Q2 2026 Fomento Economico Mexicano SAB de CV Earnings Call

July 28, 2026

Speaker #2: Operator, we're ready.

Speaker #3: Hello, and welcome to the ENSA second quarter 2026 conference call. My name is Malou, and I'll be your moderator for today's event. Please note that this conference is being recorded.

Operator 1: Hello, welcome to the FEMSA Q2 2026 Conference Call. My name is Malu, 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 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 the Zoom, and we will open the 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, welcome to the FEMSA Q2 2026 Conference Call. My name is Malu, 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 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 the Zoom, and we will open the 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 #3: 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 #3: To do so, please use the raise-hand feature in the Zoom, and we will open the line. If you experience any technical issues during the call, please use the chat function to request assistance.

Speaker #3: I would now like to hand the call over to Mr. Juan Fonseca, Investor Relations Director at FEMSA. Please go ahead.

Speaker #2: Good morning, everyone. Welcome to FEMSA's second quarter 2026 results conference call. Today, we are joined by José Antonio Fernández Garza, FEMSA CEO; Martín Arias, our CFO; Pamela Ortiz, who is now heading the Investor Relations team at Coca-Cola FEMSA; and Enrique Manero, who, as many of you know, has rejoined us to replace Pamela on our Investor Relations team.

Juan Fonseca: Good morning, everyone. Welcome to FEMSA's Q2 2026 Results Conference Call. Today, we are joined by José Antonio Fernández Garza, FEMSA CEO; Martín Arias, our CFO; Pamela Ortiz, who is now heading the Investor Relations team at Coca-Cola FEMSA; and Enrique Manero, who as many of you know, has rejoined us to replace Pamela on our 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. Welcome to FEMSA's Q2 2026 Results Conference Call. Today, we are joined by José Antonio Fernández Garza, FEMSA Chief Executive Officer; Martín Arias, our Chief Financial Officer; Pamela Ortiz, who is now heading the Investor Relations team at Coca-Cola FEMSA; and Enrique Manero, who as many of you know, has rejoined us to replace Pamela on our 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 #2: 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 #2: Finally, we will open the call for your questions. José Antonio, please go ahead.

Speaker #4: Thank you, Juan. Good morning, everyone. I would like to use my time this morning to give you a strategic update, focusing on some of the main components of our portfolio and the strategic pillars that we believe are most relevant in our effort to create value and shape the future of the company.

José Antonio Fernández Garza-Lagüera: Thank you, Juan. Good morning, everyone. I would like to use my time this morning to give you a strategic update focusing on some of the main components of our portfolio and the strategic pillars that we believe are most relevant in our effort to create value and shape the future of the company. Let me begin with OXXO Mexico, which delivered a strong Q2. Martin will elaborate on each line of the income statement in a few minutes. I want to highlight the same-store sales performance that came very close to the double digits. It was particularly encouraging to see traffic growing at 2%, the first positive number in 8 quarters. To be sure, part of this performance was explained by the uplift from the World Cup. We faced an undemanding comparison base.

Speaker #4: Let me begin with OXXO México, which delivered a strong second quarter. Martín will elaborate on each line of the income statement in a few minutes.

Speaker #4: But I want to highlight the same-store sales performance that came very close to double digits. It was particularly encouraging to see traffic growing at 2%, the first positive number in eight quarters.

Speaker #4: To be sure, part of this performance was explained by the uplift from the World Cup, and we faced an on-demanding comparison base. But this growth also reflected the strategic adjustments we started to make during the second half of last year.

José Antonio Fernández Garza-Lagüera: This growth also reflected the strategic adjustments we started to make during the H2 of last year. We estimate that at least 60% of this uplift was attributable to the World Cup, evenly split between the Panini collectibles and consumption tied mainly to the 4 Mexico games played in June. However, the improved performance, as we have discussed in previous calls, reflects that we have invested significant time and energy designing, testing, and deploying strategic adjustments across our store base. Beyond the temporary boost from the World Cup, we are seeing signs that the changes we began to roll out last year are taking hold. The core purpose of this effort is to become more consumer-centric at OXXO.

Speaker #4: We estimate that at least 60% of this uplift was attributable to the World Cup, evenly split between the Panini collectibles and consumption—tied mainly to the four Mexico games played in June.

Speaker #4: However, the improved performance, as we have discussed in previous calls, reflects that we have invested significant time and energy in designing, testing, and deploying strategic adjustments across our store base.

Speaker #4: And beyond the temporary boost from the World Cup, we are seeing signs that the changes we began to roll out last year are taking hold.

Speaker #4: The core purpose of this effort is to become more consumer-centric at Oxo. Over time, we have successfully developed our commercial levers but sometimes this has come at the expense of customer centricity, focusing on expanding our margins but steering us away from our customers and making us less competitive in certain key categories.

José Antonio Fernández Garza-Lagüera: Over time, we have successfully developed our commercial levers, but sometimes this has come at the expense of customer centricity, focusing on expanding our margins, steering us away from our customers and making us less competitive in certain key categories. We are embracing the strategic imperative to put our customers back at the center. Already we're starting to see that it translates into better performance and market share gain. Ultimately, we expect this renewed customer centricity to translate into stronger, sustained traffic. The key is to find the right algorithm, the optimal balance of price and gross margin that will drive incremental traffic while keeping our operating margin stable and consistently ensuring we have the right assortment in place. The strategy rests on 4 pillars.

Speaker #4: We are embracing the strategic imperative to put our customers back at the center and already we are starting to see that it translates into better performance and market share gains.

Speaker #4: Ultimately, we expect this renewed customer centricity to translate into stronger, sustained traffic. The key is to find the right algorithms and the optimal balance of price and gross margin that will drive incremental traffic, while keeping our operating margins stable and consistently ensuring we have the right assortment in place.

Speaker #4: The strategy rests on four pillars. First, impulse—our core—where we are sharpening price pack architecture and promotions to achieve competitive price points, and optimizing our assortment to include lower-cost alternatives in key categories where the focus on convenience had reduced our competitiveness.

José Antonio Fernández Garza-Lagüera: First, impulse, our core, where we're sharpening price pack architecture and promotions to achieve competitive price points and optimizing our assortment to include lower cost alternatives in key categories where the focus on convenience had reduced our competitiveness. Second, prepared food and coffee, where we are working to introduce better products on the food side, simplifying pricing and improving execution, including the optimal utilization of our coffee equipment. So far, our efforts have mostly concentrating on improving in-store execution, which has already translated into healthy growth in the coffee category during the quarter. Building on this momentum, we are now piloting targeted initiatives in coffee across a few regions. The early results are very encouraging relative to control stores where we have not yet made any changes.

Speaker #4: Second, prepared food and coffee, where we are working to introduce better products on the food side, simplifying pricing, and improving execution, including the optimal utilization of our coffee equipment.

Speaker #4: So far, our efforts have mostly concentrated on improving in-store ore execution, which has already translated into healthy growth in the coffee category during the quarter.

Speaker #4: Building on this momentum, we are now piloting targeted initiatives in coffee across a few regions, and the early results are very encouraging relative to controlled stores where we have not yet made any changes.

Speaker #4: In food service, we're focused on developing a set of winning products—sweet as well as salty—that can strengthen our effort to enhance the overall food value proposition at OXXO.

José Antonio Fernández Garza-Lagüera: In food service, we're focused on developing a set of winning products, sweet as well as salty, that can strengthen our effort to enhance the overall food value proposition at OXXO, starting with breakfast as a natural complement to what we are already doing in coffee. Over time, we will be extending this approach to other food occasions, particularly lunch. Third, daily and replenishment, a significant opportunity given our low market share in many of the categories that are relevant to this key grocery shopping mission. To capture this opportunity, we will need to work closely with our existing supplier base and potentially expand that base to restructure our assortment, including rethinking our price pack architecture in partnership with them and evaluating the role of private label in certain categories.

Speaker #4: Starting with breakfast as a natural complement to what we are already doing in coffee. Over time, we will be extending this approach to other food occasions particularly lunch.

Speaker #4: Third, daily and replenishment—a significant opportunity given our low market share in many of the categories that are relevant to these key grocery shopping missions.

Speaker #4: To capture this opportunity, we will need to work closely with our existing supplier base and potentially expand that base to restructure our assortment, including rethinking our price pack architecture in partnership with them and evaluating the role of private label in certain categories.

Speaker #4: Getting this right would allow us to become a more relevant destination for our customers’ everyday grocery needs, expanding OXXO’s role and unlocking a meaningful and durable avenue for growth.

José Antonio Fernández Garza-Lagüera: Getting this right would allow us to become a more relevant destination for our customers' everyday grocery needs, expanding OXXO's role, and unlocking a meaningful and durable avenue for growth. Fourth, what we refer to as beyond trade or services, where OXXO and Spin together are allowing us to digitize customers and extend our value proposition beyond the store. Speaking of Spin, Q2 was a solid one, with continued progress across our key indicators of user growth, engagement, and transaction activity. In fact, monthly active users of Spin by OXXO grew 22% year over year, and Spin now ranks among the most relevant participants of the payment system in terms of processed transactions.

Speaker #4: And fourth, what we refer to as beyond trade, or services, where Oxo and Spin together are allowing us to digitize customers and extend our value proposition beyond the store.

Speaker #4: Speaking of Spin, the second quarter was a solid one, with continued progress across our key indicators of user growth, engagement, and transaction activity. In fact, monthly active users of Spin by Oxo grew 22% year over year, and Spin now ranks among the most relevant participants of the SPA payment system, in terms of processed transactions.

Speaker #4: Interestingly, we're seeing some service categories, such as bill payments, growing both at Spin and OXXO, underscoring the stickiness of cash in our ecosystem but also the growing relevance of Spin as a digitalization tool for a broader consumer base.

