Q1 2026 Fomento Economico Mexicano SAB de CV Earnings Call

April 30, 2026

Operator 2: Hello, and welcome to the FEMSA First Quarter 2026 Conference Call. My name is Sophia and I'll be your moderator for today's event. Please note that this conference is being recorded. For the duration of the call, all participants will be in a listen-only mode. You will have the opportunity to ask questions at the end of the presentation. To do so, please use the Raise Hand feature in Zoom and we will open your line. If you experience any technical issues during the call, please use the chat function to request assistance. I would now like to hand the call over to Mr. Juan Fonseca, Investor Relations Director at FEMSA. Please go ahead.

Operator: Hello, and welcome to the FEMSA First Quarter 2026 Conference Call. My name is Sophia and I'll be your moderator for today's event. Please note that this conference is being recorded. For the duration of the call, all participants will be in a listen-only mode. You will have the opportunity to ask questions at the end of the presentation. To do so, please use the Raise Hand feature in Zoom and we will open your line. If you experience any technical issues during the call, please use the chat function to request assistance. I would now like to hand the call over to Mr. Juan Fonseca, Investor Relations Director at FEMSA. Please go ahead.

Speaker #2: Hello and welcome to the FENSA first quarter 2026 conference call. My name is Sophia and I'll be your moderator for today's event. Please note that this conference is being recorded.

Speaker #2: For the duration of the call, all participants will be in listen-only mode. You will have the opportunity to ask questions at the end of the presentation.

Speaker #2: To do so, please use the raise hand feature in Zoom and we will open your line. If you're experiencing any technical issues during the call, please use the chat function to request assistance.

Speaker #2: I would now like to hand the call over to Mr. Juan Fonseca, Investor Relations Director at FENSA. Please go ahead.

Speaker #3: Good morning, everyone, and welcome to FEMSA's first quarter 2026 results conference call. Today we are joined by José Antonio Fernández Garza, FEMSA CEO, Martín Arias, our CFO, and Jorge Collazo, who heads Coca-Cola FEMSA's Investor Relations Team.

Juan Fonseca: Good morning, everyone, and welcome to FEMSA's Q1 2026 Results Conference Call. Today, we are joined by José Antonio Fernández Garza-Lagüera, FEMSA's CEO; Martín Arias Yániz, our CFO; and Jorge Collazo, who heads Coca-Cola FEMSA's Investor Relations team. The plan is for José Antonio to open the conversation with some high-level comments on the quarter's performance and trends, followed by Martín, who will provide more granular details on the results. Finally, we will open the call for your questions. José Antonio, please go ahead.

Juan Fonseca: Good morning, everyone, and welcome to FEMSA's Q1 2026 Results Conference Call. Today, we are joined by José Antonio Fernández Garza-Lagüera CEO; Martín Arias Yániz, our CFO; and Jorge Collazo, who heads Coca-Cola FEMSA's Investor Relations team. The plan is for José Antonio to open the conversation with some high-level comments on the quarter's performance and trends, followed by Martín, who will provide more granular details on the results. Finally, we will open the call for your questions. José Antonio, please go ahead.

Speaker #3: The plan is for José Antonio to open the conversation with some high-level comments on the quarter's performance and trends, followed by Martín, who will provide more granular details on the results.

Speaker #3: Finally, we will open the call for your questions. José Antonio, please go ahead.

Speaker #4: Thank you, Juan. Good morning, everyone. Before we get into the numbers, we should talk a bit about the changes we have made to improve our disclosure.

José Antonio Fernández Garza-Lagüera: Thank you, Juan. Good morning, everyone. Before we get into the numbers, we should talk a bit about the changes we have made to improve our disclosure. As you saw in our release, we are now reporting OXXO Mexico on its own, given how important its performance and trajectory continue to be for our investors and analysts. At the same time, we're reporting a new segment, Americas & Mobility, which comprises our OXXO operations outside of Mexico, as well as our fuel business in those markets where we participate in fuel, namely Mexico and the United States. Hopefully it will allow you to track our progress as we work to gradually capture the growth opportunity in places like Brazil and Colombia.

Speaker #4: As you saw in our release, we are now reporting Oxxo México on its own, given how important its performance and trajectory continue to be for our investors and analysts.

Speaker #4: At the same time, we are reporting a new segment, Americas and Mobility, which comprises our Oxxo operations outside of Mexico, as well as our fuel business in those markets where we participate in fuel: namely, Mexico and the United States.

Speaker #4: This new segment contains some of our fastest-growing operations, so hopefully it will allow you to track our progress as we work to gradually capture the growth opportunity in places like Brazil and Colombia.

Speaker #4: These are the main changes to our reporting segment, with Europe, health, and Coca-Cola FEMSA remaining as they were. Moving on to the quarter results, most of our operations delivered a strong performance and the first highlight is the continued recovery at Oxxo México.

José Antonio Fernández Garza-Lagüera: These are the main changes to our reporting segment, with Europe, Health, and Coca-Cola FEMSA remaining as they were. Moving on to the quarter results, most of our operations delivered a strong performance, and the first highlight is a continued recovery at OXXO Mexico. Building on the positive trends we first saw during Q4 of last year, OXXO delivered 8.3% revenue growth, driven by same-store sales that beat the industry, despite the disruptions in late February that led to many store closures, a few of which remain today. In particular, we saw revenue growth in the tobacco and soft drink categories, reflecting the pass-through effect from the application of new excise taxes. We also saw positive revenue dynamics in almost all other categories except snacks, sweets, and alternative beverage.

Speaker #4: Building on the positive trends we first saw during the final quarter of last year, Oxxo delivered 8.3% revenue growth, driven by same-store sales that beat the industry, despite the disruptions in late February that led to many store closures.

Speaker #4: A few of which remain today. In particular, we saw revenue growth in the tobacco and soft drink categories, reflecting the path-through effect from the application of new excise taxes.

Speaker #4: But we also saw positive revenue dynamics in almost all other categories except snacks, sweets, and alternative beverages. We believe that these revenue trends reflected our continued focus on affordability through promotional activity and price package initiatives.

José Antonio Fernández Garza-Lagüera: We believe that these revenue trends reflected our continued focus on affordability through promotional activity and price package initiatives, which in turn helped drive improvements in traffic. Beyond the top line, however, the team also delivered gross margin expansion through continued cooperation with our suppliers, increases in distribution income, and warehouse cost savings. On the selling expense front, OXXO Mexico achieved selling expense containment with growth in line with expansion plus inflation. This reflects the impact of our efforts to increase efficiency. As a result of all these factors, operating income growth was well into the double digits. Just as relevant as the growth in numbers themselves, in a consumer environment that remains challenging, we believe we have continued to gain market share in recent months against the traditional trade, while bigger box retailers were stable as a whole.

Speaker #4: Which, in turn, helped drive improvements in traffic. Beyond the top line, however, the team also delivered gross margin expansion through continued cooperation with our suppliers, increases in distribution income, and warehouse cost savings.

Speaker #4: On the selling expense front, Oxxo México achieved selling expense containment with growth in line with expansion plus inflation. This reflects the impact of our efforts to increase efficiency.

José Antonio Fernández Garza-Lagüera: As a result of all these factors, operating income growth was well into the double digits. Just as relevant as the growth in numbers themselves, in a consumer environment that remains challenging, we believe we have continued to gain market share in recent months against the traditional trade, while bigger box retailers were stable as a whole.

Speaker #4: As a result of all these factors, operating income growth was well into the double digits. Just as relevant as the growth in numbers themselves, in a consumer environment that remains challenging, we believe we have continued to gain market share in recent months against the traditional trade while bigger box retailers were stable as a whole.

Speaker #4: However, as encouraging as these results are, we recognize there is still work to do. Average traffic remains slightly negative during the quarter, but improved significantly versus the declines we faced last year.

José Antonio Fernández Garza-Lagüera: However, as encouraging as these results are, we recognize there is still work to do. Average traffic remained slightly negative during Q1, but improved significantly versus the declines we faced last year, reflecting clear progress and the early benefits of our commercial initiatives. While we are encouraged by this trajectory, we are not being complacent and remain firmly focused on continuing to improve traffic. As we mentioned on our last call, we aspire to restore OXXO Mexico sustained growth and relevance through a clear focus on recovering traffic and further improving same-store sales by sharpening our value proposition and enhancing the customer experience while delivering strong operational execution. Next, I would like to talk a little about Americas and Mobility. During Q1, the business delivered strong growth across most of its income statement.

Speaker #4: Reflecting clear progress and the early benefits of our commercial initiatives. While we are encouraged by this trajectory, we are not being complacent and remain firmly focused on continuing to improve traffic.

Speaker #4: As we mentioned on our last call, we aspire to restore Oxxo México's sustained growth and relevance through a clear focus on recovering traffic and further improving same-store sales by sharpening our value proposition and enhancing the customer experience while delivering strong operational execution.

Speaker #4: Next, I would like to talk a little about Americas and Mobility. During the first quarter, the business delivered strong growth across most of its income statements.

Speaker #4: We should note that this segment includes two months of the recently consolidated operations of Oxxo Brazil, and therefore, the comparable column is particularly useful to understand the rest of the segment's year-on-year growth.

José Antonio Fernández Garza-Lagüera: We should note that this segment includes 2 months of the recently consolidated operations of OXXO Brazil, therefore, the comparable column is particularly useful to understand the rest of the segment's year-on-year growth. Here, we are especially proud of the same-store sales growth in LatAm ex Brazil of more than 20% in local currency, a very encouraging sign of OXXO's on-the-ground momentum in Colombia, Chile, and Peru. For its part, Brazil posted same-store sales growth of 6.9% in local currency, reflecting continued progress in strengthening the value proposition while the US business delivered same-store sales growth of 1.7% in local currency. In terms of store expansion, growth was moderate on a last twelve-month basis. In Colombia, this reflected our decision to prioritize operational improvements and strengthen key capabilities to support a stronger pace of expansion starting this year.

Speaker #4: Here, we are especially proud of the same-store sales growth in LATAM, ex-Brazil. Of more than 20% in local currency, a very encouraging sign of Oxxo's on-the-ground momentum in Colombia, Chile, and Peru.

Speaker #4: For its part, Brazil posted same-store sales growth of 6.9% in local currency, reflecting continued progress in strengthening the value proposition while the US business delivered same-store sales growth of 1.7% in local currency.

Speaker #4: In terms of store expansion, growth was moderate on the last 12-month basis. In Colombia, this reflected our decision to prioritize operational improvements and strengthen key capabilities to support a stronger pace of expansion starting this year.

Speaker #4: While in Brazil, expansion was impacted during most of 2025 by our focus on unwinding our joint venture. Looking ahead, this is a segment that should gradually improve its profitability as it gains scale, strengthens operating leverage, and continues to mature across markets.

José Antonio Fernández Garza-Lagüera: While in Brazil, expansion was impacted during most of 2025 by our focus on unwinding our joint venture. Looking ahead, this is a segment that should gradually improve its profitability as it gains scale, strengthens operating leverage, and continues to mature across markets. With our updated reporting structure, you will now be able to monitor that progress more closely on a regular basis. Since we're discussing some of our fast growers, we should also mention Bara and the fact that during the first quarter, it increased its same-store sales by double digits, driven equally by traffic and ticket, while opening 38 net new stores and reaching almost 30% of private label in its revenue mix. All in all, a solid quarter for Bara.

Speaker #4: With our updated reporting structure, you will now be able to monitor that progress more closely on a regular basis. Since we're discussing some of our fast growers, we should also mention BARA.

Speaker #4: And the fact that during the first quarter, it increased its same-store sales by double digits, driven equally by traffic and tickets. While opening 38 net new stores and reaching almost 30% of private label in its revenue mix.

Speaker #4: All in all, a solid quarter for BARA. In Europe, VALORA again delivered strong growth in operating income, even as they continue to face soft traffic trends, particularly outside the core Swiss retail and food service business.

José Antonio Fernández Garza-Lagüera: In Europe, Valora again delivered strong growth in operating income even as they continue to face soft traffic trends, particularly outside the core Swiss retail and food service business. For its part, the Coca-Cola FEMSA team remains focused on executing its playbook of strengthening affordability, expanding refillables to defend household penetration, and continuing to deploy state-of-the-art digital tools and revenue growth management initiatives. Particularly important in Mexico, where softer consumer demand has been further pressured by this year excise tax increase. On the other side of the ledger, our health operations again delivered a lackluster set of results. Top line was driven by Colombia Retail, Chile and Ecuador in local currency, with revenue growth and market share gains. Results were pressured by soft margins in Chile, reflecting an unfavorable product mix shift towards lower margin pharma products such as GLP-1 treatments and by continued losses in Mexico.

