2019 to 2023, we.
Speaker Change: We have maintained a compound annual growth rate of new stores opened up 20 plus percent.
Speaker Change: For those of you with whom I spoke during our Roadshow Youll note that we have significant runway to sustain these growth rates for the next 10 years.
Speaker Change: And we maintain our view that Mexico offers a potential market of no less than 12000 through these stores.
Speaker Change: Moving on to revenues and margins.
Speaker Change: For 2023 revenues reached 44 billion vessels.
35% growth over 2022.
Speaker Change: To break it down at this 35% 29% is from stores opened before 2022.
Speaker Change: And 7% from the new stores of 2023.
Speaker Change: Yeah.
Speaker Change: Our gross margins increased by 86 basis points over the last year largely explained by our increase in scale.
Speaker Change: And negotiating better terms with our suppliers.
Speaker Change: Some of you are familiar with the positive sales trend for 2005 2022 store vintages, what you see on this chart are the sales curves.
Each of our vintage of stores since inception.
Speaker Change: This is adjusted for inflation.
Speaker Change: I know three things.
Speaker Change: All of our vintages continued to grow their sales no vintage has yet flattened out.
Speaker Change: Each vintage.
Speaker Change: Each newer vintage has a steeper sales curve than the one preceding it.
Speaker Change: And the starting sales points of each new vintage are getting higher.
Speaker Change: In other words, our stores are breaking even faster.
Speaker Change: And what drives that is the continuous improvement in our value proposition to our customers, which for example.
Far superior to date to what we offered customers five years ago.
Speaker Change: We have more private labels.
Speaker Change: Better quality private labels.
And we are giving our customers more value for money.
Speaker Change: That in turn builds trust existing customers will buy more.
Speaker Change: And we continue to get more customers.
Speaker Change: And it also helps that the <unk> brand is getting stronger.
Speaker Change: It's also true that as we have more stores word of mouth on our value proposition spreads further and faster.
Speaker Change: And although we are not showing it here on this chart as we don't have yet full year numbers or 2023 vintage appears to be following the same trend.
Speaker Change: So if I had to summarize I would say, we continue to increase penetration of private labels, which went from 43% to 47% in the core sales.
In turn these private labels are offering tremendous value to our customers.
Speaker Change: That in turn will drive and is driving increasing traffic to our stores.
Speaker Change: The positive trends in our average ticket size.
Speaker Change: So we're generating this virtuous circle outstanding value proposition generates higher traffic.
Speaker Change: Generally higher sales generates increasing cash flow then in turn and churn finances our growth.
Speaker Change: I'll pass the Mic now to Eduardo who will go over the financial results for the fourth quarter in total.
Eduardo: Thanks, Anthony good morning, everyone.
Eduardo: Our EBITDA continues to grow exponentially.
As seen in the chart, our EBITDA grew 32, 9% in the fourth quarter and 44, 3% during 2023.
Let me give you a few highlights to better appreciate the context for the quarter.
Eduardo: 40% of our total store openings happened in the fourth quarter.
Eduardo: Therefore, we show full expenses, but we have yet to show full revenues.
Eduardo: Admin expenses were affected by the hiring of talent to support our growth and to fulfill our obligations as a public company.
Eduardo: And finally, we reported a number of nonrecurring expenses, specifically $80 million related to hurricane artists in a couple of nickel and $14 million in pre IPO expenses in the fourth.
Eduardo: As illustrated in the graph, if we exclude the expenses from the IPO and the impact of Hurricane notice.
Eduardo: It would have been approximately 17% and 5% higher for fourth quarter and 2023, respectively.
Eduardo: Therefore.
Eduardo: Adjusted EBITA margins, which stand at five 3%.
Eduardo: And four 5% respectively.
Eduardo: It's important to know that over time, we expect expenses to decrease as a percentage of sales.
Eduardo: As our revenues base growth fixed costs are spread out and the one offs cost do not recur.
Eduardo: Hard discount is a unique business model.
Eduardo: It generates a significant amount of cash through changes in negative working capital.
Eduardo: We are not the exception.
We turn our inventories three times before we pay suppliers.
Eduardo: As you can see in this chart negative working capital represents 10% of revenues.
Eduardo: We generated $1 4 billion pesos during 2023, given this dynamic.
Eduardo: This trend will continue as long as we continue to increase our sales.
Eduardo: And finally, let me give you some guidance for 2024.
Eduardo: Yeah.
Eduardo: We plan to open.
Eduardo: We're from 380 stores to 420 new stores.
Eduardo: We expect our revenue to grow anywhere from 28% to 32% and.