José Antonio Fernández Garza-Lagüera: Interestingly, we're seeing some service categories such as bill payments growing both at Spin and OXXO, underscoring the stickiness of cash in our ecosystem, the growing relevance of Spin as a digitalization tool for a broader consumer base. However, we recognize that payments could become commoditized over time, Spin is already preparing for that possibility by transitioning from a phase focused on gaining scale to one increasingly centered on monetization, which will become more relevant if cash utilization gradually declines. Our monetization strategy is anchored in customer engagement, credit, and broader ecosystem opportunities. Credit, in particular, is becoming a very strategic focus. We have been running a very small credit pilot that is already generating valuable learnings, giving us greater confidence that the data we have on our millions of customers can produce high-quality underwriting insights.

Speaker #4: However, we recognize that payments could become commoditized over time, and so Spin is already preparing for that possibility by transitioning from a phase-focused on gaining scale to one increasingly centered on monetization.

Speaker #4: Which will become more relevant if cash utilization gradually declines. Our monetization strategy is anchored in customer engagement, credit, and broader ecosystem opportunities, credit in particular is becoming a very strategic focus, we have been running a very small credit pilot that is already generating valuable learnings, giving us greater confidence that the data we have on our millions of customers can produce high-quality underwriting insights.

Speaker #4: Just as encouraging, customer reaction to the pilot has been very positive, reinforcing our conviction in the opportunity ahead. On the subject of credits, as you know, during the quarter we announced a partnership with QED investors to help us develop our lending platform, bringing on board a very experienced partner with talent, expertise, and execution capabilities that materially improve our odds of success in what can be a high-risk, high-reward business.

José Antonio Fernández Garza-Lagüera: Just as encouraging, customer reaction to the pilot has been very positive, reinforcing our conviction in the opportunity ahead. On the subject of credit, as you know, during the quarter, we announced a partnership with QED Investors to help us develop our lending platform, bringing on board a very experienced partner with talent, expertise, and execution capabilities that materially improve our odds of success in what can be a high-risk, high-reward business. We will be disciplined and cautious in how we roll this out, the fact that we chose QED as our partner reflects precisely how seriously we take the risks inherent in credit. Our approach will be based on a low and grow model, allowing us to scale gradually, learn as we go, and manage our exposure responsibly. As the portfolio develops, we will continue to keep you informed of our progress.

Speaker #4: We will be disciplined and cautious in how we roll this out, and the fact that we chose QED as our partner reflects precisely how seriously we take the risks inherent in credit.

Speaker #4: Our approach will be based on a low and grow model, allowing us to scale gradually learn as we go, and manage our exposure responsibly.

Speaker #4: As the portfolio develop, we will continue to keep you informed of our progress. This strategy keeps us firmly on the path we laid out for Spin, leverage the Oxo ecosystem, build credit responsibly through the right partnership, and maintain operating discipline as we unlock the platform's long-term value.

José Antonio Fernández Garza-Lagüera: This strategy keeps us firmly on the path we laid out for Spin. Leverage the OXXO ecosystem, build credit responsibly through the right partnership, and maintain operating discipline as we unlock the platform's long-term value. Let me now turn to Bara, which is quickly becoming one of the most exciting long-term growth opportunities in our portfolio. Positioned to take advantage of the consumer evolution toward discount proximity formats across the region, as a consumer increasingly seeks value in non-convenience groceries. Bara serves a distinct set of customer needs, and its recent performance is exceeding our expectations, particularly in the newly opened regions. During Q2, we set a record for store openings, adding 112 net new stores, representing more than one new store per day, a phase that we will try to improve upon in the coming quarters.

Speaker #4: Let me now turn to Bara, which is quickly becoming one of the most exciting long-term growth opportunities in our portfolio. Positioned to take advantage of the consumer evolution toward discount proximity formats across the region, as a consumer increasingly seeks value in non-convenience groceries.

Speaker #4: Bara serves a distinct set of customer needs, and its recent performance is exceeding our expectations. Particularly in the newly opened regions. During the second quarter, we set a record for store openings, adding 112 net new stores representing more than one new store per day, a pace that we will try to improve upon in the coming quarters.

Speaker #4: Just as encouraging as the pace of expansion is the growth of same-store sales that continue to increase by double digits. Driven by resilient demand and sustained customer appeal in a competitive environment.

José Antonio Fernández Garza-Lagüera: Just as encouraging as the pace of expansion is the growth of same store sales that continue to increase by double digits, driven by resilient demand and sustained customer appeal in a competitive environment. Private label remains central to this story and continues to be a key growth driver, reinforcing value-oriented proposition and standing out as what we believe will be one of the most important long-term differentiators for the format. This growth is coming alongside strong financial discipline and improving unit economics, and our new store cohorts, in particular, are showing faster maturation curves. Turning to OXXO in Latin America, our conviction in the region continues to grow, particularly in Colombia and Brazil.

Speaker #4: Private label remains central to this story and continues to be a key growth driver, reinforcing Bara's value-oriented proposition and standing out as what we believe will be one of the most important long-term differentiators for the format.

Speaker #4: This growth is coming alongside strong financial discipline, an improving unit economics, and our new store cohorts in particular are showing faster maturation curves. Turning to Oxo in Latin America, our conviction in the region continues to grow, particularly in Colombia and Brazil.

Speaker #4: Our effort in Colombia has required patience over many years to develop and fine-tune the right value proposition, and the second quarter offered encouraging evidence that our work is paying off, with revenues up approximately 30%, driven largely by same-store sales growth.

José Antonio Fernández Garza-Lagüera: Our effort in Colombia has required patience over many years to develop and fine-tune the right value proposition, and Q2 offered encouraging evidence that our work is paying off, with revenues up approximately 30%, driven largely by same store sales growth. More importantly, after a year in which we chose to prioritize refinement of the model over new openings, our value proposition in Colombia is now delivering solid forward economics. This gives us greater confidence that OXXO is increasingly resonating with the Colombian consumer and puts us in a stronger position to accelerate unit growth going forward. Of note, Colombia is where our prepared food offering is most developed, representing a double-digit contribution to revenues. We are confident that this operation will become a meaningful value driver for years to come. Brazil represents another relevant opportunity and one where we are equally deliberate in how we build.

Speaker #4: More importantly, after a year in which we chose to prioritize refinement of the model over new openings, our value proposition in Colombia is now delivering solid forward economics.

Speaker #4: This gives us greater confidence that Oxxo is increasingly resonating with the Colombian consumer and puts us in a stronger position to accelerate unit growth going forward.

Speaker #4: Of note, Colombia is where our preferred food offering is most developed. Representing a double-digit contribution to revenues. We are confident that this operation will become a meaningful value driver for years to come.

Speaker #4: Brazil represents another relevant opportunity, and one where we are equally deliberate in how we build. We closed the quarter with close to 640 stores, and each new cohort continues to perform better than the one before.

José Antonio Fernández Garza-Lagüera: We closed the quarter with close to 640 stores, and each new cohort continues to perform better than the one before, which gives us confidence that we're learning and improving as we go. At this stage, our focus remain on getting the fundamentals right, continuing to develop and refine our value proposition, adjusting operational processes to increase efficiency, and completing the organizational structure required to support accelerated expansion when the time comes. As in Colombia, we would rather earn the right to scale than rush the process, because we are convinced that the discipline we apply today is what will allow Brazil to become a durable, meaningful, long-term contributor to FEMSA. In both Brazil and Colombia, we expect to reach 700 stores by the end of the year.

Speaker #4: Which gives us confidence that we are learning and improving as we go. At this stage, our focus remains on getting the fundamentals right. Continuing to develop and refine our value proposition, adjusting operational processes to increase efficiency, and completing the organizational structure required to support accelerated expansion when the time comes.

Speaker #4: As in Colombia, we would rather earn the right to scale than rush the process, because we are convinced that the discipline we apply today is what will allow Brazil to become a durable, meaningful long-term contributor to FEMSA.

Speaker #4: In both Brazil and Colombia, we expect to reach 700 stores by the end of the year. For each part, at Coca-Cola FEMSA, Mexico still shown signs of a soft consumer environment, and the impact of higher excise taxes, offset by World Cup tailwinds and by a strong performance in South America with Brazil and Colombia leading the way.

José Antonio Fernández Garza-Lagüera: For its part, at Coca-Cola FEMSA, Mexico still shown signs of a soft consumer environment and the impact of higher excise taxes offset by World Cup tailwinds and by a strong performance in South America, with Brazil and Colombia leading the way, achieving record volumes and fueling a double-digit increase in operating income for that region. Summing up, we have a good operational momentum across most of our businesses. We are working hard to continue improving our performance. As we look at the H2, we know that some of the tailwinds we enjoyed in recent months will no longer be there. The World Cup was great, it is over, our comparison base will get a bit tougher as we get into the final months of the year.

Speaker #4: Achieving record volumes and fueling a double-digit increase in operating income for that region. Summing up, we have a good operational momentum across most of our businesses, and we are working hard to continue improving our performance.

Speaker #4: However, as we look at the second half of the year, we know that some of the tailwinds we enjoyed in recent months will no longer be there.

Speaker #4: The World Cup was great, but it is over, and our comparison base will get a bit tougher as we get into the final months of the year.

Speaker #4: The consumer environment remains sluggish, particularly in our core Mexico market, and therefore sustaining our momentum will hinge on our ability to continue executing our strategy.

José Antonio Fernández Garza-Lagüera: The consumer environment remains sluggish, particularly in our core Mexico market. Therefore, sustaining our momentum will hinge on our ability to continue executing our strategies. With that, let me turn it over to Martín to go over the numbers in more detail.

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

Speaker #2: Thank you, José Antonio. Good morning, everyone, and thank you for joining us today. Let me begin with FEMSA's consolidated financial results for the second quarter of 2026.