Speaker #4: For its part, the Coca-Cola FEMSA team remains focused on executing its playbook of strengthening affordability, expanding refillables to defend household penetration, and continuing to deploy state-of-the-art digital tools and revenue growth management initiatives.

Speaker #4: Particularly important in Mexico, where softer consumer demand has been further pressured by this year's excise tax increase. On the other side of the ledger, our Health operations again delivered a lackluster set of results.

José Antonio Fernández Garza-Lagüera: On the other side of the ledger, our health operations again delivered a lackluster set of results. Top line was driven by Colombia Retail, Chile and Ecuador in local currency, with revenue growth and market share gains. Results were pressured by soft margins in Chile, reflecting an unfavorable product mix shift towards lower margin pharma products such as GLP-1 treatments and by continued losses in Mexico.

Speaker #4: Top line was driven by Colombia retail, Chile and Ecuador in local currency, with revenue growth and market share gains. However, results were pressured by soft margins in Chile, reflecting an unfavorable product mix shift toward lower margin pharma products such as GLP-1 treatments and by continued losses in Mexico.

Speaker #4: Let me also discuss recent developments on our institutional business in Colombia. As you know, our health business in Colombia includes a significant institutional segment in which we distribute medicine, and provide highly specialized medical services on behalf of private healthcare providers intermediaries known as EPSs.

José Antonio Fernández Garza-Lagüera: Let me also discuss recent developments on our institutional business in Colombia. As you know, our health business in Colombia includes a significant institutional segment in which we distribute medicine and provide highly specialized medical services on behalf of private healthcare providers, intermediaries known as EPSs. The institutional component represents a bit more than half of our business in Colombia, although it has been growing much more slowly than our retail business and is significantly less profitable. In recent years, this part of the business has become increasingly challenging due to funding gaps, which have impeded the ability of such EPSs to reimburse their service suppliers, including us. Accordingly, we have been gradually reducing our exposure, although our total outstanding receivables to the EPSs have continued to grow.

Speaker #4: The institutional component represents a bit more than half of our business in Colombia, although it has been growing much more slowly than our retail business, and is significantly less profitable.

Speaker #4: In recent years, this part of the business has become increasingly challenging due to funding gaps, which have impeded the ability of such EPSs to reimburse their service suppliers, including us.

Speaker #4: Accordingly, we have been gradually reducing our exposure, although our total outstanding receivables to the EPSs have continued to grow. As part of our strategy, to reduce exposure, at the beginning of April, we notified EPSs ANITAS, our largest counterparty in this channel, by a significant margin, that we will not renew our agreement upon its expiration in September.

José Antonio Fernández Garza-Lagüera: As part of our strategy to reduce exposure, at the beginning of April, we notified EPS Sanitas, our largest counterparty in this channel, by a significant margin, that we will not renew our agreement upon its expiration in September. The current environment in the Colombian healthcare system could result in the insolvency of certain EPSs, thus creating a credit risk for us with regards to such receivables. We will continue to actively manage this exposure, remain disciplined in our capital allocation, and keep the market informed of any relevant developments as we continue to prioritize our retail drugstore business, which has stronger profitability, cash generation, and more attractive long-term returns. Finally, Spin had a good quarter. Today, Spin by OXXO sits at the center of the digital consumer evolution in Mexico with 11 million active users and more than 100 million monthly transactions.

Speaker #4: The current environment in the Colombian healthcare system would result in the insolvency of certain EPSs, thus creating a credit risk for us with regards to such receivables.

Speaker #4: We will continue to actively manage this exposure, remain disciplined in our capital allocation, and keep the market informed of any relevant developments as we continue to prioritize our retail drugstore business, which has stronger profitability, cash generation, and more attractive long-term returns.

José Antonio Fernández Garza-Lagüera: Finally, Spin had a good quarter. Today, Spin by OXXO sits at the center of the digital consumer evolution in Mexico with 11 million active users and more than 100 million monthly transactions.

Speaker #4: Finally, SPIN had a good quarter. Today, SPIN by Oxxo sits at the center of the digital consumer evolution in Mexico, with 11 million active users, and more than 100 million monthly transactions.

Speaker #4: SPIN is already one of the fastest-growing participants in SPAY and peer-to-peer transfers across fintechs. As we mentioned on our last call, SPIN is focusing on becoming a structurally omnichannel platform, aiming to amplify OXXO's ability to solve and serve daily consumption needs and occasions for the Mexican consumer, and change how they experience convenience in their daily lives.

José Antonio Fernández Garza-Lagüera: Spin is already one of the fastest-growing participants in SPEI and peer-to-peer transfers. As we mentioned on our last call, Spin is focusing on becoming a structurally omni-channel platform, aiming to amplify OXXO's ability to solve and serve daily consumption needs and occasions for the Mexican consumer and change how they experience convenience in their daily lives. Before turning the call over to Martín, I would like to reflect on some of the changes we have made in our organization during these first few months. The work has been intense and challenging, but having the right team in place is fundamental to our long-term success. At this point, we have finished almost all of the organizational changes we need to make.

Speaker #4: Before turning the call over to Martin, I would like to reflect on some of the changes we have made in our organization during these first few months.

Speaker #4: The work has been intense and challenging. But having the right team in place is fundamental to our long-term success. At this point, we have finished almost all of the organizational changes we need to make.

Speaker #4: We completed a combination of the overhead structures of FEMSA corporate and the proximity and health divisions, including the top reductions in headcount required by this new structure.

José Antonio Fernández Garza-Lagüera: We completed the combination of the overhead structures of FEMSA Corporate and the Proximity and Health Division, including the top reductions in headcount required by this new structure. For its part, OXXO Mexico has a renewed senior leadership team that brings additional capabilities, and the revamped team at Spin now has a more aligned reporting line with OXXO Mexico to ensure maximum alignment. We still have some work to do to review our corporate non-FT expenses, but I believe we have assembled a strong world-class team that will help me lead this extraordinary company through the next stage of growth. I want to take this opportunity to thank everyone on our team at every level for continuing to deliver a top-notch performance, even as we made meaningful adjustments to the lineup. With that, let me turn it over to Martín Arias to go over the numbers in more detail.

Speaker #4: For its part, Oxxo Mexico has a renewed senior leadership team, that brings additional capabilities, and a revamped team at SPIN now has a more aligned reporting line, with Oxxo Mexico to ensure maximum alignment.

Speaker #4: We still have some work to do to review our corporate, non-FTA expenses, but I believe we have assembled a strong world-class team. That will help me lead this extraordinary company through the next stage of growth.

Speaker #4: I want to take this opportunity to thank everyone on our team, at every level, for continuing to deliver a top-notch performance, even as we made meaningful adjustments to the lineup.

José Antonio Fernández Garza-Lagüera: I want to take this opportunity to thank everyone on our team at every level for continuing to deliver a top-notch performance, even as we made meaningful adjustments to the lineup. With that, let me turn it over to Martín Arias to go over the numbers in more detail.

Speaker #4: And with that, let me turn it over to Martin to go over the numbers in more detail.

Speaker #2: Thank you, José Antonio. Good morning, everyone, and thank you for joining us today. As José Antonio mentioned, starting this quarter we are reporting under a new segment structure.

Martín Arias Yániz: Thank you, José Antonio. Good morning, everyone, and thank you for joining us today. As José Antonio mentioned, starting this quarter, we are reporting under new segment structure: OXXO Mexico, Americas and Mobility, Europe, Health, and Coca-Cola FEMSA. We have included the comparable base numbers for Q1 2025. Among other benefits, we believe this structure will make it easier for you to track and monitor operations that are in different stages of development and evolution. Let me begin with FEMSA's consolidated financial results for Q1 2026.

Speaker #2: OXXO Mexico Americas, and Mobility Europe, Health, and Coca-Cola FEMSA. We have included the comparable base numbers for the first quarter of 2025. Among other benefits, we believe this structure will make it easier for you to track and monitor operations that are in different stages of development and evolution.

Speaker #2: Let me begin with FEMSA's consolidated financial results for the first quarter of 2026. Total revenues increased 6.1% year over year, while operating income grew 5.5%.

Martín Arias Yániz: Total revenues increased 6.1% year-over-year, while operating income grew 5.5%, reflecting the continued recovery in OXXO Mexico, contributions from our international operations, and the early benefits of our cost restructuring initiatives, offset by currency headwinds due to a stronger peso and the softer performance of health and growth. On a comparable and currency-neutral basis, total revenues and operating income grew 8.5% and 12.1% respectively. Net consolidated income amounted to MXN 17.6 billion, representing an increase of 97.3% compared to Q1 2025. This increase was driven by a one-time non-cash accounting gain related to the BradyPLUS and Imperial Dade combination. Eliminating this non-cash gain, net consolidated income would have been MXN 5.7 billion, or a decline of 36.4% year-over-year.

Speaker #2: Reflecting the continued recovery in Oxxo Mexico, contributions from our international operations, and the early benefits of our cost restructuring initiatives, but offset by currency headwinds due to a stronger peso and the softer performance of Health and Growth.

Speaker #2: On a comparable and currency neutral basis, total revenues and operating income grew 8.5% and 12.1%, respectively. Net consolidated income amounted to 17.6 billion pesos, representing an increase of 97.3% compared to the first quarter of 2025.

Speaker #2: This increase was driven by a one-time non-cash accounting gain related to the Brady Plus and Imperial Day combination. Eliminating this non-cash gain net consolidated income would have been 5.7 billion pesos.

Speaker #2: Or a decline of 36.4% year over year. This decline was mainly explained by higher net financing expenses. Reflecting one, a foreign exchange loss compared to a gain in 2025 representing a swing of 883 million pesos driven by the appreciation of the Mexican peso against the US dollar denominated cash positions.

Martín Arias Yániz: This decline was mainly explained by higher net financing expenses, reflecting, one, a foreign exchange loss compared to a gain in 2025, representing a swing of MXN 883 million driven by the appreciation of the Mexican peso against the US dollar-denominated cash positions. Two, an expense of MXN 189 million related to financial instruments, compared to a gain of 1.1 billion last year for the favorable valuation of the convertible bond associated with Heineken shares. Three, lower interest income as a result of a lower cash position and lower interest rates. Additionally, income from discontinued operations contributed 2.5 billion in Q1 of last year, but not this year.

Speaker #2: Two, an expense of 189 million pesos related to financial instruments compared to a gain of 1.1 billion last year for the favorable valuation of the convertible bond associated with Heineken shares, and three, lower interest income as a result of a lower cash position and lower interest rates.

Speaker #2: Additionally, income from discontinued operations contributed 2.5 billion in the first quarter of last year, but not this year. The effective tax rate for the quarter was 17.1%, including the impact of the one-time accounting gain relating to our investment in Brady Plus.

Martín Arias Yániz: The effective tax rate for the quarter was 17.1%, including the impact of the one-time accounting gain relating to our investment in BradyPLUS. The gain was recognized as part of a share exchange transaction that for accounting purposes required fair value recognition similar to a sale, resulting in a book gain with no current tax effect. Excluding this non-cash item, the effective tax rate would have been 37.9%. The difference between the statutory corporate tax rate of 30% and our effective tax rate of 37.9% is mainly explained by certain non-deductible items, including labor-related expenses in OXXO Mexico, as well as losses at Spin that while diminishing currently do not generate a tax shield. We expect these losses to decline beginning next quarter.

Speaker #2: The gain was recognized as part of a share exchange transaction, that for accounting purposes required fair value recognition similar to a sale, resulting in a book gain with no current tax effect.

Speaker #2: Excluding this non-cash item, the effective tax rate would have been 37.9%. The difference between the statutory corporate tax rate of 30% and our effective tax rate of 37.9% is mainly explained by certain non-deductible items, including labor-related expenses in Oxxo Mexico, as well as losses at SPIN that, while diminishing, currently do not generate a tax yield.

Speaker #2: We expect these losses to decline beginning next quarter. Turning to our operating results, Oxxo Mexico delivered total revenue growth of 8.3%, driven by same-source sales growth of 6%, and continued net new store additions of 158 units during the quarter.