Eduardo: Same store sales were expected to grow mid teens.
Eduardo: I will not I will now turn back the call back to Anthony for some final remarks.
Eduardo: Yes.
Anthony Khartoum: Ours is a very powerful and resilient business model.
Anthony Khartoum: And we are executing with discipline and consistency.
Anthony Khartoum: We continue to be the leaders in this segment every year, we get stronger and we increase the value of entre to more customers.
Anthony Khartoum: That's what it is at the core up our growth.
Anthony Khartoum: That you have seen both in terms of total and same store sales.
Anthony Khartoum: So for us it boils down to this it's more of the same better and faster.
Anthony Khartoum: We continue to open stores, we continue to increase the value that we offer our customers by developing new products and strengthening our relationships with our suppliers.
Anthony Khartoum: And scaling up helps a lot.
Anthony Khartoum: We've continued to improve the efficiency of our operations as we have done over the last years and we continue to generate cash that we will use to grow invest in price and projects that have.
Hi.
Anthony Khartoum: <unk>.
Anthony Khartoum: Yeah.
Anthony Khartoum: In conclusion, I am very excited for 2024.
Anthony Khartoum: Thank you for listening.
Speaker Change: We will now start the Q&A session.
Speaker Change: So please go ahead operator.
Speaker Change: Thank you and at this time, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: You may withdraw your question at any time.
Speaker Change: Star two.
Speaker Change: Once again, Josh Chien, Please press star one on your telephone keypad.
And we'll take our first question from Andrew Ruben with Morgan Stanley. Please go ahead.
Speaker Change: Yes.
Speaker Change: Alright, thanks, very much and congratulations Anthony Eduardo and to all of the <unk> team.
Speaker Change: I have two questions. If I may the first is on gross margin it looks like a strong quarter and for the carrier.
Speaker Change: For the year, if there is anything incremental on the supplier negotiation to call out and that at different times.
Speaker Change: 24, how you think about the balance of letting the scale benefits that negotiation.
Margin versus being reinvested in price and then second quickly on the store guidance for the year I'm curious how you think about the timing I know you mentioned, 40% of the 2023 opening four in the fourth quarter. Just curious if we should consider any seminars cadence for the year ahead, thanks very much.
Hi, Andrew good to hear from you.
Speaker Change: Let me start with the margin question.
Speaker Change: This is quite a dynamic process negotiating with suppliers as we scale up and you have to think about it. This is something that happens on a product by product basis.
Speaker Change: And typically what happens as we scale up we're negotiating better terms and conditions across the board.
Speaker Change: And then the decision is what goes into price and what gets retained that gets reflected in gross margin as you see and the end result is what you've seen which is a 16% gross margin in the fourth quarter.
Speaker Change: Very dynamic number and I wouldn't be surprised if it fluctuates.
Speaker Change: As it's trending or stabilizing at some point.
Speaker Change: Your second part of the question if I'm not mistaken has to do with store.
Speaker Change: Store openings on the concentration of store openings in the last quarter again, a very dynamic process and my expectations for 2024 is that it's better spread out throughout the year.
Speaker Change: Great very helpful. Thank you for the color.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: And our next question.
Speaker Change: It comes from Robert Ford with Bank of America. Please go ahead.
Robert Ford: Thank you and good morning, everybody and congratulations on the quarter.
Speaker Change: Anthony can you talk a little bit about your price gaps I know theres. Some concern when people look at this gross margin that some of this is pricing.
Speaker Change: We have some difficulty accepting that.
Speaker Change: Actually the near term improvements.
And then.
Speaker Change: What do you touched on the increase in SG&A, but can you give a bit more detail on how you expect to leverage that administrative cost line as you move forward.
Speaker Change: And then on the Hurricane Otis charges.
Speaker Change: Are you done.
Speaker Change: And is that net of insurance and then how are you thinking about a couple of calls over the intermediate.
Medium to longer term and then lastly, how should.
Should we think or how do you think about long term equity based compensation in terms of annual dilution from this point forward. Thank.
Speaker Change: Thank you so much.
Speaker Change: Hey, Bob I'll start with the first part of the question which was.
Speaker Change: Our gross margins come from price increases or increase in unit sales.
Speaker Change: And I would say the latter.
Speaker Change: When we look at our internal inflation numbers, we achieved a significant drop in inflation.
Speaker Change: I'd say from deflation in the fourth quarter.
Speaker Change: All driven by <unk>.
Speaker Change: Negotiations on.
Speaker Change: Costs from our supplier and unfortunately, none of that gets actually.
Speaker Change: And the prices of our products.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Hi, Bob and liabilities.