Martín Arias Yániz: Thank you, José Antonio. Good morning, everyone. Thank you for joining us today. Let me begin with FEMSA's consolidated financial results for Q2 2026. Total revenues increased 9.3% year-over-year, while operating income grew 7.2%, reflecting OXXO Mexico's strong performance, contributions from our international operations, the benefits of our restructuring initiatives, partially offset by currency headwinds, the softer performance of health in Europe, and the consolidation of losses at OXXO Brazil. Excluding the Brazil effect and on a comparable currency neutral basis, total revenues and operating income grew 10.1% and 11.7% respectively, reflecting positive operating leverage. Net consolidated income amounted to MXN 9.2 billion, representing an increase of 64.9%.

Speaker #2: Total revenues increased 9.3% over the year, a year-over-year, while operating income grew 7.2%, reflecting Oxo México's strong performance, contributions from our international operations, and the benefits of our restructuring initiatives.

Speaker #2: Partially offset by currency headwinds, the softer performance of Health in Europe, and the consolidation of losses at Oxo Brasil. Excluding the Brazil effect, and on a comparable, currency-neutral basis, total revenues and operating income grew 10.1% and 11.7%, respectively, reflecting positive operating leverage.

Speaker #2: Net consolidated income, amounted to 9.2 billion pesos, representing an increase of 64.9%. This increase was mainly explained by the operating income growth I just described, and by lower net financing expenses, reflecting a significantly lower non-cash foreign exchange loss of 655 million pesos, compared to a 4.1 billion peso loss in the comparable quarter.

Martín Arias Yániz: This increase was mainly explained by the operating income growth I just described, by lower net financing expenses, reflecting a significantly lower non-cash foreign exchange loss of MXN 655 million, compared to a MXN 4.1 billion loss in the comparable quarter, driven by the appreciation of the Mexican peso against our US dollar-denominated cash position, reflecting a more moderate appreciation of the peso, approximately 2.2% in Q2 2026 versus 8.4% in Q2 2025, as well as a lower US dollar cash balance versus the comparable period. It was also impacted by a positive participation in associate results of MXN +38 million, compared to a loss of MXN 756 million in Q2 2025, which reflected the results of our joint venture in Brazil, as well as the proportional results of our stake in BradyPLUS.

Speaker #2: Driven by the appreciation of the Mexican peso against our U.S. dollar-denominated cash position, reflecting a more moderate appreciation of the peso—approximately 2.2% in the second quarter 2026 versus 8.4% in the second quarter 2025.

Speaker #2: As well as a lower US dollar cash balance versus the comparable period. We also impacted by a positive participation in associate results of 38 million pesos, compared to a loss of 756 million pesos in the second quarter of 2025.

Speaker #2: This reflected the results of our joint venture in Brazil, as well as the proportional results of our stake in Brady Plus. These two improvements that I just described were partially offset by a decrease in interest income driven by lower interest rates, and a lower gain from other financial income of 163 million pesos, compared to 633 million pesos in the second quarter of 2025.

Martín Arias Yániz: These two improvements that I just described were partially offset by a decrease in interest income driven by lower interest rates, a lower gain from other financial income of MXN 163 million, compared to MXN 633 million in Q2 2025. Mainly because last year included a mark-to-market gain on the Heineken shares tied to the exchangeable bond we issued when we exited that position, shares that are no longer in our balance sheet. Finally, these improvements were partially offset by a higher income tax provision of MXN 4.9 billion compared to MXN 4.3 billion in Q2 2025. The effective income tax rate was 34.8% in Q2 2026.

Speaker #2: Mainly because last year, included a mark-to-market gain on the Heineken shares tied to the exchangeable bond we issued when we exited that position. Shares that are no longer in our balance sheet.

Speaker #2: And finally, these improvements were partially offset by a higher income tax provision of 4.9 billion pesos, compared to 4.3 billion pesos in the second quarter of '25.

Speaker #2: The effective income tax rate was 34.8% in the second quarter of '26. As we have discussed in past calls, the difference between our effective tax rate and the statutory rate of 30% reflects non-deductible items at Oxxo México, specifically labor costs and other expenses, as well as non-creditable tax loss effects, mainly reflecting losses at Spin.

Martín Arias Yániz: As we have discussed in past calls, the difference between our effective tax rate and the statutory rate of 30% reflects non-deductible items at OXXO Mexico, specifically labor costs and other expenses, as well as non-credible tax loss effects, mainly reflecting losses at Spin. These losses decreased this quarter, and we expect them to decrease further as Spin continues its significant efforts to reduce costs, advancing towards profitability. Turning to our operating results. OXXO Mexico delivered total revenue growth of 11.8%, driven by same-store sales growth of 9.5%, with traffic growing 2% and average ticket increasing 7.4%. We also added 253 net new stores during the quarter. This strong performance was partially supported by the World Cup, particularly the four Mexico matches played in June, which drove a consumption uplift in some of OXXO's most relevant categories, and by World Cup-specific commercial initiatives such as the Panini collectible stickers.

Speaker #2: These losses decreased this quarter, and we expect them to decrease further as Spin continues its significant efforts to reduce costs advancing towards profitability. Turning to our operating results.

Speaker #2: OXXO México delivered total revenue growth of 11.8%, driven by same-store sales growth of 9.5%, with traffic growing 2% and average ticket increasing 7.4%. We also added 253 net new stores during the quarter.

Speaker #2: This strong performance was partially supported by the World Cup, particularly the four Mexico matches played in June, which drove a consumption uplift in some of OXXO's most relevant categories, and by World Cup-specific commercial initiatives such as the Panini collectible stickers.

Speaker #2: Isolating these effects, we estimate traffic still grew by approximately 1%, and ticket increased 6.2%. While still early, these are encouraging signs that the strategic adjustments José Antonio described earlier are beginning to translate into better customer engagement and healthier underlying growth.

Martín Arias Yániz: Isolating these effects, we estimate traffic still grew by approximately 1%, and tickets increased 6.2%. While still early, these are encouraging signs that the strategic adjustments José Antonio described earlier are beginning to translate into better customer engagement and healthier underlying growth. Next quarter, you will see a more normalized number without most of the tailwind of the World Cup, and we are cautiously optimistic that while it may be lower than this quarter, we expect that it will continue to reflect progress from our initiatives. Gross margin was 44.8%, contracting 70 basis points year over year, mainly reflecting the impact of selected price rationalization initiatives and a higher mix of lower price point SKUs in key categories as we begin to adjust behind the customer centricity stance described by José Antonio. This was partially offset by solid growth in services and higher commercial and distribution income from key suppliers.

Speaker #2: Next quarter, you will see a more normalized number, without most of the tailwind of the World Cup. We are cautiously optimistic that, while results may be lower than this quarter, we expect they will continue to reflect progress from our initiatives.

Speaker #2: Gross margin was 44.8%, contracting 70 basis points year over year, mainly reflecting the impact of selected price rationalization initiatives and a higher mix of lower price point SKUs and key categories.

Speaker #2: As we begin to adjust behind the customer-centricity stance described by José Antonio, this was partially offset by solid growth in services and higher commercial and distribution income from key suppliers.

Speaker #2: Selling expenses grew 10.6%, below revenue growth, while administrative expenses decreased by 3.3%, reflecting our multiple initiatives to optimize expenses and drive efficiency. As a result, operating income grew 12.3%, with operating margin expanding 10 basis points to 10%.

Martín Arias Yániz: Selling expenses grew 10.6%, below revenue growth, while administrative expenses decreased by 3.3%, reflecting our multiple initiatives to obtain expenses and drive efficiency. As a result, operating income grew 12.3%, with operating expanding 10 basis points to 10%. In sum, this quarter is a good example of the gross margin traffic and profitability algorithm that José Antonio described earlier. Selectively adjusting the value proposition to drive traffic and volume, enhancing our relevance with our customers while enhancing profitability through operating discipline and efficiency gains. The Americas and Mobility segment delivered total revenues of MXN 28 billion, increasing 7.4% or 11.6% on a comparable and currency neutral basis. Excluding the impact of consolidating OXXO Brazil revenues, the segment's top line benefited from a strong performance across OXXO Latam, excluding Brazil, especially in Colombia. On a currency neutral basis, same-store sales for the retail operations ex Brazil grew 17.6%.

Speaker #2: In sum, this quarter is a good example of the gross margin, traffic, and profitability algorithm that José Antonio described earlier: selectively adjusting the value proposition to drive traffic and volume; enhancing our relevance with our customers; while improving profitability through operating discipline and efficiency gains.

Speaker #2: The Americas and Mobility segment delivered total revenues of $28 billion pesos, increasing 7.4%, or 11.6% on a comparable and currency-neutral basis. Excluding the impact of consolidating OXXO Brazil revenues, the segment's top line benefited from a strong performance across OXXO LATAM excluding Brazil, especially in Colombia.

Speaker #2: On a currency-neutral basis, same-store sales for the retail operations, excluding Brazil, grew 17.6%. Gross margin for merchandise increased 40 basis points to 27.3% of revenues.

Martín Arias Yániz: Gross margin for merchandise increased 40 basis points to 27.3% of revenues, while in the fuel operations, it decreased 130 basis points to 10.9%, reflecting the inclusion of diesel and the maximum fuel price commitments at OXXO Gas together with higher costs for gasoline and diesel in Mexico general. Operating income was MXN 80 million, with an operating margin of 0.3%, representing a decrease of 29% on a comparable basis, excluding currency translation effects and the operating losses from the consolidation of OXXO Brazil. The operating margin also reflects the impact from the diesel price commitments in Mexico, partially offset by narrowing losses across OXXO Latam, excluding Brazil.

Speaker #2: While in the fuel operations, it decreased 130 basis points to 10.9%, reflecting the inclusion of diesel in the maximum fuel price commitments at Oxo Gas, together with higher costs for gasoline and diesel in Mexico generally.

Speaker #2: Operating income was 80 million pesos, with an operating margin of 0.3%, representing a decrease of 29% on a comparable basis, excluding currency translation effects, and the operating losses from the consolidation of Oxo Brazil.