Martín Arias Yániz: Turning to our operating results, OXXO Mexico delivered total revenue growth of 8.3%, driven by same-source sales growth of 6% and continued net new store additions of 158 units during the quarter. Gross margin was 46.2%, expanding 140 basis points year-over-year, reflecting solid income from key suppliers and the resilient performance of financial services. Selling expenses grew in line with store expansion plus inflation, despite a double-digit growth in labor costs, reflecting our multiple initiatives to contain costs and drive efficiencies.

Speaker #2: Gross margin was 46.2%, expanding 140 basis points year over year, reflecting solid income from key suppliers and the resilient performance of financial services. Selling expenses grew in line with store expansion plus inflation, despite a double-digit growth in labor costs.

Speaker #2: Reflecting our multiple initiatives to contain costs and drive efficiencies. Administrative expenses increased by 13.9%, to represent 2.9% of revenues. Driven by a change in the phasing of provisions for year-end bonuses, and profit sharing that in the past were more heavily provisioned later in the year, and greater expected bonuses and profit sharing due to projected better financial performance this year.

Martín Arias Yániz: Administrative expenses increased by 13.9% to represent 2.9% of revenues, driven by a change in the phasing of provisions for year-end bonuses and profit sharing that in the past were more heavily provisioned later in the year and greater expected bonuses and profit sharing due to projected better financial performance this year. As a result, operating income grew 20.9%, with operating margin expanding 80 basis points to 7.6%. The Americas & Mobility segment delivered total revenues of MXN 25 billion, increasing 12.9% or 10.5% on a comparable and currency-neutral basis. The segment's top line benefited from strong performance across OXXO Latam, which saw average weighted currency neutral same-store sales growth of 13.1% in Chile, Peru, and Colombia, and the consolidation of OXXO Brazil.

Speaker #2: As a result, operating income grew 20.9%, with operating margin expanding 80 basis points to 7.6%. The Americas and Mobility segment delivered total revenues of 25 billion pesos, increasing 12.9% or 10.5% on a comparable and currency neutral basis.

Speaker #2: The segment's top line benefited from strong performance across Oxxo Latam, which saw average weighted currency neutral same-store sales growth of 13.1% in Chile-Peru and Colombia, and the consolidation of Oxxo Brazil.

Martín Arias Yániz: Gross margin of merchandise was stable at 31.8% of revenues, while in the fuel division, it increased 120 basis points to 13%, driven by a more favorable sales mix with a higher retail volumes in OXXO Gas relative to wholesale, which carries higher margins, together with the benefit of higher fuel prices and improved CPG margins in the US, partially offset by lower volumes in the US. Operating income was MXN 281 million, with an operating margin of 1.1%, which represented an increase of more than 100% on a comparable basis, excluding currency translations and the consolidation of OXXO Brazil. The operating margin reflects the recent consolidation of OXXO Brazil, which generates an operating loss at this stage, partially offset by strong fuel performance and narrowing losses across the remainder of OXXO Latam.

Speaker #2: Gross margin of merchandise was stable at 31.8% of revenues. While in the fuel division, it increased 120 basis points to 13%. Driven by a more favorable sales mix, with a higher retail volumes in Oxxo Gas relative to wholesale, which carries higher margins, together with the benefit of higher fuel prices and improved CPG margins in the US.

Speaker #2: Partially offset by lower volumes in the US. Operating income was 281 million pesos, with an operating margin of 1.1%, which represented an increase of more than 100% on a comparable basis.

Speaker #2: Excluding currency translations and the consolidation of Oxxo Brazil. The operating margin reflects the recent consolidation of Oxxo Brazil, which generates an operating loss at this stage, partially offset by strong fuel performance and narrowing losses across the remainder of Oxxo Latam.

Speaker #2: Our operations in Europe reported total revenues of 12.9 billion pesos, stable in peso terms, or up 1.5% on a currency neutral basis. As the start of the year was characterized by a solid Swiss retail and food service business offset by a weak German retail and food service business, resulting from soft traffic across our consumer formats that improved during the month of March.

Martín Arias Yániz: Our operations in Europe reported total revenues of MXN 12.9 billion, stable in peso terms or up 1.5% on a currency-neutral basis, as the start of the year was characterized by a solid Swiss retail and food service business, offset by a weak German retail and food service business, resulting from soft traffic across our consumer formats that improved during the month of March. We continued to see a weak B2B segment driven by strong competition, and we have taken measures, including bringing in a new sales team to help us reignite growth in this business. Gross profit decreased by 1.3%, with a gross margin of 41.5% resulting from the reclassification of distribution expenses from SG&A to cost of sales. On a comparable basis, the gross margin would have expanded by 90 basis points.

Speaker #2: We continue to see a weak B2B segment, driven by strong competition. And we have taken measures, including bringing in a new sales team to help us reignite growth in this business.

Speaker #2: Gross profit decreased by 1.3%, with a gross margin of 41.5%, resulting from the reclassification of distribution expenses from SDNA to cost of sales. On a comparable basis, the gross margin would have expanded by 90 basis points.

Speaker #2: There is no impact on operating income from this reclassification. Operating income was 356 million pesos, a solid increase of 7.4% year on year, driven by strong cost containment, offsetting the weak top line growth.

Martín Arias Yániz: There is no impact on operating income from this reclassification. Operating income was MXN 356 million, a solid increase of 7.4% year on year, driven by strong cost containment offsetting the weak top line growth. Operating margin was 2.8%, reflecting continued cost discipline against the volatile macro environment. For its part, the health division delivered total revenues of MXN 22.2 billion, growing 0.9% year over year, or 6.5% on a currency neutral basis. On a same store sales basis, performance was positive across Colombia, Ecuador, and Chile in local currency, while Mexico continued to face headwinds. During the quarter, and consistent with the adjustments made last quarter, we reclassified certain distribution expenses from SG&A to cost of sales.

Speaker #2: Operating margin was 2.8%, reflecting continued cost discipline against the volatile macro environment. For its part, the health division delivered total revenues of 22.2 billion pesos, growing 0.9% year over year, or 6.5% on a currency neutral basis.

Speaker #2: On a same-store sales basis, performance was positive across Colombia, Ecuador, and Chile in local currency, while Mexico continued to face headwinds. During the quarter, and consistent with the adjustments made last quarter, we reclassified certain distribution expenses from SDNA to cost of sales.

Martín Arias Yániz: This change was made purely for accounting presentation purposes to better align the classification of distribution costs with the nature of the expense. As with Valora, there is no impact on operating income because of this reclassification. However, as a mechanical effect of this change, gross margin was impacted by approximately MXN 666 million, reflecting the proportional shift of these expenses into cost of sales. Gross profit decreased by 10% with a gross margin of 26.2%. On a comparable basis, the Q1 gross margin would have declined by 20 basis points. Operating income reached MXN 657 million, a decline of 14.9% and 4.9% on a comparable basis with an operating margin of 3%.

Speaker #2: This change was made purely for accounting presentation purposes, to better align the classification of distribution costs with the nature of the expense. As with Ballora, there is no impact on operating income because of this reclassification.

Speaker #2: However, as a mechanical effect of this change, gross margin was impacted by approximately 666 million pesos, reflecting the proportional shift of these expenses into cost of sales.

Speaker #2: Gross profit decreased by 10%, with a gross margin of 26.2%. On a comparable basis, the first quarter gross margin would have declined by 20 basis points.

Speaker #2: Operating income reached 657 million pesos, a decline of 14.9%, and 4.9% on a comparable basis, with an operating margin of 3%. This result was supported by strong growth in Colombia and Ecuador, which was more than offset by a decline in Chile and continued losses in May.

Martín Arias Yániz: This result was supported by strong growth in Colombia and Ecuador, which was more than offset by a decline in Chile and continued losses in May. For its part, Coca-Cola FEMSA delivered revenue growth of 1.1% and a decline in operating income of 2.3%. On a comparable basis, revenue grew 6.3% and operating income also grew 2.1%, reflecting the benefits of its diversified geographic footprint as international operations offset a more challenging result in Mexico. Portfolio initiatives, strong marketplace execution, and digital capabilities continue to support market share gains, while disciplined cost and expense management help sustain stable consolidated margins. As always, we encourage you to listen to the earnings call hosted yesterday. Before closing, let me briefly update you on capital allocation.

Speaker #2: For its part, Coca-Cola FEMSA delivered revenue growth of 1.1% and a decline in operating income of 2.3%. On a comparable basis, revenue grew 6.3% and operating income also grew 2.1%.

Speaker #2: Reflecting the benefits of its diversified geographic footprint at international operations, offset a more challenging result in Mexico. Portfolio initiatives strong marketplace execution and digital capabilities continue to support market share gains, while disciplined cost and expense management help sustain stable consolidated margins.

Speaker #2: As always, we encourage you to listen to the earnings call hosted yesterday. Before closing, let me briefly update you on capital allocation. During the first quarter, we deployed 6.2 billion pesos in CapEx, representing approximately 3% of total revenues, and a 29.5% lower than last year.

Martín Arias Yániz: In Q1, we deployed MXN 6.2 billion in CapEx, representing approximately 3% of total revenues and at 29.5% lower than last year, primarily reflecting a slower start of the year in OXXO Mexico store openings and a conservative approach to capacity-related investments at KOF. We expect CapEx deployment to accelerate through the remainder of the year, trending towards our more typical CapEx to sales ratio of approximately 5% to 6%. Our approach remains disciplined, linking investment decisions across markets to clear visibility on same store sales and demand trends, margin evolution, and cash generation.

Speaker #2: Primarily reflecting a slower start of the year in Oxxo Mexico store openings and a conservative approach to capacity-related investments at Gulf. We expect CapEx deployment to accelerate through the remainder of the year, trending to towards our more typical CapEx to sales ratio of approximately 5 to 6 percent.

Speaker #2: Our approach remains disciplined, linking investment decisions across markets to clear visibility on same-store sales and demand trends, margin evolution, and cash generation. With respect to shareholder returns, in our recent annual general meeting of shareholders, we voted to deploy 15.2 billion pesos in ordinary dividends between March 2026 and March 2027, an increase per share of 4.5% versus last year.

Martín Arias Yániz: With respect to shareholder returns and our recent annual general meeting of shareholders, we voted to deploy MXN 15.2 billion in ordinary dividends between March 2026 and March 2027, an increase per share of 4.5% versus last year. In addition, shareholders also approved an extraordinary dividend for the year equivalent to MXN 25.8 billion. Taken together, the combination of ordinary and extraordinary returns represents total expected capital distributions of approximately MXN 41 billion on a March 2026 to March 2027 basis. Additionally, we continue to execute on our latest 300 million share repurchase program, which we expect to be completed during the Q2. This program is part of our 2025 returns, and therefore incremental to the MXN 41 billion I just mentioned.

Speaker #2: In addition, shareholders also approved an extraordinary dividend for the year equivalent to 25.8 billion pesos. Taken together, the combination of ordinary and extraordinary returns represents total expected capital distributions of approximately 41 billion pesos on a March 2026 to March 2027 basis.

Speaker #2: Additionally, we continue to execute on our latest 300 million share repurchase program, which we expect to be completed during the second quarter. This program is part of our 2025 returns, and therefore incremental to the 41 billion pesos I just mentioned.

Speaker #2: As I look ahead, we are optimistic as we accelerate towards a busy summer that includes the FIFA World Cup, while executing against our strategy across our business units.

Martín Arias Yániz: As I look ahead, we are optimistic as we accelerate towards a busy summer that includes the FIFA World Cup while executing against our strategy across our business units. However, we temper our optimism with some caution, particularly towards H2 as we continue to operate in a challenging and uncertain macro environment worldwide. We got some feedback about our last call being a bit long. We are mindful of your time, we want to be fair in giving as many participants an opportunity to ask questions. We ask you to help us by asking one question at a time. Feel free to rejoin the queue if you have further questions. Thank you. With that, we can open the call for your questions.

Speaker #2: However, we temper our optimism with some caution, particularly across towards the second half of the year as we continue to operate in a challenging and uncertain macro environment worldwide.

Speaker #2: We got some feedback about our last call being a bit long. We're mindful of your time, and we want to be fair in giving as many participants an opportunity to ask questions.

Speaker #2: We ask you to help us by asking one question at a time. Feel free to rejoin the queue if you have further questions. Thank you.

Speaker #2: And with that, we can open the call for your questions.

Speaker #1: Okay. At this time, we are going to open it up for questions and answers. If you have a question, please click on raise hand for audio questions or write it down in the Q&A section for written questions.