Speaker Change: You had a question about that.
Yes, yes, yes.
<unk>.
Speaker Change: All of our data extensive data shows that we are the price leader in the market today.
Some of you have gone out and done their own price checks.
Speaker Change: And I would encourage everybody to do the same and reach your own conclusions, but when you come visit us we'll be happy to share hurdles of data.
Speaker Change: Pricing.
Speaker Change: A vast geographic area.
Speaker Change: Yeah.
Hi, Bob this is a viable.
Speaker Change: First question on SG&A.
To leverage moving forward, yes, we had a we had a particular Q4.
As I explained we had.
Speaker Change: A number of stores about 40% of our openings during Q4 than we had.
Speaker Change: Additional hires in different areas, some strategic areas for <unk> moving forward.
Speaker Change: You also had preparations or new regions.
Speaker Change: But as we move forward, yes, you should expect leverage.
Speaker Change: From an SG&A.
Speaker Change: Mainly coming from store expenses.
Speaker Change: Also from efficiencies and logistics.
As we have mentioned before we continue to do a lot of work in terms of efficiencies.
Speaker Change: Look at hours worked and we're always constantly looking for ways to continue to drive our costs down. So yes, you should expect that SG&A will continue to go down as a percentage of steps.
Speaker Change: Then.
Speaker Change: How much of that would you say is fixed versus variable.
Well the fixed if you look at our store basis.
Speaker Change: Our fixed cost is pretty much the rents electricity.
<unk>.
Speaker Change: Most of it is fixed cost in terms of in terms of stores.
Speaker Change: We have a variable cost, which is personnel, but it doesn't grow linearly with with with sales gross marginally with sales. So again, we have a pretty good one way in terms of efficiencies moving forward.
Speaker Change: Yeah.
Speaker Change: And on the admin side.
Speaker Change: I would assume that's largely fixed is that correct.
Again, we.
Speaker Change: As I mentioned, we had some hires at corporate level.
Speaker Change: And so areas like purchasing and.
Speaker Change: And of course finance to meet our IPO company obligations.
Speaker Change: But as we move forward that is an obvious one in terms of leverage moving forward.
Then your second question on diesel costs.
Speaker Change: On.
Speaker Change: Paul Kebab.
Speaker Change: Again, we have we pretty much.
Speaker Change: Makes.
Speaker Change: Since everything.
Speaker Change: In 2023, we don't expect anything in any additional in 2024. This is not net of insurance, which we are still pending.
Speaker Change: To get claims from insurance and that will happen within the next.
Speaker Change: Weeks or even a few months still.
Speaker Change: And I believe that was your question on a critical path.
So this is this is growth of insurance. So you could see some some reversal of these charges and then it was more about.
I'm just reading some horror stories coming out of a couple in terms of how depressed environment is and I was just wondering how the market is behaving for you and what your expectations are over the intermediate to longer strictly not the longer term we've reopened.
Speaker Change: Almost all of our stores and Theyre doing extremely well.
Speaker Change: You mean, the rebound was fantastic.
Speaker Change: Great to hear and then the last thing was the equity based compensation in terms of annual dilution and how youre thinking about that.
Speaker Change: Yes so.
Speaker Change: We've inherited.
Speaker Change: Our existing <unk>.
Speaker Change: He saw.
Speaker Change: And if you look at the <unk>.
Speaker Change: This represents about 43 million options outstanding not fully vested yet.
Speaker Change: But you can come to your own dilution number if you net.
Speaker Change: Strike prices the average strike price, which is published in the appointment you can get a number and thats one fixed number four.
Sure Doug you should know going forward.
Speaker Change: We have an authorized new plan of about $8 4 million options that have yet to be distributed and that will be distributed over the course of several years.
Speaker Change: As an evergreen.
Speaker Change: Function attached to it but again going forward you know you issue options you issue them at market price.
Speaker Change: You get diluted only.
Speaker Change: We've created value the superior to the strike prices. We've set so I don't see a significant impact to that dilution going forward. It will only come because we've created significant value for all shareholders.
Speaker Change: Yeah.
Speaker Change: Yeah agreed and that's what we're thinking of just from this point forward.
Speaker Change: The benchmark, we're using is about a point.
Speaker Change: Based on our expectations, which seems in line with this incremental.
Speaker Change: And I think that's a reasonable assumption.
Speaker Change: Great. Thank.
Speaker Change: Thank you very much and again congratulations on the quarter.
Speaker Change: Thanks, Bob Good hearing from you. Thank you Bob.
Speaker Change: Thank you.
Speaker Change: Our next question comes from extra <unk> with Scotiabank. Please go ahead.