Speaker #2: The operating margin also reflects the impact from the diesel price commitments in Mexico, partially offset by narrowing losses across OXO Latam, excluding Brazil. Our operations in Europe reported total revenues of 14.5 billion pesos, up 3.2% on a currency-neutral basis, driven by a solid Swiss retail operation, partially offset by weak German retail and food service results across most formats, reflecting soft traffic impacted by bad weather and terrain or route closures.

Martín Arias Yániz: Our operations in Europe reported total revenues of MXN 14.5 billion, up 3.2% on a currency neutral basis, driven by solid Swiss retail operation. Partially offset by weak German retail and food service results across most formats, reflecting soft traffic impacted by bad weather and train route closures. Our B2B business remains sluggish in this quarter. We are reinforcing our commercial teams' focus to reignite growth in this business. Regarding Valora's gross profit, let me remind you that last quarter we began reclassifying certain distribution expenses from SG&A to cost of sales. That will be the case for the rest of the year. This change was made purely for accounting presentation purposes to better align the classification of distribution costs with the nature of the expense. There is no impact on operating income because of this reclassification.

Speaker #2: Our B2B business remains sluggish this quarter, and we are reinforcing our commercial team's focus to reignite growth in this business. Regarding Valora's gross profit, let me remind you that last quarter we began reclassifying certain distribution expenses from SG&A to cost of sales, and that will be the case for the rest of the year.

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. There is no impact on operating income because of this reclassification. However, as a mechanical effect of this change, gross margin was impacted by 230 million pesos in the second quarter. Gross profit decreased by 6.6%, with a gross margin of 40.2% on the same.

Martín Arias Yániz: However, as a mechanical effect of this change, gross margin was impacted by MXN 230 million in the Q2. Gross profit decreased by 6.6% with a gross margin of 40.2%. On the same accounting presentation basis, the gross margin expanded by 40 basis points, driven by higher promotional income and a positive sales mix effect. Operating income was MXN 638 million, which on a comparable basis that excludes currency headwinds, was flat year-on-year as expense containment measures were offset by one-time expenses driven by a reorganization of Valora's management structure. Operating margin was 4.4%, representing a contraction of 20 basis points versus the previous year. For its part, the health division delivered total revenues of MXN 22.3 billion, growing 2.2% year-over-year or 4.8% on a currency neutral basis. Same store sales were positive across Colombia, Ecuador, and Chile in local currency, while Mexico continued to face headwinds.

Speaker #2: On an accounting presentation basis, the gross margin expanded by 40 basis points, driven by higher promotional income and a positive sales mix effect. Operating income was 638 million pesos, which, on a comparable basis that excludes currency headwinds, was flat year-on-year, as expense containment measures were offset by one-time expenses driven by a reorganization of Valora's management structure.

Speaker #2: Operating margin was 4.4%, representing a contraction of 20 basis points versus the previous year. For its part, the Health division delivered total revenues of 22.3 billion pesos, growing 2.2% year over year, or 4.8% on a currency-neutral basis.

Speaker #2: Same-store sales were positive across Colombia, Ecuador, and Chile in local currency, while Mexico continued to face headwinds. As was the case with Valora, in Health we also reclassified certain distribution expenses from SG&A to cost of goods sold, mechanically reducing gross margin by approximately $543 million.

Martín Arias Yániz: As was the case with Valora and health, we also reclassified certain distribution expenses from SG&A to cost of goods sold, mechanically reducing gross margin by approximately MXN 543 million and reflecting the proportional shift of these expenses into cost of sales. Gross profit decreased by 8.7% with a gross margin of 26.6%, a contraction of 310 basis points. On the same accounting presentation basis, gross margin in the Q2 contracted by 60 basis points. As we discussed last quarter, as part of our strategy to reduce exposure to the institutional business in Colombia, 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.

Speaker #2: pesos, and reflecting the proportional shift of these expenses into cost of sales. Gross profit decreased by 8.7%, with a gross margin of 26.6%, a contraction of 310 basis points.

Speaker #2: On the same accounting presentation basis, gross margin in the second quarter contracted by 60 basis points. As we discussed last quarter, as part of our strategy to reduce exposure to the institutional business in Colombia, 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.

Speaker #2: Given the continued uncertainty in Colombia's healthcare system, and our need to manage potential EPS insolvency risk, we recorded a non-cash credit risk provision of approximately 408 million pesos during the quarter.

Martín Arias Yániz: Given the continued uncertainty in Colombia's healthcare system and our need to manage potential EPS insolvency risk, we recorded a non-cash credit risk provision of approximately MXN 408 million during the quarter. 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 better profitability, cash generation, and more attractive long-term returns. Operating income reached MXN 346 million, a decline of 57.7% and 54.1% on a comparable basis, with an operating margin of 1.5%. Excluding the non-cash credit risk provision, operating income reached MXN 754 million, a 7.9% decrease versus last year, driven mainly by operations in Chile, where we saw profitability pressured by commercial initiatives to maintain our market position in a highly competitive environment, partially offset by strong growth in Colombia retail and Ecuador.

Speaker #2: 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 better profitability, cash generation, and more attractive long-term returns.

Speaker #2: Operating income reached 346 million pesos, a decline of 57.7% and 54.1% on a comparable basis, with an operating margin of 1.5%. Excluding the non-cash credit risk provision, operating income reached 754 million pesos, a 7.9% decrease versus last year, driven mainly by operations in Chile, where we saw profitability pressured by commercial initiatives to maintain our market position in a highly competitive environment. This was partially offset by strong growth in Colombia, retail, and Ecuador.

Speaker #2: Mexico continued stabilizing its operation, reducing its losses significantly versus last year. For its part, Coca-Cola FEMSA delivered a sequential recovery that highlights the strength of its diversified market presence.

Martín Arias Yániz: Mexico continued stabilizing its operation, reducing its losses significantly versus last year. For its part, Coca-Cola FEMSA delivered a sequential recovery that highlights the strength of its diversified market presence. Across its territories, Coke continued to grow volume in most markets, gain market share, and advance its digital agenda. While Mexico continued to navigate a challenging consumer environment and the effects of the excise tax increase, Coca-Cola FEMSA's affordability strategy, segmentation, and disciplined commercial execution enabled it to further strengthen its competitive position. At the same time, South America delivered a solid quarter. Colombia and Brazil achieving record Q2 volumes that ultimately resulted in double-digit operating income growth in those business units. As always, we encourage you to listen to their earnings call hosted yesterday.

Speaker #2: Across its territories, COF continued to grow volume in most markets, gain market share, and advance its digital agenda. While Mexico continued to navigate a challenging consumer environment and the effects of the excise tax increase, Coca-Cola FEMSA's affordability strategy segmentation and disciplined commercial execution enabled it to further strengthen its competitive position.

Speaker #2: At the same time, South America delivered a solid quarter, with Colombia and Brazil achieving record second-quarter volumes that ultimately resulted in double-digit operating income growth in those business units.

Speaker #2: As always, we encourage you to listen to their earnings call hosted yesterday. On the FEMSA corporate front, as you might recall, last year we launched a corporate reorganization and savings plan, and we continue to advance in this effort, making good progress and in line with our expectations.

Martín Arias Yániz: On the FEMSA corporate front, as you might recall, last year, we launched a corporate reorganization and savings plan, and we continue to advance in this effort, making good progress and in line with our expectations. This progress reflects the benefits of a leaner structure and non-headcount saving initiatives that remain underway. At the same time, as I mentioned a few minutes ago, FINA has continued to gradually narrow its losses as its own reorganization takes hold. While it is still early, we are encouraged by the progress we are seeing and remain focused on executing the plan with discipline. Before closing, let me briefly update you on capital allocation. During the Q2, we deployed approximately MXN 8.9 billion in CapEx, representing approximately 3.8% of total revenues and a 3.6% decline compared with last year.

Speaker #2: This progress reflects the benefits of a leaner structure and non-headcount saving initiatives that remain underway. At the same time, as I mentioned a few minutes ago, SPIN has continued to gradually narrow its losses as its own reorganization takes hold. While it is still early, we are encouraged by the progress we are seeing and remain focused on executing the plan with discipline.

Speaker #2: Before closing, let me briefly update you on capital allocation. During the second quarter, we deployed approximately 8.9 billion pesos in capex, representing approximately 3.8% of total revenues, and a 3.6% decline compared with last year.

Speaker #2: This was primarily driven by lower CapEx at Coca-Cola FEMSA, partially offset by continued investment in OXXO Mexico and other growth platforms.

Martín Arias Yániz: This was primarily driven by lower CapEx at Grupo FEMSA, partially offset by continued investment in OXXO Mexico and other growth platforms. With respect to shareholder returns, during the quarter, we concluded a $300 million buyback through an accelerated share repurchase program that was launched at the end of last year. Once we consider the ordinary and extraordinary dividends being dispersed this year, the total expected capital distributions for the cycle from March 2026 to March 2027 will reach approximately MXN 41 billion. Regarding leverage, our net debt to EBITDA ratio decreased to 1.15 times from 1.24 times in the prior quarter. This reflected a 3.2% increase in last 12 months EBITDA, excluding Grupo FEMSA, as well as a reduction in FEMSA ex-GOF net debt. The latter was driven primarily by a 2% sequential decrease in gross debt, reflecting the depreciation of the Mexican peso against our US dollar-denominated debt.

Speaker #2: With respect to shareholder returns, during the quarter we concluded a $300 million buyback through an accelerated share repurchase program that was launched at the end of last year.

Speaker #2: Once we consider the ordinary and extraordinary dividends being dispersed this year, the total expected capital distributions for the cycle from March 2026 to March 2027 will reach approximately 41 billion pesos.