Operator 2: Okay. At this time, we are going to open it up for questions and answers. If you have a question, please click on Raise Hand for audio questions or write it down in the Q&A section for written questions. Please remember that your company's name should be visible for your question to be taken. We do ask that when you pose your question, that you pick up your headset to provide optimum sound quality.

Operator: Okay. At this time, we are going to open it up for questions and answers. If you have a question, please click on Raise Hand for audio questions or write it down in the Q&A section for written questions. Please remember that your company's name should be visible for your question to be taken. We do ask that when you pose your question, that you pick up your headset to provide optimum sound quality. Our first question comes from Alvaro Garcia with BTG.

Speaker #1: Please remember that your company's name should be visible for your question to be taken. We do ask that when you pose your question, that you pick up your headset to provide optimum sound quality.

Speaker #1: Our first question comes from Álvaro García with BTG.

Sophia: Our first question comes from Alvaro Garcia with BTG.

José Antonio Fernández Garza-Lagüera: Hola, Alvaro.

Speaker #2: Hola, Álvaro.

Alvaro Garcia: Hey, good morning. Thanks for the space for questions. Thanks very much for the new segment information. I think it's great. You know, I have two questions, one for Martín on. Well, I'll stick with one question. On others-

Speaker #3: Hey, good morning. Thanks for the space for questions. And thanks very much for the new segment information. I think it's great. I have two questions.

Speaker #3: One for Martín or I'll stick with one question. On others.

José Antonio Fernández Garza-Lagüera: Thank you.

Speaker #2: Thank you.

Alvaro Garcia: ... on others, just it, you know, it came down materially relative to last year. This is obviously the difference in EBITDA, between your consolidated EBITDA and all of your different segments. I was wondering if you could just help piece together why that came down in the context of the recent restructurings that you announced last quarter. Thank you.

Speaker #3: On others, just it came down materially relative to last year. This is obviously the difference in EBITDA between your consolidated EBITDA and all of your different segments.

Speaker #3: So I was wondering if you could just help piece together why that came down in the context of the recent restructurings that you announced last quarter.

Speaker #3: Thank you.

Speaker #2: Sure. I mean, one big driver without a doubt was the decline in losses in spin. And again, generally, our efforts at cost containment. One has to be careful with others' lines because sometimes that with all the FEMSA forward things and our businesses, they were coming in and out.

Martín Arias Yániz: Sure. I mean, one big driver for that doubt was the decline in losses in Spin. Again, generally our efforts at cost containment. One has to be careful with others' lines because sometimes that all comes to forward things in our businesses that were coming in and out. Generally, I think from last quarter to this quarter, the best progress that was made was on the reduction of the Spin. The benefits from cost reductions will probably begin to cycle in over the next three quarters, and you should continue to expect improvements also as we manage the Spin losses and find more efficient ways to manage those losses from a tax shift perspective.

Speaker #2: But generally, I think from last quarter to this quarter, the best progress that was made was on the reduction of the spin. The benefits from cost reductions will probably begin to cycle in over the next three quarters.

Speaker #2: And you should continue to expect improvements also as we manage the spin losses and find more efficient ways to manage those losses from a tax issue perspective.

Speaker #3: Wonderful. Thank you.

Alvaro Garcia: Wonderful. Thank you.

Speaker #1: Our next question comes from Ben Thurer with Barclays.

Sophia: Our next question comes from Benjamin Theurer with Barclays.

Operator: Our next question comes from Benjamin Theurer with Barclays.

José Antonio Fernández Garza-Lagüera: Hello, Ben.

Speaker #2: Hello, Ben.

Speaker #4: Yeah. Good morning. Thank you very much. And I'll stick to one as well. So you showed relatively strong performance in terms of traffic this quarter despite some of the security issues.

Benjamin Theurer: Good morning. Thank you very much, I'll stick to one as well. You showed relatively strong performance in terms of traffic this quarter, despite some of the security issues. Could you help us understand a little bit more just Jan, Feb, March, and how issues in the Pacific area, Guadalajara, and Jalisco have impacted traffic throughout the quarter and what the normalization looks like? Thank you.

Speaker #4: So could you help us understand a little bit more just Gen, Feb, March, and how issues in the Pacific area, Guadalajara, Jalisco, have impacted traffic throughout the quarter and what the normalization looks like?

Speaker #4: Thank you.

Speaker #2: So Ben, I would say I'm still not satisfied with traffic. I expect Oxxo is a growth platform. It's a growing company, and it should also grow on a same-store sales basis on a traffic level.

José Antonio Fernández Garza-Lagüera: Ben, I would say, I'm still not satisfied with traffic. I expect OXXO is a growth platform, it's a growing company, and it should also grow on a same-store sales basis on a traffic level. The strategies we have put in place are aiming towards profitable traffic growth on a medium term level. Having said that, we are encouraged by seeing, compared to other players in the industry, in ANTAD figures and what we see from Nielsen on the traditional trade, we're encouraged by our traffic numbers are relatively better, especially considering the effects we had on February on the disruptions in the Jalisco region and really in a larger swath of the country.

Speaker #2: And the strategies we have put in place are aiming towards profitable traffic growth on a medium-term level. Having said that, we are encouraged by seeing compared to other players in the industry, in Antarctic, and what we see from Nielsen on the traditional trade, we're encouraged by our traffic numbers are relatively better.

Speaker #2: Especially considering the effects we had on February on the disruptions in the Jalisco region and really in a larger swath of the country. I would say we're seeing very good growth traffic or, I mean, better than our average traffic growth, especially in the north of Mexico.

José Antonio Fernández Garza-Lagüera: I would say we're seeing very good growth traffic, I mean, better than our average traffic growth, especially in the north of Mexico, probably helped a little bit by weather, also maybe a little bit more economic momentum in that region, in the Bajio region, compared to a much difficult traffic scenario, obviously in Jalisco, and Nayarit and that region, Michoacan, and obviously the southeast, which I think has a negative effect, after all these infrastructure projects from the last administration, are not present anymore or not as relevant. That's how I would frame it in general.

Speaker #2: Probably helped a little bit by weather. Also maybe a little bit more economic momentum in that region and the Bajío region. Compared to a much difficult traffic scenario, obviously in Jalisco, and Nayarit and that region, Michoacán.

Speaker #2: And obviously, the southeast, which I think has a negative effect after all this infrastructure projects from the last administration are not present anymore or not as relevant.

Speaker #2: That's how I would frame it in general.

Martín Arias Yániz: Excuse me. I think, maybe adding to the lackluster performance in kind of the south of the country, as you know, really the states that are more exposed to remittances, you know, the remittances are coming down and, the, you know, they're generating fewer pesos. I think that also.

Speaker #4: Excuse me. I think maybe adding to the lackluster performance and kind of the south of the country, as you know, really the states that are more exposed to remittances—the remittances are coming down—and they're generating fewer pesos.

Speaker #4: And so I think that also contributes to the difference between the north and the rest of the country.

José Antonio Fernández Garza-Lagüera: Yes

Martín Arias Yániz: contributes to the difference between the north and the rest of the country.

José Antonio Fernández Garza-Lagüera: We saw a relatively soft Holy Week or, you know, vacation season, probably a little bit discouraged by international tourism from the news in Jalisco, plus a stronger peso relative to the dollar, also affected the region around Cancun. That didn't help as well. A long way to go on traffic and we're working on lots of stuff.

Speaker #2: And we saw a relatively soft wholly weak or vacation season probably a little bit disencouraged by international tourism from the news in Jalisco. Plus, a stronger peso relative to the dollar also affected the region around Cancun.

Speaker #2: So that didn't help as well. But a long way to go on traffic and we're working on lots of stuff.

Speaker #3: We'll keep it going. Thank you very much. Good luck.

Benjamin Theurer: Well, keep it going. Thank you very much. Good luck.

Speaker #2: Thank you, Ben.

José Antonio Fernández Garza-Lagüera: Thank you, Ben.

Sophia: Our next question comes from Melissa Byun with Bank of America.

Operator: Our next question comes from Melissa Byun with Bank of America.

Speaker #1: Our next question comes from Melissa Bion with Bank of America.

Speaker #2: Hello, Melissa.

José Antonio Fernández Garza-Lagüera: Hello, Melissa.

Melissa Byun: Hello. Thanks for taking my question. I too will try to keep this to one question or theme. On the OXXO gross margin, are you seeing a contribution from commercial income in anticipation of the World Cup yet? How do you expect margins to evolve along the year? Thanks.

Speaker #5: Hello. Thanks for taking my question. I too will try to keep this to one question or theme. On the Oxxo gross margin, are you seeing a contribution from commercial income in anticipation of the World Cup yet?

Speaker #5: And how do you expect margins to evolve along the year?

José Antonio Fernández Garza-Lagüera: We are not yet seeing, I don't think that that is part of the incremental promotional income from this quarter. Maybe a little bit in March. I think we're gonna see much more of that during Q2. There's a lot of excitement being built by many of the sponsor World Cup brands, we're doing a lot of things behind that should help. It's not necessarily promotional income, but today, which is Día del Niño here in Mexico, we're launching Panini that this, you know, collectible thing, and we're partnering with the Panini Group and we expect some tailwinds of traffic and revenues behind that. We will see, I mean, part of it is commercial income.

Speaker #2: So we are not yet seeing I don't think that is part of the incremental promotional income from this quarter. Maybe a little bit in March, but no, I think we're going to see much more of that during the second quarter.

Speaker #2: There's a lot of excitement being built by many of the sponsor World Cup brands. And we're doing a lot of things behind that that should help.

Speaker #2: It's not necessarily promotional income, but today, which is the Adel Niño here, in Mexico, we're launching El Panini that this collectible thing. And we're partnering with the Panini company and we expect some tailwinds of traffic and revenues behind that.

Speaker #2: We will see I mean, part of it is commercial income. We're also seeing a lot of expansion on our retail media efforts gaining momentum.

José Antonio Fernández Garza-Lagüera: We're also seeing a lot of expansion on our retail media efforts gaining momentum. We are now. We have about almost 6,500 digital banners that are functioning and our network of sales of that channel is growing. Finally, some expansion in financial services. We're still seeing some services like top of decrease. They're much more than being covered by growth in cash withdrawals from new banks, fintechs, and other players like Spin frankly. All of that has been help on the growth margin.

Speaker #2: We are now we have about almost 6,500 digital banners that are functioning and are network of sales of that channel is growing. And finally, some expansion in financial services.

Speaker #2: We're still seeing some services like top-ups decrease. They're way they're much more than being covered by growth in cash withdrawals from new banks. Fintechs and players like Spin, frankly.

Speaker #2: So all of that has been helped on the gross margin.

Speaker #4: Anybody can compliment Jose just on one small item? This quarter saw an improvement in distribution income. In other words, suppliers who choose to use deliver directly to our distribution centers, and then we do distribute on their behalf.

Martín Arias Yániz: If I can compliment José just on one slide. This quarter saw an improvement in distribution income. In other words, suppliers who choose to use, deliver directly to our distribution centers, and then we do distribute on their behalf. As we have gained scale and efficiency in our distribution, more suppliers see us as a better alternative relative to them directly distributing to the store.

Speaker #4: And as we have gained scale, and efficiency in our distribution more suppliers see us as a better alternative relative to them directly distributing to the store.

Speaker #6: Yeah. I just one final comment on this, Melissa. I mean, 140 basis points is a big number. And again, I think everything that was just discussed ahead of the World Cup, some long-term agreements that were recently renewed with some of our big suppliers some of that may not be present in the second half, right?

José Antonio Fernández Garza-Lagüera: Yeah. Just one final comment on this, Melissa. I mean, 140 basis points is a big number. Again, I think everything that was just discussed ahead of the World Cup, some long-term agreements that were recently renewed with some of our big suppliers, some of that may not be present in the H2, right? I, I don't think we should put 140 BPS for the H2 of the year. Hopefully, I'm wrong. I've been wrong 100 times on this, more often than not in the right direction, meaning, margin expands more than I thought. Just to be a little bit conservative because it was a big number.

Speaker #6: I don't think we should put 140 bips for the second half of the year. Hopefully, I'm wrong. I've been wrong 100 times on this.

Speaker #6: More often than not in the right direction. Meaning margin expansion more than I thought. But just to be a little bit conservative because this was a big number.

Melissa Byun: Yes.

Melissa Byun: Great. Understood. Thank you.

Speaker #5: Great. Understood. Thank you.

Juan Fonseca: Hola, Rodrigo.

José Antonio Fernández Garza-Lagüera: Hola, Rodrigo.