Hi, Anthony.
Speaker Change: Thank you very much for taking my questions and congratulations on your first quarterly report on the positive results.
Speaker Change: I just have one quick question Anthony could you. Please.
Speaker Change: Telus EOD on competition I mean, we have seen that the other players have responded to the growth of Canada.
Speaker Change: With plans to increase private label penetration and extend I think opening.
Speaker Change: Just wondering if you are considering to become even more aggressive for new stores outside of Mexico controlling region.
Speaker Change: Essentially avoid for example.
From FEMSA getting stronger for you in the northern region or will they go right answer pursuit of becoming stronger in the southeast region.
Speaker Change: Thank you.
Speaker Change: Sure.
Mexico has always been.
Speaker Change: I have a very competitive market in grocery retail.
Speaker Change: Today, It's no exception and we have been competing in this market.
Speaker Change: As a significantly smaller company over time.
Speaker Change: And while it is true that our entry.
Speaker Change: As a public company has created.
No noise.
Speaker Change: Haven't seen to date any.
Speaker Change: Any significant changes at the competitive level.
Speaker Change: Still as competitive as ever and we are still all competing.
Speaker Change: Healthily against each other.
Speaker Change: So no material changes in the competitive environment that we've noticed.
Speaker Change: We remain the price theatres today we.
Speaker Change: We don't see anybody consistently undercutting dose.
Speaker Change: In terms of expansion do we see anything different as we move out forward no.
It's been fairly consistent in terms of <unk>.
Speaker Change: Competitive environment.
Speaker Change: And.
Speaker Change: Well, let's say.
Speaker Change: Competitors turbocharging their growth or doing something different really.
Our business model.
Speaker Change: I think it's healthy I think there is plenty of runway for two or three or even four very strong competitors in this market. When we look at Mexico as a whole we just see so much opportunity and as.
Speaker Change: As such as long as we.
Do our job well, we focus on offering.
Speaker Change: Significant value to our customers, which is always improving.
I think we will carve out our niche and be very successful.
Excellent. Thank you very much very clear and congratulations again on the results.
Speaker Change: Okay.
Speaker Change: Thank you our next question.
Comes from shoreline members with J P. Morgan. Please go ahead.
Speaker Change: Hello, again, and thank you very much for taking my question.
Could you give us some color on the same store sales.
Speaker Change: And often mature store during the quarter.
Speaker Change: And you can see the.
Speaker Change: Legal July on what's embedded in your same store sales guidance, but for the mature stores.
Speaker Change: Thank you.
Speaker Change: Thank you for the question because I was going to raise it myself.
Speaker Change: If you refer to that Spaghetti chart in the presentation that we shared with you.
Speaker Change: Can see every single vintage is posting very strong same store sales.
Speaker Change: And thats on an inflation adjusted basis.
Speaker Change: And what we see is continued very strong same store sales growth across the board and every time, we ask ourselves what.
Speaker Change: And it just boils down to what we've said before the value proposition to our customers. It's continuously increasing what we offer you today has nothing to do what we have produced several years ago in terms of.
Better quality better pricing and better assortment.
Speaker Change: Across the board that generates basically more customers coming in.
Very solid support for increasing.
Speaker Change: Good choices.
There might be and I'm, suspecting because I glance through some of the analyst reports that came out late last night and early this morning.
Speaker Change: I'm suspecting that our definition of same store sales might not be the same.
Speaker Change: The Street's definition of same store sales just to be clear, we look at stores that have two years of sales of older to calculate our same store sales ratios.
Speaker Change: And that might be.
Speaker Change: But we like it this way because our newer vintages are growing so fast that we think that distorts the same store sales number but.
Speaker Change: But that's the way we do it.
Speaker Change: I think thats exactly where my question was coming from because when you see the same store sales number that you posted.
Speaker Change: The GAAP, maybe versus what other regions posted not that large.
Speaker Change: Some sort of way.
Speaker Change: You have to do it of course has to do with the growth rate.
Speaker Change: I E.
Speaker Change: Yes, I mean, so much just look at the slope of the curve and the Spaghetti chart.
And you see that at the early years, Europe 40 plus percent.
Speaker Change: So we prefer not to include that and just to talk about stores that have come up this fast ramp.
Thank you Anthony.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from Rodrigo Alcantara with UBS. Please go ahead.
Speaker Change: Hi, guys.
Speaker Change: Thanks, a lot.
Hello, Hi, Hi, Anthony bottlenecks.
Speaker Change: From Yale.
Speaker Change: Just a very simple question.
Thank you.
Speaker Change: Lance.