Speaker #2: Regarding leverage, our net debt-to-EBITDA ratio decreased to 1.15 times from 1.24 times in the prior quarter. This reflected a 3.2% increase in last twelve months EBITDA, excluding Coca-Cola FEMSA, as well as a reduction in FEMSA ex-COF net debt.

Speaker #2: The latter was driven primarily by a 2% sequential decrease in gross debt, reflecting the appreciation of the Mexican peso against our U.S. dollar-denominated debt.

Speaker #2: That said, our leverage target remains unchanged. As we look ahead, we remain focused on executing against our strategy. We are pleased with the momentum we saw in the second quarter across most of our business units, but as Jose Antonio mentioned, we are very aware that the external tailwinds we enjoyed will taper off soon.

Martín Arias Yániz: That said, our leverage target remains unchanged. As we look ahead, we remain focused on executing against our strategy. We are pleased with the momentum we saw in Q2 across most of our business units. As José Antonio mentioned, we are very aware that the external tailwinds we enjoyed will taper off soon, and we will continue to face a challenging consumer environment, particularly in Mexico. Having said that, there are many tactical and strategic levers at our disposal, and early results from our recent tests and adjustments are promising. Before we open the call for your questions, a reminder to please limit yourself to one question at a time like we did on our previous call. We received positive feedback and would like to make that practice permanent. With that, we are ready to open the call. Operator, please go ahead.

Speaker #2: And we will continue to face the challenging consumer environment, particularly in Mexico. Having said that, there are many tactical and strategic levers at our disposal, and early results from our recent tests and adjustments are promising.

Speaker #2: Before we open the call for your questions, a reminder to please limit yourself to one question at a time, as we did on our previous call.

Speaker #2: We received positive feedback and would like to make that practice permanent. And with that, we are ready to open the call. Operator, please go ahead.

Speaker #1: Okay. At this time, we are going to open 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. Please limit yourself to one question at a time, and if you have a second question, please get back on the queue. We do ask that when you pose your question, that you pick up your handset to provide optimum sound quality. Please hold while we poll for questions. Our first question comes from Tiago Bortoluci from Goldman Sachs. Please, Tiago, you may proceed.

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. Please limit yourself to one question at a time, and if you have a second question, please get back on the queue. We do ask that when you pose your question, that you pick up your handset to provide optimum sound quality. Please hold while we poll for questions. Our first question comes from Tiago Bortoluci from Goldman Sachs. Please, Tiago, you may proceed.

Speaker #1: Please remember that your company's name should be visible for your question to be taken. Please limit yourself to one question at a time, and if you have a second question, please get back on the Q&A.

Speaker #1: We do ask that when you pose your question, you pick up your handset to provide optimum sound quality. Please hold while we poll for questions.

Speaker #1: Our first question comes from Thiago Bortolucci from Goldman Sachs. Please, Thiago, you may proceed.

Speaker #2: Hola, Thiago.

Speaker #3: Hola, José, Martín, Juan. Thank you very much, and congrats on their results. I would like to explore a little bit more the SPIN opportunity that you guys write up.

José Antonio Fernández Garza-Lagüera: Hola, Tiago.

Tiago Bortoluci: Hola, José. Martín, Juan, thank you very much, and congrats on the results. I would like to explore a little bit more on the Spin opportunity with you guys. Right. Obviously, there are a lot of moving parts and a lot of growth avenues for FEMSA. More recently, I think you have delivered and announced good developments in expanding the ecosystem, right? I don't know what you can give us in terms of additional information on how you are thinking about the partnership with QED, how you are thinking about using balance sheet to expand the value proposition, and what is the roadmap for evolving the ecosystem would be greatly appreciated. Thank you very much.

Speaker #3: There are a lot of moving parts and a lot of growth avenues for FEMSA, but more recently, I think you have delivered and announced good developments in expanding the ecosystem, right?

Speaker #3: So, I don't know, Jose, if you can give us any additional information on how you are thinking about the partnership with QED, how you are considering using the balance sheet to expand the value proposition, and what the roadmap for evolving the ecosystem is. That would be greatly appreciated.

Speaker #3: Thank you very much.

Speaker #2: Thank you, Thiago. I will begin and let either Martin or Juan help me. It's very early in the adventure with QED, and we are very excited for the partnership. We had a long courtship to get to know each other, and we were quite impressed by the level of detail and all the scar tissue that these guys have developed over many, many years of developing subprime credit in all parts of the world, in ecosystems very similar to ours.

José Antonio Fernández Garza-Lagüera: Thank you, Thiago. I will begin and let either Martín or Juan to help me. It's very early in the adventure with QED. We are very excited for the partnership. We had a long courtship to get to know each other. We were quite impressed by the level of detail and all the star talent that these guys have developed over many, many years of developing subprime credit in all parts of the world in ecosystem very similar to ours. We really liked what they brought to the table. We had begun already using some data and sharing some of the data to them, and they were very impressed by the quality of the correlation that they were seeing between The level of talent that they're able to bring. Nigel Morris and many of his partners and female partners in QED are legends in their field.

Speaker #2: So we really liked what they brought to the table. We had already begun using some data and sharing some of that data with them, and they were very impressed by the quality of the correlations that they were seeing between start.

Speaker #2: The level of talent that they are able to bring—Nigel Morris and many of his partners in QED are legends in their field—and so they are able to attract very impressive talent, and that was very important for us.

José Antonio Fernández Garza-Lagüera: They are able to attract very impressive talent, and that was very important for us. I would say, as Spin continues to become more and more relevant in the ecosystem, we're at the point where we are enjoying the best of both worlds. Transactions in services are still growing in the physical world, in OXXO. Even with a decline in top-ups or cell phone payments, we're still growing in cash in, cash out in the physical store. In Spin, this is growing dramatically. I think there is a moment, we're in the soft sweet spot where Spin and OXXO can complement each other dramatically, and I think that will continue for the next several years. There are people more aggressive that think things will change in the next couple or two or three years, and there are other people that think this will remain for many, many years.

Speaker #2: I would say SPIN continues to become more and more relevant in the ecosystem. We are at the point where we are enjoying the best of both worlds.

Speaker #2: Transactions in services are still growing in OXXO, even with a decline in top-ups or cell phone payments. We're still growing in cash-in, cash-out in the physical store, but in Spin, this is growing dramatically.

Speaker #2: So, I think there is a moment we are in the soft sweet spot where SPIN and OXXO can complement each other dramatically, and I think that will continue for the next several years.

Speaker #2: There's people more aggressive that things will change in the next couple or two or three years, and there's other people that think this will be this will remain for many, many years.

Speaker #2: So I think as SPIN becomes more relevant, SPIN loyalty also continues to increase. The number of users never stops, and we change the game, the dynamics in which we give rewards.

José Antonio Fernández Garza-Lagüera: I think as Spin becomes more relevant, as Spin loyalty also continues to increase in number of users, and we change the game, the dynamics in which we give rewards. I think all of this is giving us a very good platform to begin monetization. We're already doing it with retail media, but now we are very excited with what could become a very interesting thing with credit. As you know, there are a lot of people trying to give credit in Mexico. There are very good players already in the space. I think we have several things that makes us unique for a level of the population that's still underserved. Still, we are very conscious of the risks inherent in credit, especially in this segment. We will proceed very slowly with our low-and-grow model, as I mentioned before.

Speaker #2: I think all of this is giving us a very good platform to begin monetization. We're already doing it with retail media, but now we are very excited about what could become a very interesting opportunity with credit.

Speaker #2: As you know, there are a lot of people trying to give credit in Mexico. There are very good players already in the space. I think we have several things that make us unique.

Speaker #2: For a level of the population that's still underserved, we are very conscious of the risks inherent in credit, especially in this segment.

Speaker #2: So, we will proceed very slowly with a low-and-grow model, as I mentioned before. I think, for now, that's all I could give.

Speaker #2: Unless Martín or Juan want to complement me a little bit.

José Antonio Fernández Garza-Lagüera: I think for now, that's all I could give, unless Martín or Juan want to complement me a little bit.

Speaker #4: Yeah, I would just complement with two things. Jose, I think you did a comprehensive job of describing all the external-looking things that are happening internally as a result of the reorganization that was undertaken.

Martín Arias Yániz: Yeah. I would just complement with two things. José, I think you did a comprehensive job of describing all the external-looking things that are happening internally as a result of the reorganization that was undertaken. Today, both the physical and digital payments in FEMSA report to one organization. That is giving that team the ability to make judgments about changes in pricing and creating use cases that are very user-friendly and which try to resolve some of the paradigms of having both the physical and the digital payment system. That's also happened at Premia, where we've created an area of customer value management, where we're taking a broader, more holistic, integrated view of our consumer, where obviously Spin Premia is the main contact point and one of the main ways that we collect data and provide promotions to the consumer.

Speaker #4: Today, both the physical and digital payments in FEMSA report to one organization. That is giving that team the ability to make judgments about changes in pricing and creating use cases that are very user-friendly.

Speaker #4: And which try to resolve some of the paradigms of having both the physical and the digital payment system. That's also happened at SPIN Premia, where we've created an area of customer value management, where we're taking a broader, sort of more holistic, integrated view of our consumer.

Speaker #4: Obviously, SPIN Premia is the main contact point and one of the main ways that we collect data and provide promotions to the consumer.

Speaker #4: On the credit issue, the credit over time has to become non-recourse of FEMSA. It's going to start out very small, very contained, and over time, to the extent that we can be successful, we'll start thinking about off-balance-sheet financings against the portfolio of credits that we're extending.

Martín Arias Yániz: On the credit issue, the credit over time has to become non-recourse to FEMSA. It's going to start out very small, very contained. Over time, to the extent that we can be successful, we'll start thinking about off-balance sheet financings against the portfolio of credits that we're extending. Eventually, we'll have to find sources of funding, which may include obtaining a banking license. We're still in the early days. As we promised, we'll continue to communicate this and be very transparent, the numbers really today don't really move the needle in any significant way from the perspective of the credit portfolio.