Speaker #2: Hola, Rodrigo.

Sophia: Our next question-

Operator: Our next question-

Speaker #1: Our next question.

José Antonio Fernández Garza-Lagüera: Sorry. I was jumping the gun.

Speaker #2: Sorry. I'm jumping the gun with UBS.

Sophia: With UBS. That's okay. Go ahead, Rodrigo.

Operator: With UBS. That's okay. Go ahead, Rodrigo.

Speaker #1: That's okay. Go ahead, Rodrigo.

Juan Fonseca: Hello, Rodrigo again. Sorry.

José Antonio Fernández Garza-Lagüera: Hello, Rodrigo again. Sorry.

Speaker #2: Hello, Rodrigo again. Sorry.

Speaker #6: Go ahead, Rodrigo.

José Antonio Fernández Garza-Lagüera: Go ahead, Rodrigo.

Speaker #3: Hello, hello. Me escuchan? Hola.

Rodrigo: Hello, hello.

Rodrigo Alcantara: Hello, hello.

José Antonio Fernández Garza-Lagüera: Si. Hola.

Rodrigo: Okay. Hello, José. I have three questions. No, just joking. We'll ask one. José, now that, I mean, I have you here on the line, you know, the affordability strategy 2025 worked quite well, right? Helped you recovering the lost traffic to mom and pops. It clearly worked well, that strategy. Still, I mean, the way I see this is kind of like a reactive strategy, let's say, you know, to what was happening there with the macro. The question is looking for 2026 and, you know, beyond the World Cup, what kind of like active strategies would you highlight for OXXO for it to accelerate traffic?

Rodrigo Alcantara: Okay. Hello, José. I have three questions. No, just joking. We'll ask one. José, now that, I mean, I have you here on the line, you know, the affordability strategy 2025 worked quite well, right? Helped you recovering the lost traffic to mom and pops. It clearly worked well, that strategy. Still, I mean, the way I see this is kind of like a reactive strategy, let's say, you know, to what was happening there with the macro. The question is looking for 2026 and, you know, beyond the World Cup, what kind of like active strategies would you highlight for OXXO for it to accelerate traffic?

Speaker #2: Super, super.

Speaker #3: Okay. Hello, Jose. So I have three questions. Just joking. I'm just. Jose, I mean, I have you here in the line. The affordability strategy 2025 worked quite well, right?

Speaker #3: Helped you recovering the lost traffic to mom-and-pops. It clearly worked well. That strategy. Still, I mean, the way I see this is kind of like a reactive strategy, let's say, to what was happening there.

Speaker #3: With the macro. Now, the question is looking for 2026 and beyond the World Cup. What kind of active strategies would you highlight for Oxxo for it to accelerate traffic?

Speaker #3: I mean, you mentioned that you're working in a couple of stops at the beginning of your remarks, right? But just wondering if you can help me understand the flagship strategies that you are working on to precisely accelerate the traffic trends beyond the World Cup.

Rodrigo: I mean, you mentioned that you're working in a couple stuffs, right, stuff, at the beginning of your remarks, right? Just wondering if you can, like, help me understand the flagship strategies that you are working on to precisely reaccelerate the traffic trends beyond the World Cup. That would be my question. Thank you, José.

Rodrigo Alcantara: I mean, you mentioned that you're working in a couple stuffs, right, stuff, at the beginning of your remarks, right? Just wondering if you can, like, help me understand the flagship strategies that you are working on to precisely reaccelerate the traffic trends beyond the World Cup. That would be my question. Thank you, José.

Speaker #3: That would be my question. Thank you, Jose.

José Antonio Fernández Garza-Lagüera: It's a, it's a great question. As you say, I think working on a very good price from OBPPC architecture in also in the impulse categories in terms of affordability has returned us in a growing share trend in tobacco, in beer, in soft drinks and in most of our key categories. I think we still have a long way to go in terms of our ambition of what we can do with impulse. I think given our capillarity, given that we sell the coldest beer out there, we should still gain share and continue to do so. Cold and affordable beer for everyone is our goal.

Speaker #6: It's a great question. As you say, I think working on a very good price from OBPPC architecture in Oxxo in the impulse categories, in terms of affordability, has returned us to a growing share trend in tobacco, in beer, in soft drinks, and in most of the key categories.

Speaker #6: I think we still have a long way to go in terms of our ambition of what we can do with impulse. I think, given our capillarity, given that we sell the coldest beer out there, we should still gain share and continue to do so—cold and affordable beer for everyone.

Speaker #6: It's our goal. But going forward, it's not going to be enough to bring us where we want to go in terms of relevance for the Mexican consumer.

José Antonio Fernández Garza-Lagüera: Going forward, it's not gonna be enough to bring us where we want to go in terms of relevance for the Mexican consumer. We are very ambitious in our foodvenience agenda. One of the things we achieved over the quarter with very, still very minor price and offering adjustments, we increased our coffee cups sold per store on the quarter from 28 cups in Q1 2025 to 30 cups on 2026. We still have a long way to go. Coffee. We serve phenomenally good coffee for a convenience store chain. It's 100% Mexican coffee in Mexico, 100% Colombian in Colombia, and in Brazil, it's 100% Brazilian. It's a great product. We should promote it more.

Speaker #6: We are very ambitious in our foodvenience agenda. One of the things we achieved over the quarter, we very still very minor price and offering adjustments we increased our coffee cup sold per store on the quarter from 28 cups in the first quarter of 2025 to 30 cups on 2026.

Speaker #6: We still have a long way to go. Coffee is we serve phenomenally good coffee for a convenience store chain it's 100% Mexican coffee in Mexico.

Speaker #6: 100% Colombia in Colombia and in Brazil, it's 100% Brazilian. It's a great product. We should promote it more. It's incredibly good coffee considering the price.

José Antonio Fernández Garza-Lagüera: It's incredibly good coffee considering the price, we still can go very aggressively on price given that we have our own supply chain and have a capacity for withstanding margins there. Coffee should come with breakfast options with what we call hero products that can help you for snacking, for lunch, but especially in breakfast, we see a huge opportunity, and you hopefully we're successful and the plan is to be. You should see us grow in food and coffee over the next few quarters. That I think we still see a huge opportunity in OXXO. This is, you know, OXXO only in Mexico, in what we call daily replenishment.

Speaker #6: And we still can go very aggressively on price, given that we have our own supply chain and have a capacity for withstanding margins there.

Speaker #6: Coffee should come with a great breakfast options, with what we call hero products that can help you for snacking, for lunch, but especially in breakfast, we see a huge opportunity.

Speaker #6: And you hopefully were successful and the plan is to be. We should see us grow in food and coffee over the next few quarters.

Speaker #6: And then I think we still see a huge opportunity in Oxxo. This is Oxxo only. In Mexico, in what we call daily replenishment. The traditional trade plays a very good game there.

José Antonio Fernández Garza-Lagüera: The traditional trade plays a very good game there, with all the CPGs. I think we have a very good idea of what the consumer needs in terms of what is sold at mom and pops in everyday stores. This is not a competition against other formats like discounters. This is helping you on your daily replenishment on what you need for what you forgot while you were going to work, those type of things.

Speaker #6: With all the CPGs and we are I think we have a very good idea of what the consumer needs in terms of what is sold at mom-and-pops in everyday stores.

Speaker #6: This is not a competition against other formats like discounters. This is helping you on your daily replenishment, on what you need for what you forgot while you were going to work.

Speaker #6: Those type of things. We are piloting a few things in Chihuahua and Veracruz. In terms of bringing back affordability and highlighting the importance of convenient to get your beer and on the way get your diapers or your toilet paper in Oxxo.

José Antonio Fernández Garza-Lagüera: We are piloting a few things in Chihuahua and Veracruz, in terms of bringing back affordability and highlighting the importance of how it's much more convenient to get your beer and on the way get your diapers or your toilet paper in OXXO. We are seeing some encouraging progress, but still a long way to go. I think that's gonna take us more time, but you know, the traditional trade is still 50% of the basket of the channel in Mexico, so we have a long, long share gains to achieve. I think there's room for growth for us and other players like Bara to gain share there. Thank you. Thank you. Thank you, José.

Speaker #6: We are seeing some encouraging progress, but there's still a long way to go. I think that's going to take us more time. But, you know, the traditional trade is still 50% of the basket of the channel in Mexico.

Speaker #6: So we have a long, long share gains to achieve and I think there's room for growth for us and other players like Barra to gain share there.

Speaker #6: Thank you.

Speaker #3: Thank you. Thank you, Jose.

Rodrigo Alcantara: Thank you, José.

Speaker #1: Our next question comes from Thiago Bortolucci with Goldman Sachs.

Sophia: Our next question comes from Thiago Bortoluci with Goldman Sachs.

Operator: Our next question comes from Thiago Bortoluci with Goldman Sachs.

José Antonio Fernández Garza-Lagüera: Hola, Thiago. I think you might be on mute.

Speaker #6: Hola, Thiago. I think you may be on mute.

Sophia: Sir, you can open your microphone. I believe he's having some technical issues. We're gonna go ahead with our next question from Alejandro Fuchs with Itaú BBA.

Operator: Sir, you can open your microphone. I believe he's having some technical issues. We're gonna go ahead with our next question from Alejandro Fuchs with Itaú BBA.

Speaker #1: Sir, you can open your microphone. I believe he's having some technical issues. We're going to go ahead with our next question from Alejandro Fuchs with Itaú BBA.

José Antonio Fernández Garza-Lagüera: Hello, Alejandro.

Speaker #6: Hello, Alejandro. Hola, José Antonio Martín, Juan Jorge. Thank you for the specific questions and congratulations on the very strong start of the year. Just one question, maybe a little more strategically for José Antonio.

Alejandro Fuchs: Hola, José Antonio, Martín, Juan, Jorge. Thank you for the space, the questions, and congratulations on the very strong start of the year. Just one question, maybe a little more strategically for José Antonio. We have seen in the past, you know, FEMSA a little bit simplifying its portfolio of businesses, right? With the FEMSA Forward strategy and being very efficient now with the location. How do you feel, José, with maybe the portfolio of businesses that you have today, you know, thinking about the future? I felt a little bit maybe more cautiousness on the pharma side of the business again. Do you think that, do you feel comfortable today or we could see maybe going forward, you know, more of the simplification strategy that we have seen in the past? Thank you.

Speaker #6: We have seen in the past FEMSA a little bit simplifying its portfolio of businesses, right, with the FEMSA forward strategy and being very efficient now with capital allocation.

Speaker #6: So how do you feel, Jose, with maybe the portfolio of businesses that future? I felt a little bit maybe more cautiousness on the pharma side of the business again.

Speaker #6: So do you think that you feel comfortable today, or could we see, maybe going forward, more of the simplification strategy that we have seen in the past?

Speaker #6: Thank you. I'll let Martín help me complement a little bit what I would say. In general, we are always studying parts of the portfolio that could either perform better with someone else or should not be part.

José Antonio Fernández Garza-Lagüera: I'll let Martín help me complement a little bit. I would say, in general, we're always studying parts of the portfolio that could either perform better with someone else or should be or should not be part. Simplification is still always on our minds. We see most of our growth focused in organic growth, and frankly, some of our operations in pharma have huge potential for organic growth, and that keeps us encouraged in those platforms. Unfortunately, it's not across all of our pharma businesses. Mexico is a really underperforming, and we are analyzing all possibilities with that asset. Colombia has huge amounts of potential to grow.

Speaker #6: So, simplification is still—it's always on our mind. We see most of our growth focused in organic growth. And frankly, some of our operations in pharma have huge potential for organic growth.

Speaker #6: And that gives us encouraging in those platforms. Unfortunately, it's not across all of our pharma businesses. Mexico is really underperforming and we are analyzing all possibilities with that asset.

Speaker #6: Colombia has huge amounts of potential to grow. We continue and continue to gain very significant amounts of share on our Colombia retail. I'm taking out the institutional side that, as I mentioned in my initial remarks, has some issues.

José Antonio Fernández Garza-Lagüera: We continue to gain very significant amounts of share on our Colombia retail. I'm taking out the institutional side, as I mentioned on my initial remarks, have some issues. The Colombia private retail segment, the industry is growing, and we are the fastest growers in that industry. That keeps a lot of momentum. We should capture that as much of that waving as possible. Chile is a, it's gaining share. We had a lackluster set of results, but in general, it still has lots of potential. Ecuador as well. I would say on the big picture thinking is, yes, we are always understanding where we are the best at, and we are the best, obviously at proximity and convenience.