Speaker Change: Slash right with this call.
Speaker Change: Alright.
Speaker Change: Yeah.
Speaker Change: Principal.
Speaker Change: Just curious.
Speaker Change: Some of the pipeline for 2024.
Speaker Change: Robyn it's Brian.
Speaker Change: And maybe Jim Robertson.
Speaker Change: Just a question.
Speaker Change: We can commence.
Thanks.
Speaker Change: <unk>.
Speaker Change: Thank you John.
Speaker Change: Model that correctly.
Speaker Change: Cash flow generation.
Speaker Change: Thank you very much for that.
Speaker Change: Rodrigo Hi, you were breaking up a little bit better if I heard you correctly. Your first question was what are our plans for fresh.
Yes, yes, okay.
Speaker Change: No hard discounter.
Speaker Change: We will also refresh will operate with the same.
Speaker Change: Kind of a principle and approach that we offer everything else that has to be high rotation. It has to offer high value for money.
Speaker Change: And we're currently running tests to be able to achieve that I mean, if you look at other countries like Turkey, Ben They offer fresh a 101 offers fresh and there is no reason why <unk> can't offer fresh.
Speaker Change: So as long as soon as we are satisfied.
Speaker Change: The fresh we can offer meets these criteria we put.
Speaker Change: We will we will have fresh now when does that happen.
Speaker Change: It could happen in 'twenty four but it could also be in 'twenty, but none of them are looking.
Speaker Change: Looking forward projections include.
Speaker Change: Any anything from this category so when it happens it's icing on the cake.
Speaker Change: Your second question was.
Speaker Change: Capex.
Speaker Change: I'm going to let Eduardo answer that yes.
Speaker Change: Rodrigo good to hear from you and good morning.
Speaker Change: The Capex, it's pretty much what we had explained.
Speaker Change: And in our prospectus.
Speaker Change: No no no no changes really there.
Speaker Change: Again, as we explained our target is to invest $3 9 million vessels.
Speaker Change: Store.
Particularly this year in addition to stores, we're going to be adding two additional.
Regents distribution centers by the way.
Speaker Change: Both have already opened.
Speaker Change: And again additional capex in terms of.
Speaker Change: Trucks and cars, but the majority of course will come from Capex from stores, So not no no major changes there.
Speaker Change: And that's how we plan to execute 2024.
Speaker Change: Awesome. Thanks for that clarification that lot about congrats on your earnings.
Speaker Change: Folks thank you guys.
Speaker Change: Thank you and just a reminder, it is.
Alright, and one on your telephone keypad, if you would like to join the queue.
Speaker Change: One we will move next quick Jorge together with BTG Pactual. Please go ahead.
Speaker Change: Hey, good morning, Congrats on the results and thank you for taking my question Michael.
Speaker Change: My question is on Iraq Speaker.
Speaker Change: It went from 50 baskets in 2019 to slightly above 82 patents in 2023. So I was wondering if you could provide more color on the main factors, which are driving decent grade and what should we expect for the future. Thank you very much.
Speaker Change: Alright, good to meet you.
<unk>.
Speaker Change: Fundamentally what drives increase in tickets as our customers picking up one additional item.
Speaker Change: And their visit and that happens.
Speaker Change: Yes.
Speaker Change: We increased the penetration of wallet, because we are offering.
More a bigger selection of.
Speaker Change: Things more value for money to our customers and it's happening naturally and it's a natural upward trend.
Speaker Change: We've been above.
Speaker Change: Observing now for several years now.
Speaker Change: Inflation that we've seen in the past is sort of.
Speaker Change: Created a little bit of noise in our number.
We've seen high inflation so.
Speaker Change: And 'twenty two the ticket size has got a little bit in places you've seen it in the first quarters of 'twenty three but we've seen internally a significant deflation in the fourth quarter of 'twenty three.
Speaker Change: Now going forward I expect inflation to stabilize and then I expect our ticket size to continue its upward trend as we've been experiencing it now for several years.
Yeah.
Speaker Change: Great. Thank you.
Speaker Change: Thank you and we show no further questions at this time I would like to turn the call back to the presenters for closing remarks.
Again, thank you very much for attending our first meeting. This is very exciting for us are extremely nervous at the beginning of the call, but I think.
Speaker Change: Hearings familiar voices that of <unk>.
Speaker Change: Supported us all this time has made it very smooth and easy.
Speaker Change: Of course, we're happy to talk to you during our quiet periods about what's coming on.
So thank you again, and we look forward to talking again and seeing you in person.
Speaker Change: And this does conclude today's program.
Speaker Change: Thank you for your participation you may disconnect at any time.