Speaker #4: And eventually, we'll have to find sources of funding, which may include obtaining a banking license. We're still at early days. As we promised, we'll continue to communicate this and be very transparent, but the numbers today don't really move the needle in any significant way from the perspective of the credit portfolio.

Speaker #3: This is great. Jose, Martin, thank you very much, guys.

Speaker #2: Thank you.

Tiago Bortoluci: This is great, José. Thank you very much.

Speaker #1: Our next question comes from Mr. Rodrigo Alcántara from UBS. Please, Mr. Alcántara, you may proceed.

José Antonio Fernández Garza-Lagüera: Thank you.

Operator 2: Our next question comes from Mr. Rodrigo Alcantara from UBS. Please, mister, you may proceed.

Operator: Our next question comes from Mr. Rodrigo Alcantara from UBS. Please, mister, you may proceed.

Speaker #5: Hello. Good morning, Jose, Martin, Juan. How are you? Congrats again, Pam. Welcome back, Kike. Nice to have you back. I'll leave the question on gross margins to my colleagues here.

Rodrigo Alcántara: Hello. Good morning, José, Martín.

Rodrigo Alcantara: Hello. Good morning, José, Martín.

José Antonio Fernández Garza-Lagüera: Hola, Rodrigo.

Rodrigo Alcántara: ¿Qué tal? Congrats again, Pam. Welcome back, Quique. Nice to have you back. Guess I'll leave the question on gross margins to my colleagues here. I'm pretty sure they're going to ask about this. Let me ask this to you, José. It's been a while, right? You have taken the role of CEO of FEMSA Consolidated, and also you brought, or well, FEMSA brought a very high-quality guy, right, to lead the OXXO Mexico operation, right? Carlos Arroyo. My question would be on, or if you can comment on how you are shifting the responsibilities from retail to FEMSA Consolidated. What would be the main contributions in your view that Carlos has achieved so far? Anything that you may highlight that you can comment would be very helpful. Thank you very much.

Rodrigo Alcantara: ¿Qué tal? Congrats again, Pam. Welcome back, Quique. Nice to have you back. Guess I'll leave the question on gross margins to my colleagues here. I'm pretty sure they're going to ask about this. Let me ask this to you, José. It's been a while, right? You have taken the role of CEO of FEMSA Consolidated, and also you brought, or well, FEMSA brought a very high-quality guy, right, to lead the OXXO Mexico operation, right? Carlos Arroyo. My question would be on, or if you can comment on how you are shifting the responsibilities from retail to FEMSA Consolidated. What would be the main contributions in your view that Carlos has achieved so far? Anything that you may highlight that you can comment would be very helpful. Thank you very much.

Speaker #5: I'm pretty sure they're going to ask about this. So let me ask you this to you, Jose. It's been a while, right? You have taken the role of CEO of FEMSA consolidated and also you brought or well, FEMSA brought a very high-quality guy, right, to lead the Oxo Mexico operation, right?

Speaker #5: Carlos Arroyo: So my question would be if you can comment on how you are shifting the responsibilities from retail to FEMSA consolidated.

Speaker #5: What would be the main contributions, in your view, that Carlos has achieved so far? Is there anything that you may highlight or comment on?

Speaker #5: That would be very, very, very helpful. Thank you very much.

Speaker #4: Thank you, Rodrigo. That's a very interesting question. So I think, obviously, the shift from heading Proximity and Health to shifting to running FEMSA is a very dramatic shift, and I'm still, I hope, in my early stages of that shift.

José Antonio Fernández Garza-Lagüera: Thank you, Rodrigo. That's a very interesting question. I think obviously the shift from heading Proximity and Health to shift to running FEMSA is a very dramatic shift, and I'm still on, I hope, in my early stages of that shift. I would say, the biggest change in my order is I now get to spend a lot of time in big strategic discussions with all of my CEOs, but particularly a lot of time with Ian, a lot of time with the chairman and the board, a lot of time with the retail guys on drafting strategy, on shaping culture, and on building and mapping talent. That's where I spend most of my time. I would say first of all, Carlos has much more experience in retail than I did.

Speaker #4: And I would say the biggest change in my order is I now get to spend a lot of time in big strategic discussions with all of my CEOs, Ian—a lot of time with the chairman and the board.

Speaker #4: I spend a lot of time with the retail guys—on drafting strategy, on shaping culture, and on building and mapping talent. That's where I spend most of my time.

Speaker #4: I would say, Carlos brought—first of all, Carlos has much more experience in retail than I did. While I knew retail from leading it and breathing it in my household, I don't come from a retail background.

José Antonio Fernández Garza-Lagüera: While I knew retail from living it and breathing it in my household, I don't come from the retail background. I got to meet Carlos. Carlos and I actually go a little bit way back when I was running Coca-Cola FEMSA Central America. Carlos ran Walmart in that region, and we used to argue a lot. I learned about his negotiating capacity, his real ability to fight every cent, to run a very lean, efficient machine, and I always like what I see. I think what Carlos has brought beyond these things that I've already mentioned, I would say he surrounds himself with people that are smarter than him, which is a characteristic that I love about big leaders and executives. He really has surrounded himself with a stellar team. He knows the importance of a superb, I mean, top one percentile supply chain capacity.

Speaker #4: I got to meet Carlos, and I actually go a little bit way back—back when I was running Coca-Cola FEMSA Central America. Carlos ran Walmart in that region, and we used to argue a lot. I learned about his negotiating capacity, his real ability to fight for every cent, to run a very lean, efficient machine, and I always liked what I saw.

Speaker #4: And I think what Carlos has brought, beyond these things that I've already mentioned, is that he surrounds himself with people that are smarter than him, which is a characteristic that I love about leaders—big leaders and executives.

Speaker #4: He really has surrounded himself with a stellar team. He knows the importance of a superb—I mean, top 1 percentile—supply chain capacity. I think that he comes from a good school.

Speaker #4: I will not mention which, but it's a chain you have to—especially in the world we're entering, with such competitive dynamics, and where we see ourselves as underdogs, where we see ourselves as only beginning the race towards transforming retail in Mexico—we need a supply chain that's the best in the world.

José Antonio Fernández Garza-Lagüera: I think that he comes from a good school, I will not mention which, but it's obvious.

Rodrigo Alcántara: Yeah.

Rodrigo Alcantara: Yeah.

José Antonio Fernández Garza-Lagüera: In understanding that supply chain, especially in the world we're entering with such a competitive dynamics, where we see ourselves as underdogs, where we see ourselves that we're only beginning the race towards transforming retail in Mexico, we need a supply chain that's best in the world. While we have a very good supply chain, we didn't have a top 1%. I think Carlos is investing a lot behind that, and it's the backbone of a food strategy, it's a backbone of a grocery strategy. It's the backbone of, obviously, keep winning at impulse and beer and soft drinks. There's much more to say about Carlos, but I will leave it at that for now. I think those are the main contributions that he has brought. Obviously, he's delivering, we're gaining share, and I like the progress we're making.

Speaker #4: And while we have a very good supply chain, we didn't have a top 1 percent. And I think Carlos is investing a lot behind that.

Speaker #4: And it's the backbone of a food strategy. It's the backbone of a grocery strategy. It's the backbone of, obviously, keep winning at impulse and beer and soft drinks.

Speaker #4: There's much more to say about Carlos, but I will leave it at that for now. I think those are the main contributions that he has brought.

Speaker #4: And obviously, where he’s delivering, we’re gaining share, and I like the progress we’re making.

Speaker #5: No, that was great. That was what I wanted to hear. Thank you, Jose.

Speaker #4: Thank you, Rodrigo.

Rodrigo Alcántara: No, that was great. That was what I wanted to hear. Thank you, José.

Rodrigo Alcantara: No, that was great. That was what I wanted to hear. Thank you, José.

Speaker #1: Our next question comes from Mr. Ben Ferrer from Barclays. Please, Mr. Ferrer, the floor is now yours.

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

Operator 2: Our next question comes from Mr. Ben Theurer from Barclays. Please, sir, the floor is now yours.

Operator: Our next question comes from Mr. Ben Theurer from Barclays. Please, sir, the floor is now yours.

Speaker #6: Hi, yeah. Good morning, Jose Antonio Martin, Juan. Thank you very much for taking my question, as well as congrats on those very strong Q2 results.

Ben Theurer: Hi. Yeah. Good morning, José Antonio, Martín, Juan, thank you very much for taking my question, as well as congrats on those very strong 2-tier results. I wanted to dig in and stay a little bit within some of the strategic pillars that you've laid out at the beginning, and one that caught my attention a lot was all about that price pack architecture, as well as assortment optimization. Wanted to understand a little bit more of what you've kind of learned from the past, and I remember we've talked a lot about in the past about competitive pressure against the informal markets. Just wanted to understand what proactively you've been doing over the last couple of quarters and where there is still room to further drive, maybe traffic, by just having more competitive pricing on certain categories, and if so, which categories those are.

Speaker #6: I wanted to dig in and stay a little bit within some of the strategic pillars that you've laid out at the beginning. One that caught my attention a lot was all about price pack architecture, as well as assortment optimization.

Speaker #6: So I wanted to understand a little bit more about what you've kind of learned from the past. And I remember we've talked a lot in the past about competitive pressure against the informal markets.

Speaker #6: I just wanted to understand what, proactively, you've been doing over the last couple of quarters, and where there is still room to further drive—maybe traffic—by just having more competitive pricing on certain categories.

Speaker #6: And if so, which categories those are? So, what have you done? Where are we going? Thank you very much.

Speaker #4: Thank you, Ben. Hola, by the way. And I think, look, we've always been very, very good in the big, big categories in making sure we have an assortment to tailor to everybody.

Ben Theurer: What have you done? Where are we going? Thank you very much.