Speaker #6: But the Colombia private retail segment, the industry is growing. And we are the fastest growers in that industry. So that keeps a lot of momentum.

Speaker #6: And so we should capture that as much of that waving as possible. And Chile is gaining share. We had a lackluster set of results, but in general, it still has lots of potential.

Speaker #6: Ecuador as well. So I would say on the big picture thinking is, yes, we are always understanding where we are the best at. And we are the best, obviously, at proximity and convenience.

José Antonio Fernández Garza-Lagüera: That's where we shine. We are the best in Mexico, we are also beginning to see that we can deliver growth and profitable growth in Latin America and even in Europe, we're encouraged by what we're able to turn around in our European businesses. Obviously, everything is always on our plates. I spend a lot of my time thinking five years, ten years from now, thinking in decades should the portfolio look and where should we go. Everything's on the table. I don't know, Martín, did you-

Speaker #6: That's where we shine. We are the best in Mexico, but we are also beginning to see that we can deliver growth and profitable growth in Latin America and even in Europe.

Speaker #6: We're encouraged by what we're able to turn around in our European businesses. But obviously, everything is always on our plates. And I delve a lot of my time thinking five years, 10 years from now, thinking in decades how should the portfolio look.

Speaker #6: And where should we go? So everything's on the table. I don't know, Martín, if you want. Very little to add. I would just remind everybody of the history of FEMSA.

Martín Arias Yániz: Very, very little to add. I would just remind everybody the history of FEMSA, from the brewery to FEMSA Forward, the mandate that we have as management from our board and from our shareholders is to value maximize. Any opportunities that we have to find assets in the portfolio where we can maximize value will always be considered thoughtfully. Number two, obviously, these are awkward conversations to have over forums like this because this impacts people, employees, suppliers, you know, we have to be particularly cautious of what we say about what we're looking at or not looking at any given moment.

Speaker #6: From the brewery to FEMSA forward, the mandate that we have as management from our board and from our shareholders is to maximize value. So any opportunities that we have to find assets in the portfolio where we can maximize value will always be considered, doubtfully.

Speaker #6: Number two, obviously, these are awkward conversations to have over forums like this. Because this impacts people, employees, suppliers. And so we have to be particularly cautious of what we say about what we're looking at or not looking at at any given moment.

Martín Arias Yániz: I would add a third qualitative comment, which is, you know, once you own an asset, you then have to make a judgment about, you know, what is it worth to you relative to what other players might be out there that offering your. That debate happens regularly here at the company. I would just close with that.

Speaker #6: And I would add third qualitative comment, which is once you own an asset, you then have to make a judgment about what is it worth to you relative to what other players might be out there that are offering your in that debate happens regularly here at the company.

Speaker #6: So I would just close with that. Thank you, Jose. José Antonio, Martín. Thank you.

Juan Fonseca: Thank you.

José Antonio Fernández Garza-Lagüera: Thank you.

Juan Fonseca: Gracias. José Antonio, Martín.

Alejandro Fuchs: Gracias. José Antonio, Martín.

José Antonio Fernández Garza-Lagüera: Thank you.

Alejandro Fuchs: Thank you.

Sophia: Next question from Thiago Bortoluci with Goldman Sachs.

Operator: Next question from Thiago Bortoluci with Goldman Sachs.

Speaker #1: Next question from Thiago Bortolucci with Goldman Sachs.

Thiago Bortoluci: Hey, guys. Good morning, everyone. Can you hear me now?

Speaker #5: Hey, guys. Good morning, everyone. Can you hear me now?

José Antonio Fernández Garza-Lagüera: Yes. Hello, Thiago.

Speaker #6: Yes. Hello, Thiago.

Thiago Bortoluci: Hola, José, Martín, Juan. Thank you very much for taking the question, and congrats on the solid sequential improvement and turnaround of the business. I would like to explore the productivity and traffic theme in Mexico, but from another angle. That is how your new stores are performing, right? You are opening a run rate of 890 stores per year in Mexico. When we try to see, and this is the best simplification we can get, your numbers, you are growing area by 3%, but the sales contribution of this growth is close to 2%. That might imply the productivity of these new stores is not trending in line or trending a bit lower than your same store sales.

Speaker #5: Hello, Jose. Martín, Juan. Thank you very much for taking the question. And congrats on the solid sequential improvement and turnaround of the business. I would like to explore the productivity and traffic theme in Mexico.

Speaker #5: But from another angle, that is how your new stores are performing, right? You are opening a run rate of 890 stores per year in Mexico.

Speaker #5: When we try to see and this is the best simplification we can get. Our numbers, you are growing area by 3%. But the sales contribution of this growth is close to 2%.

Speaker #5: So that might imply the productivity of these new stores is not trending in line, or trending a bit lower, than your SEMSA sales. I would just like to understand if this is right—what is the plan?

Thiago Bortoluci: I would just like to understand if this is right, what is the plan, and how comfort it gives to you to keep up with the growth pace, and how should we think about the incremental ROIs of these new cohorts? Thank you very much.

Speaker #5: And how much comfort does it give you to keep up with the growth pace? And how should we think about the incremental risks of these new cohorts?

Speaker #5: Thank you very much.

José Antonio Fernández Garza-Lagüera: It's a very good, thoughtful question. It looks like you've done your math. I think, first of all, we're still very impressed by the new cohorts of stores. As you know, a growing share of the mix is coming from what we all call OXXO Nicho or OXXO stores that are in special either factories, apartment buildings, or offices. Those stores tend to sell in average less than other stores. They usually have some SKU restrictions like alcohol, tobacco, et cetera. Then they tend to have a higher ROIC. As that share of our OXXO stores goes from 10% to almost 25% this year, that is impacting a little bit of that number.

Speaker #6: You are it's a very good, thoughtful question. It looks like you've done your math. I think, first of all, we're still very impressed by the new cohorts of stores.

Speaker #6: As you know, a growing share of the mix is coming from what we all call also niche or also stores that are in special either factories, apartment buildings, or offices.

Speaker #6: Those stores tend to sell in average less than other stores. They usually have some SKU restrictions like alcohol, tobacco, etc. But then they tend to have a higher ROICs.

Speaker #6: So as that share of our OXO stores goes from 10% to almost 25% this year, that is impacting a little bit of that number.

José Antonio Fernández Garza-Lagüera: The other thing is that we are also not looking, not also on the nominator, but also the denominator, and making sure we make a smarter focusing on improving our ROIC, reducing our cost of each new store. The return on invested capital of the new stores, even if they sometimes perform less or take more time to mature, are in a very good shape. Compared to last year, I think we should mention two important things. We made a pause in the, you know, in really making sure we are continuing to maximize ROIC, and that led to a slower start of the year compared to last year. That should normalize throughout the year in terms of total opening of stores.

Speaker #6: The other thing is that we are also not all looking not also on the denominator, but also the denominator and making sure we make a smarter focusing on improving our ROIC, reducing our cost of each new store.

Speaker #6: And so the return on invested capital of the new stores, even if they sometimes perform less or take more time to mature, are in very good shape.

Speaker #6: Compared to last year, we did, I think we should mention two important things. We made a pause in really making sure we are continuing to maximize ROICs.

Speaker #6: And that led to a slower start of the year. Compared to last year, that should normalize throughout the year in terms of total opening of stores.

José Antonio Fernández Garza-Lagüera: However, every 3 or 4 years, I think we haven't really done a big pruning after the recovery of COVID. In this year, we are being very smart about saying, Hey, a few years have gone by that we've gone through COVID. How many stores of our underperforming stores we should consider, you know, canceling the contract or eliminating? We think this year, while we're still gonna open about 1,100 stores, the net opening of stores could be impacted by a few hundred stores. We're still finalizing that number. The OXXO team is being very careful in seeing which stores should probably not exist.

Speaker #6: However, every three or four years—and I think we haven't really done a big pruning after the recovery from COVID. And so, in this year, we are being very smart about saying, 'Hey, a few years have gone by.'

Speaker #6: We've gone through COVID. How many of our underperforming stores should we consider canceling the contract or eliminating? And we think this year, while we're still going to open about 1,100 stores, that net new opening of stores could be impacted by a few hundred stores.

Speaker #6: We're still finalizing that number. The OXO team is being very careful in seeing which stores should probably not exist. And so maybe the net new stores of this year will be impacted throughout the year.

José Antonio Fernández Garza-Lagüera: Maybe the net new stores of this year will be impacted throughout the year. I will have a better number as the year progress.

Speaker #6: But I will have a better number as the year progresses. Yeah, Thiago, this is Juan. I think I'd like to follow up on what Jose just said, because we started actually last quarter where—I mean, we usually talk about the net number, but we are, and it happened last quarter.

Juan Fonseca: Yeah, Thiago, this is Juan. I think I'd like to follow up on what Jose just said because we've started actually last quarter. I mean, we usually talk about the net number, but we are, and it happened last quarter, closing more non-performing stores. The reality is that those stores are in the base of the same store sales, and they're probably, even if they're not that great, they're probably selling more than some of the new ones or the newer ones.

Speaker #6: Closing more non-performing stores. And the reality is that those stores are in the base of the same store sales, and they're probably even if they're not that great, they're probably selling more than some of the new ones or the newer ones.

Speaker #6: Right? And so the ones that we just opened in the last few months are probably selling less than those that were closing. And that's happening more than it ever did before.

José Antonio Fernández Garza-Lagüera: Right? The ones that we just opened in the last few months are probably selling less than those that we're closing. That's happening more than it ever did before. It is again, this is where the question came up in the last, in the last conversation, and that will probably continue as we continue to prune the store base. Overall, we still see the opportunity for openings, you know, between 900 and 1,100 net new stores of OXXO. This is not counting Valora, which is also accelerating its pace, but also stores in Mexico for the next very of years. A lot of years, hopefully.

Speaker #6: And again, this is where the question came up in the last conversation. And that will probably continue as we continue to prune the store base.

Speaker #6: But overall, we still see the opportunity for opening between 900 and 1,100 net new stores of OXO. This is not counting Bara, which is also accelerating its pace.

Speaker #6: But OXO stores in Mexico for the next various years. A lot of years, hopefully.

Thiago Bortoluci: This is very clear, José, Juan, thank you very much.

Speaker #5: This is very clear. Jose, Juan, thank you very much.

José Antonio Fernández Garza-Lagüera: Obrigado.

Speaker #6: Obrigado.

Sophia: Our next question comes from Héctor Maya with Scotiabank.

Operator: Our next question comes from Héctor Maya with Scotiabank.

Speaker #1: Our next question comes from Hector Maya with Scotiabank.

José Antonio Fernández Garza-Lagüera: Hola, Héctor.

Speaker #6: Hola, Hector.

Héctor Maya: Hola, José, Antonio, Martín, Juan. Congrats on the results. Could you please share with us how much of the ticket growth in Mexico in OXXO was driven mostly by the pass-through of the new taxes on cigarettes and beverages, versus organic pricing or mix from the implementation of the affordability strategy?

Speaker #7: Hola, José Antonio, Martín, Juan, congrats on the results. Could you please share with us how much of the ticket growth in Mexico in OXO was driven mostly by the pass-through of the new taxes and cigarettes and beverages versus organic pricing or mix from the implementation of the affordability strategy?

Martín Arias Yániz: Well, I'm gonna do some math here just quickly, but We had been trending at inflation or a little bit above inflation generally in the tickets, and it wasn't like there was any structural thing that went on in the business. If you just calculate the difference between the growth of the ticket and inflation, probably, I would suggest that a significant portion of that was related to that. That would be my way to give you a quick and dirty answer, 'cause I haven't actually calculated.

Speaker #6: Well, I'm going to do some math here just quickly. But we had been trending at inflation a little bit above inflation generally in the tickets.

Speaker #6: And it wasn't like there was any structural thing that went on in the business. So if you just calculate the difference between the growth and the ticket and inflation, probably I would suggest a significant portion of that was related to that.

Speaker #6: That would be my way to giving you a quick and dirty answer because I haven't actually calculated my common sense leads me to that conclusion quickly.

José Antonio Fernández Garza-Lagüera: Yeah.

Martín Arias Yániz: common sense leads me to that conclusion real.

José Antonio Fernández Garza-Lagüera: I would say, if you add some color, we were quite impressed in the tobacco section, the very inelastic behavior of the consumer with the tax, not so much on the soft drinks. I would say it was a big portion of it. I don't think it was above 80%, but it was a big portion.

Speaker #6: I would say if it had some color, we were quite impressed by the tobacco section, the very inelastic behavior of the consumer with the tax.

Speaker #6: Not so much on the soft drinks. But I would say it was a big portion of it. I don't think it was above 80%, but it was a big portion.

Martín Arias Yániz: Depending what territory you spoke about, different soft drink brands decided to pass on more or less of the tax. Because remember, they collect the tax and then they decide in the price they sell you what's the price at which they're gonna increase it by. There is some variability between different parts of Mexico, depending on the competitive dynamics amongst the players.

Speaker #6: And depending on what territory you spoke about, different soft drink brands decided to pass on more or less of the tax. Because remember, they collect the tax, and then they deciding the price they sell you was the price at which they're going to increase it by.

Speaker #6: And so there is some variability between different parts of Mexico depending on the competitive dynamics amongst the players.

Héctor Maya: Perfect. Very clear. Thank you. Thank you very much.

Speaker #7: Perfect. Very clear. Thank you. Thank you very much.

Sophia: Next question from Lucas Mussi with Morgan Stanley.

Operator: Next question from Lucas Mussi with Morgan Stanley.

Speaker #1: Next question from Lucas Musi with Morgan Stanley.

José Antonio Fernández Garza-Lagüera: Hello, Lucas.

Speaker #6: Hello, Lucas.

Lucas Mussi: Hi, everyone. Thanks for taking my question. Congrats on results. I have one for Martín maybe, about your current leverage excluding KOF, of course. Just wanted to hear a bit more how you're thinking about how that should progress through 2026, as we think about your capital allocation, your announced dividends and buyback activities. Just thinking about how you're thinking about cash flow throughout 2026, how you think that should shape up as it pertains to your target 2x net debt to EBITDA excluding KOF, by the end of the kind of forward plan in the next 12 months or so.

Speaker #8: Hi, everyone. Thanks for taking my question. Congrats on results. I have one for Martín maybe. About your current leverage excluding cough course, just wanted to hear a bit more how you're thinking about how that should progress through 2026 as we think about your capital location, your announced dividends and buyback activities.

Speaker #8: Just thinking about how you're thinking about cash flow throughout 2026, how you think that should shape up as it pertains to your target two-times net debt to EBITDA excluding cough by the end of the phase of forward plan in the next 12 months or so.

Lucas Mussi: Just how you're thinking, how comfortable are you with your announced shareholder moderation, given what you saw in Q1 and your early expectations for Q2, if you see some upside, potential upside, some gaps that could be filled in your target, or any general comment, given you were already 4 months into the year? Thank you very much, everyone.

Speaker #8: So just how you're thinking how comfortable are you with your announced shareholder moderation given what you saw in the first quarter in your early expectations to the second quarter, if you see some upside potential upside, some gaps that could be filled in your target or any general comment given you were already four months into the year?

Speaker #8: Thank you very much, everyone.

Martín Arias Yániz: Yeah, I mean, all other things being equal, I would expect that given the return of capital position that we've taken, we will end up at the end of the year slightly below the 2x. How much will ultimately depend on how well we do the remaining 3 quarters, I think. That will leave the question early next year of deciding whether we make a judgment of either doing another extraordinary dividend, for example. We also have capacity under our share buybacks, so we can trigger that at any moment that we have, in our judgment, we want to see an opportunity for buying shares.

Speaker #6: Yeah. Yeah. I mean, all of the things being equal, I would expect that given the return of capital position that we've taken, we will end up at the end of the year slightly below the two-times.

Speaker #6: How much will ultimately depend on how well we do the remaining three quarters. I think and so that will leave the question early next year of deciding whether we make a judgment of either doing another extraordinary dividend, for example, we also have capacity under our share buybacks.

Speaker #6: So, we can figure that at any moment, in our judgment, we want to see an opportunity for buying shares. And number three, which is the part that's hard to discuss in a public forum, we also have on our radar opportunities that we're constantly looking at from the M&A perspective.

Martín Arias Yániz: Number 3, you know, which is the part that's hard to discuss in a public forum, we also have in our radar opportunities that we're constantly looking at from the M&A perspective. There may be things that come up this year that will help us to close that gap. Without that M&A, I suspect we will be below. Not hugely, but we will likely be below the 2x. Expect to hear from us at the end of the year review next year to give you thoughts on what our decision next year will be.

Speaker #6: And there may be things that come up this year that will help us to close that gap. So without that M&A, I suspect we will be below not hugely, but we will likely be below the two-times and then expect to hear from us at the end of the year, beginning of next year, to give you thoughts on what our decision next year will be.

Lucas Mussi: That's all. Thank you, Martín. Thank you, team.

Speaker #8: That's helpful. Thank you, Martín. Thank you, team.

Sophia: Next question from Joseph Giordano with JP Morgan.

Operator: Next question from Joseph Giordano with JP Morgan.

Speaker #1: Next question from Joseph Giordano with JPMorgan.

José Antonio Fernández Garza-Lagüera: Hello, Joseph.

Speaker #6: Hello, Joseph.

Joseph Giordano: Hello, good morning, everyone. Thanks for taking my question. I'd like to explore a little bit like the expansion of Bara in the north region of Mexico. Just wanted to understand, like how you're seeing the performance, increase in private label, and how you're evolving the model? I think it's like a building mode. Thank you

Speaker #8: Hello. Good morning, everyone. Thanks for taking my question. I'd like to explore a little bit the expansion of BAR in the north region of Mexico.

Speaker #8: So just wanted to understand how you're seeing the performance increase in private label and how are you evolving the model? I think it's a beauty mode.

Speaker #8: Thank you.

José Antonio Fernández Garza-Lagüera: We are very encouraged by what we are seeing on an expansion of Bara in the north, although Bajio continues to prove, you know, with very favorable momentum. We are encouraged that we are seeing same-store sales growth on a both mix of traffic and tickets. We love to see more tickets, more traffic driving the growth in sales. We are accelerating store expansion. We opened about, what? 45 stores in Q1. On April, we are opening 30 stores. It is 38 stores in Q1, but we are opening 30 stores just in April.

Speaker #6: We are very encouraged by what we are seeing on the expansion of BARA in the north, although Bajio continues to prove with very favorable momentum.

Speaker #6: We are encouraged that we are seeing same-store sales growth on both mix of traffic and tickets. And we love to see more tickets more traffic driving the growth in sales.

Speaker #6: We are accelerating store expansion we opened about, what, 45 stores in the first quarter. But we are planning to on April, we're opening 30 stores.

Speaker #6: It’s 38 stores in the first quarter. But we are opening 30 stores just in April. And so we plan on accelerating expansion. And we’re still on target on that champagne promise I made of a store a day for BARA in 2026.

José Antonio Fernández Garza-Lagüera: We plan on accelerating expansion, and we're still on target on that campaign promise I made of a store a day for Bara in 2026. Hopefully, my team will deliver that, but we're gonna be close to that number. We are seeing, considering that some of the stores in Northern Mexico do not sell alcohol yet, the numbers remain quite impressive. We're still fixing issues with supply chain and still the welcoming has been very positive. I'll SPEI there. I don't wanna attract more attention towards our expansion here.

Speaker #6: Hopefully, my team will deliver that. But we're going to be close to that number. We are seeing, considering that some of the stores in northern Mexico do not sell alcohol yet.

Speaker #6: The numbers remain quite impressive, and we're still fixing issues with the supply chain. And still, the welcoming has been very positive. But I'll stay there.

Speaker #6: I don't want to attract more attention towards our expansion here.

Joseph Giordano: All right. Thank you very much.

Speaker #8: All right. Thank you very much.

Sophia: Our next question comes from Henrique Brustolin with Bradesco BBI.

Operator: Our next question comes from Henrique Brustolin with Bradesco BBI.

Speaker #1: Our next question comes from Enrique Brustolin with Bradesco BBI.

Henrique Brustolin: Good morning. Thanks for taking my question. I would like to address the merchandise margins in the Americas. You mentioned, right, the 31.8% flat gross margin, but when I look at the comparable figures from the release, it looks like there was a 5-point margin expansion year on year. Just to be clear, if there was anything in the comparison base, you know, that we should be aware of when thinking about this margin expansion. On this topic, when you look at the 31.

Speaker #9: Good morning. Thanks for taking my question. I would like to address the merchandise margins in the Americas. You mentioned the 31.8% flat gross margin.

Speaker #9: But when I look at the comparable figures from the release, it looks like there was a 5-point margin expansion year-on-year. So just to be clear, if there was anything in the comparison base, that should be our area.

Speaker #9: When thinking about this margin expansion, and on this topic, when you look at the 31—that's close to 32% gross margin. How is that compared to the target that you see for those operations outside of Mexico?

Henrique Brustolin: close to 32% gross margin, how is that compared to the target that you see for those operations outside of Mexico, in terms of, you know, the profitability you can achieve thinking about the expense of dilution that you should have as you grow? If gross margin expansion is still potentially an important driver for growth to accelerate and the bottom line growth as well. Thank you very much.

Speaker #9: In terms of the profitability, you can achieve thinking about the expenses dilution that you should have as you grow. Or if gross margin expansion is still potentially an important driver for growth to accelerate and the bottom line growth as well.

Speaker #9: Thank you very much.

José Antonio Fernández Garza-Lagüera: The comparable items excludes Brazil, and Brazil still has a long way to go to match the gross margin that we're seeing in Chile, Peru, and Colombia. I think that should explain most of it. I'm not sure, but I'm pretty sure it does. Yeah. However, we are encouraged by what we're seeing in Brazil in terms of margin expansion ambition towards the rest of the year. Frankly, again, the momentum we're seeing in Colombia with double-digit traffic growth, with double-digit same-store sales growth, it was very encouraged that Colombia will be eventually will dilute all of its overhead and will be a very profitable operation.

Speaker #6: So, the comparable items exclude Brazil. And Brazil still has a long way to go to match the gross margin that we're seeing in Chile, Peru, and Colombia.

Speaker #6: So I think that should explain most of it. I'm not sure, but I'm pretty sure it does. However, we are encouraged by what we're seeing in Brazil in terms of margin expansion ambition towards the rest of the year.

Speaker #6: And frankly, again, what we're the momentum we're seeing in Colombia with double-digit traffic growth, with double-digit same-store sales growth, leaves us very encouraged that Colombia will be eventually will dilute all of its overhead and will be a very profitable operation.

José Antonio Fernández Garza-Lagüera: It was already EBITDA profitable last year, and hopefully will be very close to EBIT breakeven this year. Brazil has a longer way to go. It's still behind in gross margins. Every new cohort of stores we're opening is surprising us on the upside. They're maturing better, faster. Food is a larger component of our business in South America. In the store, consumption of beer is allowed in Brazil, and that is helping drive traffic. By the way, we're also seeing some interesting expansion of some services, very different types of services, obviously in Brazil and Colombia. There's people doing lottery thing, big tickets, gift cards in Brazil.

Speaker #6: It was already EBITDA profitable last year, and hopefully it will be very close to EBIT break-even this year. Brazil has a longer way to go.

Speaker #6: It's still behind in gross margins, but every new cohort of stores we're opening is surprising us on the upside. They're maturing better, faster. Food is a larger component.

Speaker #6: Our business in South America, in-store consumption of beer is allowed in Brazil, and that is helping drive traffic. So our plan is to—and then, by the way, we're also seeing some interesting expansion of some services, very different types of services obviously, in Brazil and Colombia.

Speaker #6: But there's people doing lottery tickets, gift cards. In Brazil, in Colombia, we're seeing a little bit of that. And also some cash withdrawals. So I think gross margins, while they're not going to—I don't think we'll ever match Mexico.

José Antonio Fernández Garza-Lagüera: In Colombia, we're seeing a little bit of that and also some cash withdrawals. I think growth margins, while they're not gonna, I don't think will ever match Mexico, could go way above the 35%. That should keep us on the safe side on paying our cost of capital and continuing to invest in that, in those two platforms, especially Colombia and Brazil.

Speaker #6: Could go way above the 35%. So that should keep us on the safe side on paying our cost of capital and continue to invest in those two platforms, especially Colombia and Brazil.

Martín Arias Yániz: Yeah. I think so much of your gross margin depends on your positioning with your suppliers, right? Your scale is a big part of that. If we continue to grow as we hope we will grow.

Speaker #6: Yeah. I think so much of your gross margin depends on your positioning with your suppliers, right? And your scale is a big part of that.