José Antonio Fernández Garza-Lagüera: Thank you, Ben. Hola, by the way. I think, look, we've always been very good in the big categories in making sure we have an assortment to tailor to everybody. Over time, we got a little bit complacent in saying, "Hey, we're so big in this." For example, we're so big in the beer category that we can allow ourselves either a little bit of extra margin in a very important SKU or we are willing to not live with this value price because it'll hit our bps or gross margin in a certain way. I think it's very smart to do from time to time, but if you overdo it, especially when you have a consumer that's more value-centric, et cetera, you can begin to lose very important profitable traffic. I think that's one of the things that we've been saying in all the calls.

Speaker #4: But over time, we got a little bit complacent in saying, hey, we're so big in this—for example, we're so big in that beer category—that we can allow ourselves either a little bit of extra margin in a very important SKU, or we are willing to not live with this value price because it’ll hit our BPS or gross margin in a certain way.

Speaker #4: And I think that is very—it's very smart to do from time to time, but if you overdo it, especially when you have a consumer that's more value-centric, etc., you can begin to lose very important, profitable traffic.

Speaker #4: And I think that's one of the things that we've been saying in all the calls. We've been adjusting price pack to allow for certain value packs, especially in tobacco and soft drinks and everything.

José Antonio Fernández Garza-Lagüera: We've been adjusting price packs to allow for certain value packs, especially in tobacco, in soft drinks, and everything. I think the other one, we were very good at selling prime real estate within the store, in categories that are not so relevant in the store right now, but that they were paying premium positioning to be center stage. While we recognize that we continue to do a little bit of that, especially in certain categories, it is very important, first of all, to serve our customers and meet the customers where they want to be met. That requires maybe simplifying the portfolio. Maybe we don't need 14 types of male deodorant or different brands because they all pay. Maybe we need to extract a little bit more value from certain suppliers, but then have a price pack architecture that serves all of our customers.

Speaker #4: And then, I think the other one: we were very good at selling prime real estate within the store in categories that are not so relevant in the store right now, but they were paying premium positioning to be center stage.

Speaker #4: And while we recognize that that's very— we continue to do a little bit of that, especially in certain categories. It is very important, first of all, to serve our customers where they are.

Speaker #4: And meet the customers where they want to be met. And that requires maybe simplifying the portfolio. Maybe we don't need 14 types of male deodorant or different brands, because they all pay.

Speaker #4: Maybe we need to extract a little bit more value from certain suppliers, but then have a price pack architecture that serves all of our customers.

Speaker #4: And there's a type of customer that is willing to pay for a two-pack of male deodorant to have at home, but there's also someone that needs a value deodorant because they need to change. So all these things are becoming more and more important in our price pack architecture.

José Antonio Fernández Garza-Lagüera: There's a type of customer that is willing to pay a two-pack of a male deodorant to go to their home, but there's someone that needs a value deodorant because they need to change. All these things are becoming more and more important in our price pack architecture. It's very hard for me to tell you a target of gross profit that we're going to hit. We are maximizing profit or income from operation, now putting into the mix that we want to grow traffic profitably. We want to continue to expand our relevance in categories where we are not as big, like groceries and daily replenishment. That will take us on a path that over time will increase our profitability, it will increase our stickiness.

Speaker #4: So, it's very hard for me to tell you a target of gross profit that we're going to hit. We are maximizing profit or income from operation, but now, putting into the mix that we want to grow traffic profitably, we want to continue to expand our relevance in categories where we are not as big, like groceries and daily replenishment.

Speaker #4: And that will take us on a path that, over time, will increase our profitability. It will increase our stickiness. We will continue to gain share, and we will monitor share against the supermarkets, against the traditional trades, and against the discounters.

José Antonio Fernández Garza-Lagüera: We will continue to gain share. We will monitor share against the supermarkets, against the traditional trades, against the discounters. Obviously, gross profit could plunge low from the percentage where we are. We're really not managing for maximizing gross profit, but maximizing operating income over a multi-decade period. I don't know if that answers your question.

Speaker #4: But obviously, gross profit could. And flowing from the percentage where we are, we're really not managing to maximize gross profit, but to maximize operating income over a multi-decade period.

Speaker #4: I don't know if that answers you, Ben.

Speaker #6: It does. Thank you very much.

Speaker #4: Yeah, I would just add a hi, Ben. This is Juan. I think it's such an important segue, talking about the price pack architecture and having the discussion on margins.

Ben Theurer: It does. Thank you very much.

Juan Fonseca: Yeah, I would just add. Hi, Ben, this is Juan. I think it's an important segue, talking about the price pack architecture and having the discussion on margins, because the message I want to be clear is this was not on prices. I think with very few exceptions, I think coffee is one where we've said we've been testing things at a lower price point. Most of it has to do with bringing in those low price point in the tobacco, in beer, and snacks. Again, not lowering prices, but rather changing the mix to something that is a better match for what the consumer is asking for. That was just one clarification I wanted to make.

Speaker #4: Because what I want, the message I want to be clear, is this was not prices. I think, with very, very few exceptions—I think coffee is one where we've said we've been testing things at a lower price point.

Speaker #4: But most of it has to do with bringing in those low price points in tobacco, beer, and snacks. So, again, not lowering prices, but rather changing the mix to something that is a better match for what the consumer is asking for.

Speaker #4: So, that was just one clarification I wanted to make.

Speaker #6: Okay, thank you very much, Juan.

Speaker #2: Our next question comes from Mr. Ricardo Alves from Morgan Stanley. Please, Mr. Alves, the floor is now yours.

Ben Theurer: Okay. Thank you very much, Juan.

Operator 2: Our next question comes from Mr. Ricardo Alves from Morgan Stanley. Please, sir, the floor is now yours.

Operator: Our next question comes from Mr. Ricardo Alves from Morgan Stanley. Please, sir, the floor is now yours.

Speaker #6: Hello, José Antonio, Martin, Juan. Hope you're all well. Thanks for the opportunity. I think this is a follow-up to the previous one. It was quite impressive same-store sales indeed.

Ricardo Alves: Hello, Jose Antonio, Martin, Juan. Hope you're all well. Thanks for the opportunity. I think that this question is, to some extent, a follow-up to the previous one. It was a quite impressive same-store sales indeed, so it's great to see the turnaround there. Now, with the 8%, or near 8% ticket boost, significantly above inflation, naturally, I guess that we thought that the gross margin could have been higher. Appreciate all the commentary that was just made around the gross margin and the strategy of the company prioritizing operating income. That makes perfect sense.

Speaker #6: So, it's great to see the turnaround there. Now, with the 8%—or near 8%—ticket boost, which is significantly above inflation, naturally. I guess that we thought the gross margin could have been higher.

Speaker #6: I appreciate all the commentary that was just made around the gross margin and the strategy of the company prioritizing operating income. That makes perfect sense.

Speaker #6: But when we look at that number, when we look at the gross margin, our first reaction was maybe the affordability measures that we've been talking about.

Ricardo Alves: When we look at that number, when we look at the gross margin, our first reaction was maybe the affordability measures that we've been talking about, Juan was just mentioning, the changing mix, for example, all of that could explain, but when we look at your average ticket, that doesn't seem to be the answer. Beyond what we already discussed, is there something near term, I don't know, maybe on the commercial income, not on the side of the revenue on the commercial income, but discount from suppliers? I think that Jose Antonio even referred to some of maybe these supplier contracts that you have, maybe commercial income is hurting a little bit more in this moment where you are adjusting the strategy.

Speaker #6: Juan was just mentioning the changing mix, for example. All of that could explain it. But when we look at your average ticket, that doesn't seem to be the answer.

Speaker #6: So beyond what we already discussed, is there something near term—maybe on the commercial income? Not on the side of revenue, but commercial income, such as discounts from suppliers.

Speaker #6: I think that José Antonio even referred to some of these supplier contracts that you have. Maybe commercial income is hurting a little bit more at this moment, where you are adjusting the strategy.

Speaker #6: I just wanted to understand that dynamic a little bit better on the same-store sales—not necessarily translating right now, or the average ticket, into higher gross margin as well.

Ricardo Alves: I just wanted to understand that dynamic a little bit better on the same-store sales not translating necessarily right now or the average ticket into higher gross margin as well. Thank you very much, everyone.

Speaker #6: Thank you very much, everyone.

Speaker #4: So, with that—thank you, Ricardo. It's very good. With all that, I think the quarter obviously has some things that are affecting it more than normal.

José Antonio Fernández Garza-Lagüera: Thank you, Ricardo. It's a very good question. With all that, I think the quarter obviously has some things that are affecting it more than normal. First of all, you have to include that there is a headwind in two of our big categories, like soft drinks and cigarettes. That could have an effect, a little bit, on the way the ticket is being affected. On the other end, if you look, I would say the assortment helped us a lot during the quarter given the Panini catalog helped a little bit, and probably also had an effect on the margin, but increased the ticket. Which, by the way, Panini was a record thing for OXXO, as I'm sure for many retailers across the globe, throughout the World Cup. All of these things had an effect.

Speaker #4: First of all, you have to include that there is a 'yes' in two of our big categories, like soft drinks and cigarettes. So that could have an effect, a little bit, on the way the ticket is being affected.

Speaker #4: On the other hand, if you look, I would say the assortment helped us a lot during the quarter, given that the Panini catalog helped a little bit and probably also had an effect on the margin, but increased the ticket.

Speaker #4: Which, by the way, Panini was a record thing for, also, as I'm sure for many retailers across the globe throughout the World Cup. And so all of these things had an effect.

Speaker #4: While we are happy with the 2% traffic growth because it really changes eight quarters of missing traffic, we are also happy that even during the later part of July, we're still seeing good traffic numbers, even after the World Cup.