Speaker #6: So if we continue to grow as we hope we will grow, then our conversations with our suppliers will evolve. And that gap will close, vis-à-vis Mexico.

José Antonio Fernández Garza-Lagüera: Our conversations with our suppliers will evolve and that gap will close. Yeah, vis-à-vis Mexico. There's two ways to prove scale in this business. You can be a very big guy, and then extract more value or you can grow very fast. We're still not growing very fast in Colombia and Brazil, and we're still not a very big guy in those two countries. When we begin to show faster growth, faster profitable growth, which is the plan for the next couple of years, you'll start seeing our suppliers realizing we are for serious in South America, we're for serious in Brazil. We're educating the consumer of our CPG partners of how profitable is our channel for them.

Speaker #6: There's two ways to prove scale in this business. You can be a very big guy and then extract more value or you can grow very fast.

Speaker #6: And we're still not growing very fast in Colombia and Brazil. And we're still not a very big guy in those two countries. When we begin to show faster growth, faster profitable growth, which is the plan for the next couple of years, you'll start seeing our suppliers realizing we are foreseeing reals in South America.

Speaker #6: We're foreseeing reals in Brazil. We're educating the consumer of our CPG partners of how profitable is our channel for them. It's a great place for them to launch new products.

José Antonio Fernández Garza-Lagüera: It's a great place for them to launch new products, to launch new campaigns. We plan to SPEI in Brazil and Colombia for decades, hopefully. That's very helpful. Thank you very much. Obrigado.

Speaker #6: To launch new campaigns. And so we plan to stay in Brazil and Colombia for decades, hopefully.

Speaker #8: That's very helpful. Thank you very much.

Speaker #6: Obrigado.

Sophia: Our next question comes from Antonio Hernandez with Actinver.

Operator: Our next question comes from Antonio Hernandez with Actinver.

Speaker #1: Our next question comes from Antonio Hernandez with Actinger.

José Antonio Fernández Garza-Lagüera: Hi. Good morning, Hola, Antonio. Hola. Hola,

Speaker #10: Hi. Good morning.

Speaker #6: Hola, Antonio.

Speaker #10: Hola. Hola, ¿qué tal? Buenos días. Congrats on your returns. Just a quick question regarding that very strong performance in Oxxo or Mexico. I mean, you already mentioned that the 140 basis points expansion ahead.

Antonio Hernandez: Congrats on your returns. Just a quick question regarding that very strong performance in OXXO Mexico. I mean, you already mentioned that the 140 basis points expansion is maybe not sustainable, but you do expect some expansion ahead. Just wanted to get a sense on the disclosure of how much of that expansion was driven either from financial services, income from key suppliers, retail media, and so on. Thanks.

Speaker #10: Just wanted to get a sense on a disclosure of how much of that expansion was driven either from financial services, income from key suppliers, retail media, and so on.

Speaker #10: Thanks.

José Antonio Fernández Garza-Lagüera: I think, I mean, generally, commercial income is the biggest contributor to the deltas, and I think that was the case again this time around. I mean, we spoke a little bit about, you know, new agreements that were signed recently with some of the big ones, everything kind of leading up towards the FIFA World Cup. We put some big suppliers, some beer guys, or some beer, big beer SKUs into the distribution centers, and that is driving distribution income. I think it's a mix of everything.

Speaker #6: I think, I mean, generally, commercial income is the biggest contributor to the deltas. And I think that was the case again this time around.

Speaker #6: I mean, we spoke a little bit about new agreements that were signed recently with some of the big ones. Everything kind of leading up towards the FIFA World Cup.

Speaker #10: We put some big suppliers, some beer guys or some big beer SKUs into the distribution centers. And that is driving distribution income. So I think it's a mix of everything.

José Antonio Fernández Garza-Lagüera: I think with Juan cautious remarks before, has to do that, if we are planning to be, to remain ambitious on our affordability, some of our margin expansion should be given back to our consumers in SKUs that are, that our consumer team are more elastic to them and really value. As we continue to grow some gross margin in certain categories, because there's a lot of room for expansion, there's also a lot of room to give back to some of our consumers to bring them more frequently to buy at our stores in terms things like pantry or coffee, for example.

Speaker #10: I think, with one cautious remark before, it has to do with the fact that if we are planning to remain ambitious on our affordability, some of our margin expansion should be given back to our consumers in SKUs that our consumer team is more elastic to and really values.

Speaker #10: And so, as we continue to grow some gross margin in certain categories, because there's a lot of room for expansion, there's also a lot of room to give back to some of our consumers, to bring them more frequently to buy at our stores in things like pantry or coffee, for example.

Antonio Hernandez: Thanks. That's helpful.

Speaker #10: Thanks. That's helpful.

José Antonio Fernández Garza-Lagüera: Thank you.

Speaker #6: Thank you.

Sophia: Next question from Renata Cabral with Citi.

Operator: Next question from Renata Cabral with Citi.

Speaker #1: Next question from Renata Cabral with Citi.

José Antonio Fernández Garza-Lagüera: Oi, Renata.

Speaker #6: Hi, Renata. Cómo vais?

Renata Cabral: Hola.

Speaker #11: Olá, bom dia. Thanks so much for the space, and congrats on the results. My question is about spend. Maybe for José Antonio, as last quarter you described Spend as a phenomenal fintech, but acknowledged the opportunity to bring more customers into the store.

José Antonio Fernández Garza-Lagüera: Hola.

Renata Cabral: Thanks so much for the space, and congrats on the results. My question is about Spin, maybe for José Antonio, as last quarter you described Spin as a phenomenal fintech, but acknowledge the opportunity to bring more customers into the store. We signed the release Spin Premia at tender, now crossing the 50% in Q1 remarket milestone. I would love to hear how you're actually putting the data, the transaction level to work across more than half of OXXO sales or the opportunities you see there, where that's personalizing promotion, optimizing assortment, or for strengthening commercial negotiation with suppliers. If you have an example, would be amazing. Just a follow-up to that, where do you see the natural ceiling for tender? Is 7% to 8% achievable over time? Thank you so much.

Speaker #11: And we signed the release spend primary tender now crossing the 50% in Q1. Remarkable milestone. And I would love to hear how you're actually putting the data, the transaction level toward across more than half of Oxxo's sales.

Speaker #11: Or the opportunities you see there. Where's that personalizing promotion, optimizing assortment, or for strengthening commercial negotiation with suppliers if you have any example would be amazing.

Speaker #11: And just a follow-up to that, where do you see the natural selling for tender? Is 78% achievable over time? Thank you so much.

José Antonio Fernández Garza-Lagüera: Renata, it's a very, very good question. We are very impressed by the encouraging results that we're seeing but on Spin. I want to remain cautious, but I do say in March alone, we added the highest number of active users in the past 2 years. More than our 11 million active users are impressive. Our weekly active users keep growing. I think they're almost reaching 5 million. Our monthly transactions are growing month-over-month double digits on a very impressive basis. They overcome by far our financial services in the store. We're using much more pay and peer-to-peer payments in the Spin app. Basically, Spin is gaining momentum and reducing costs, so it's becoming more profitable.

Speaker #6: Renata, it's a very, very good question. We are very impressed by the encouraging results that we're seeing on spend. I want to remain cautious.

Speaker #6: But I do say in March alone, we added the highest number of active users in the past two years. And more than our 11 million active users are impressive, our weekly active users keep growing.

Speaker #6: I think they're almost reaching 5 million. Our monthly transactions are growing month over month, double digits—on a very impressive basis. They overcome by far our financial services in the store.

Speaker #6: We're using much more space and peer-to-peer payments in the spend app. So basically, spend is gaining momentum. And we're reducing costs. So it's becoming more profitable or if you account for the Oxxo commission that we get, it's already making money.

José Antonio Fernández Garza-Lagüera: Or, if you account for the OXXO commission that we get, it's already making money. I think Spin is proving to be a success. As Spin continues to grow dramatically and becomes one of the biggest, peer-to-peer payment systems in Mexico, a lot of those payments will commoditize and will capture some margins from OXXO. If we are the fastest growing and we capture a big momentum, we're basically meeting our consumers where they are. We're making them what it was very convenient to do at OXXO, making it more convenient to do in the app. I think once we have that relationship with them in Spin, we can add either more services for them within Spin, and that may require some financial regulation changes.

Speaker #6: So I think Spend is proving to be a success. Now, as Spend continues to grow dramatically and becomes one of the biggest peer-to-peer payment systems in Mexico, a lot of those payments will commoditize and will capture some margins from OXXO.

Speaker #6: But if we are the fastest growing and we capture a big momentum, we're basically meeting our consumers where they are. We're making what was very convenient to do at Oxxo even more convenient to do in the app.

Speaker #6: And I think once we have that relationship with them in spend, we can add either more services for them within spend. And that will may require some financial regulation changes.

José Antonio Fernández Garza-Lagüera: We can also invite them to the store more with promotions, with gamification. I think as you see that, we think Spin will continue to become a more relevant partner of OXXO to bring more people into the store, to remind them, Hey, do you know your beer is now available? All these things. We are studying how can we begin other services with Spin or financial services with Spin. We're still playing around with how to do credit. I wanna be very cautious. This is a very different consumer that what the other credit card players are doing, so we will be cautious on that. We see an opportunity for that given all the information we're learning from them.

Speaker #6: Or we can also invite them to the store more with promotions, with gamification, and so I think as you see that, we think spend will continue to become a more relevant partner of Oxxo to bring more people into the store, to remind them, 'Hey, your beer is now available.'

Speaker #6: All these things." We are studying how can we begin other services with spend or financial services with spend. We're still playing around with how to do credit but I want to be very cautious.

Speaker #6: This is a very different consumer than what the other credit card players are doing, so we will be cautious on that. But we see an opportunity for that, given all the information we're learning from them.

José Antonio Fernández Garza-Lagüera: Frankly, with this gamification and what we're seeing in Spin Premia, I think we have at least the responsibility of trying to get our tender well into the 2/3 of. We've seen it in our pharmacy business in Chile. We're way above 90%. It's gonna be tougher in convenience, but I think we should get above, hopefully get to towards 66%. It's an ambitious goal, but it's not an unattainable goal. That's what I would say for Spin, but very encouraging results for what we're seeing. It also obviously helps for retail media channel, that should be a source of profitability for Spin as well.

Speaker #6: And frankly, with this gamification and what we're seeing in Spend Premier, I think we have at least the responsibility of trying to get our tender well into the two-thirds, and we've seen it in our pharmacy business in Chile.

Speaker #6: We're way above 90%. It's going to be tougher inconvenience. But I think we should get above hopefully get towards 66%. It's an ambitious goal.

Speaker #6: But it's not an unattainable goal. That's what I would say for spend. But very encouraging results for what we're seeing. It also obviously helps for retail media channel.

Speaker #6: And that should be a source of profitability for spend as well.

Renata Cabral: Thank you so much, José Antonio. Really appreciate the call and the detail.

Speaker #11: Thank you so much, José Antonio. Really appreciate the color and the detail. Muito obrigada. And congrats on the results.

Speaker #6: Un placer, Renata. Boa tarde.

Sophia: Thank you. This concludes the question and answer section. At this time, I would like to turn the floor back to Mr. Fonseca for any closing remarks.

Operator: Thank you. This concludes the question and answer section. At this time, I would like to turn the floor back to Mr. Fonseca for any closing remarks.

Speaker #1: Thank you. This concludes the question-and-answer section. At this time, I would like to turn the floor back to Mr. Fonseca for any closing remarks.

Juan Fonseca: Thanks everyone. We appreciate the discipline with the one question policy. Obviously any follow-ups, you know where to find me, Pamela, and Alex. We're always available. Thank you, and as we are getting closer to the weekend, have a good rest of your week.

Speaker #12: Thanks, everyone. We appreciate the discipline with the one-question policy. Obviously, any follow-ups, you know where to find me, Pamela, and Alex. And we're always available.

Speaker #12: So, thank you. And as we are getting closer to the weekend, have a good rest of your week.

Sophia: Thank you. This does conclude today's presentation. You may disconnect now and have a nice day.

Operator: Thank you. This does conclude today's presentation. You may disconnect now and have a nice day.

Speaker #1: Thank you. This does conclude today's presentation. You may disconnect now and have a nice day.

Jorge Collazo: Goodbye.

Operator: Goodbye.

Q1 2026 Fomento Economico Mexicano SAB de CV Earnings Call

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