José Antonio Fernández Garza-Lagüera: While we are happy with the 2% traffic growth because it really changes 8 quarters of missing traffic, and we are happy that even during that, even the second later part of July, we're still seeing good traffic numbers, even after the World Cup. We are confident that some of the levers that we pulled are working. We're not satisfied, for sure. We have a long way to go to have the traffic that we ambition. I think the tickets should also come at the expense of, or should be balanced by doing more value-driven things, like what we're doing in expanding coffee at an attractive price and more value categories in beer and cigarettes. But in general, I would say the quarter did have a few mixes that did not help the number as much as you would expect.

Speaker #4: So, we are confident that some of the levers that we pulled are working. We're not satisfied, for sure. We have a long way to go to have the traffic.

Speaker #4: That's our ambition. And I think the ticket should also, I mean, come at the expense of—or should be balanced by—doing more value-driven things, like what we're doing in expanding coffee at an attractive price, and more value categories in beer and cigarettes.

Speaker #4: But in general, I would say the quarter did have a few mixes that did not help the number as much as you would expect.

Speaker #4: So we're still working on improving traffic, but obviously, we had a very good quarter given the World Cup and other tailwinds.

José Antonio Fernández Garza-Lagüera: We're still fighting with improving traffic, but obviously we had a very good quarter given the World Cup and other tailwinds.

Speaker #5: Just a compliment. You, Jose. Hi, Ricardo. The inflation that you see in consumer inflation numbers for Mexico is not necessarily the inflation number that gets passed on in the categories that we sell through the store.

Martín Arias Yániz: Just to complement you, Jose. Hi, Ricardo. The inflation that you see as the main consumer inflation number for Mexico is not necessarily the inflation number that gets passed on in the categories that we sell through the store. You need to be a bit careful. There are categories where the cost that's being passed on by the supplier is somewhat higher than the consumer inflation that you see in the newspaper. We follow this on a quarterly basis in our quarterly meetings, where we check the cost that was passed on to us by the supplier, and the cost that we passed on to the consumer. With the exception of the categories that Jose mentioned, specifically cigarettes and soft drinks, where we were passing on a tax, which is not to anybody's benefit other than the tax collection for the government.

Speaker #5: So you need to be a bit careful. There are categories where the cost that's being passed on by the supplier is somewhat higher than the consumer inflation that you see in the newspaper.

Speaker #5: We follow this on a quarterly basis in our quarterly meetings, where we check the cost that was passed on to us by the supplier and the cost that we passed on to the consumer.

Speaker #5: And with the exception of the categories that José mentioned—specifically, cigarettes and soft drinks, where we were passing on a tax, which is not to anybody's benefit other than a tax collection for the government—in all of them, we were either passing on only what was passed on to us or, in some cases, passing slightly lower than what was passed on to us.

Martín Arias Yániz: In all of them, we were either passing on only what was passed on to us, or in some cases, passing slightly lower than what was passed on to us. That could be also an effect of mix on a category by category basis. Once you take that out, you take out the World Cup, the bigger ticket from people going for reunions, for the parties they were having at their home, so on, you strip that out and the benefits of that and some other mix effects of top-ups going down and financial services going up. You take that all in, we are very comfortable that we are improving significantly the affordability proposition for our consumers.

Speaker #5: And that could also be a factor of mix on a category-by-category basis. So, once you take that out, you take out the World Cup, the bigger ticket from people going for reunions, from the parties that we're having at their homes, and so on.

Speaker #5: And you strip that out—and the benefits of that and some other mixed effects of top-ups coming down and financial services going up—and so you take that all in.

Speaker #5: We are very comfortable. We are significantly improving the affordability proposition for our consumers. Yeah. One final comment on that is that the excise tax effect will remain for the next couple of quarters as well, right? Until we cycle in next January.

José Antonio Fernández Garza-Lagüera: One final comment on that is that the excise tax effect will remain for the next couple of quarters as well, right until we cycle in next January.

Speaker #6: That makes perfect sense. That was actually helpful. Thanks, everybody. Thank you all.

Speaker #4: Thank you, Ricardo.

Martín Arias Yániz: That makes perfect sense. That was actually helpful. Thanks, everybody. Thank you all.

Ricardo Alves: That makes perfect sense. That was actually helpful. Thanks, everybody. Thank you all.

Speaker #1: Our next question comes from Mr. Bob Ford from Bank of America. Please, Mr. Ford, you may proceed.

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

Operator 2: Our next question comes from Mr. Robert Ford from Bank of America. Please, Mr. Bob, you may proceed.

Operator: Our next question comes from Mr. Robert Ford from Bank of America. Please, Mr. Bob, you may proceed.

Speaker #5: Bob?

Speaker #6: Sorry about that. We were not here as José, Martín, Juan, Kike. And congratulations on the quarter. How do you feel about price deltas and overlapping small box values in areas where investment's been made?

Robert Ford: Paul?

Robert Ford: Sorry about that. 葡萄牙 José, Martín, Juan, Quique, congratulations on the quarter. How do you feel about price deltas and overlapping small box values in areas where investment's been made? I think Martín was moving in that direction, but I just want to get a better sense of where you are right now and how you're thinking about elasticity. As you expand that investment, how do you think about the TAM and grocery and the pantry segments? You haven't really touched on Brazil, but I was very curious about same-store sales in Brazil and then the path and timeline to profitability there. Thank you.

Speaker #6: I think Martin was moving in that direction, but I just want to get a better sense of where you are right now and how you're thinking about elasticity.

Speaker #6: And as you expand that investment, how do you think about the TAM in grocery and the pantry segments? And then, you haven't really touched on Brazil, but I was very curious about same-store sales in Brazil and then the path and timeline to profitability there.

Speaker #4: And I understood that Brazil part. Can you repeat the first one? Sorry.

Speaker #6: Sure. No, no—I was probably speaking too quickly. But it was really about the price deltas that you have with overlapping competitors, whether that's the informal segment, competing CSDs, and sorry, stores and other channels.

José Antonio Fernández Garza-Lagüera: Can you repeat, I understood the Brazil part. Can you repeat the first one? Sorry.

Robert Ford: Sure. No, I was probably speaking too quickly, but it was really about the price deltas that you have with overlapping competitors, whether it's the informal segment, competing CSDs and, sorry, competing stores and other channels. How are you thinking about your price gaps right now in the areas where you've made investment? Do you feel that you're at an equilibrium, or do you think there's a need to make some additional price investment? How should we think about the price elasticity in those areas? As you expand, and I think what I'm hearing is you're going to expand that activity and open price points and price investments selectively in other categories, right? You mentioned grocery and pantry segments, I was just curious how you're thinking about the addressable market in those areas as well.

Speaker #6: But how are you thinking about your price gaps right now in areas where you've made investment? Do you feel that you're at an equilibrium, or do you think there's a need to make some additional price investment?

Speaker #6: How should we think about the price elasticity in those areas? And then, as you expand—and I think what I'm hearing is you're going to expand that activity in opening price points and price investment selectively in other categories, right?

Speaker #6: You mentioned grocery and pantry segments, and I was just curious how you're thinking about the addressable market in those areas as well.

Speaker #4: That's okay. Very, very clear. Thank you, Bob. I would say, first of all, when we look at a price point in our business, we have to look at the overall cost of going to an OXXO store and being served, versus going to a supermarket chain, or driving, or getting on a bus to go a longer distance.

José Antonio Fernández Garza-Lagüera: That's okay. No, very clear. Thank you, Bob. I would say, first of all, when we look at a price point in our business, we have to look at the overall cost of going to an OXXO store and being served versus going to a supermarket chain or driving or getting on a bus to go to longer distance. We also compete against the mom-and-pop and the discount store. We put all those categories into place, and we sell the coldest beer probably out there, even more than the retailers like Beer Guys. We put all that into the equation. What we want is to be able to have a price pack architecture that tailors the top income segment of Mexico, but also the bottom 10% and 20% income segment of Mexico.

Speaker #4: But we also compete against the mom-and-pop shops and the discount stores. And so we put all the categories into place. And we sell the coldest beer probably out there—even colder than the retailers.

Speaker #4: So we put all that into the equation, and what we want is to be able to price pack architecture that tailors to the top income segment of Mexico, but also the bottom 10 and 20 percent income segments of Mexico.

Speaker #4: And that's very evident across our core categories. Where we make the big growth of our categories—beer, soft drinks, snacks, tobacco—in those categories, we are so well known, we are so well liked, that we are willing to have some price differentiation.

José Antonio Fernández Garza-Lagüera: That's very evident across our core categories, where we make the big growth of our categories, beer, soft drinks, snacks, tobacco. In those categories, we are so well-known, we are so well-liked that we are willing to have some price differentiation. I think we are already where we want to be in the core traffic drivers like the 16-ounce Coca-Cola bottle or the six-pack of a leading beer brand. I'm not supposing we're going to have any price contraction there other than mix. We may introduce value brands at a very attractive price, but we are not seeing a big cannibalization effect in those. Where we do need to be much more aggressive is as we expand into the pantry is available. We are not the winners there. We are not well-known.

Speaker #4: But I think we are already where we want to be in the core traffic drivers, like the 16-ounce Coca-Cola bottle or the six-pack of beer from a leading beer brand.

Speaker #4: I'm not suggesting any—I’m not supposing we're going to have any price contraction there, other than mix. We may introduce value brands at a very attractive price, and I don't—but we are not seeing a big cannibalization effect in those. Where we do need to be much more aggressive is as we expand into the pantry development.

Speaker #4: We are not the winners there. We are not well known. And we need to—first of all, we're not going to—maybe we don't need a 12-pack of eggs, but we need to have a very competitive price.

José Antonio Fernández Garza-Lagüera: First of all, maybe we don't need a 12-pack of eggs, but we need to have a very competitive price, a six-pack of eggs. We will have the best price, much better than the traditional trade, and maybe on par with some of the discounters in certain categories. We've become well-known that for daily replenishment, OXXO is a much better alternative than the corner store or even some of the discount stores. We will go all in on winning our space in pantry. I know I'm not only talking to investors when I say we're going all in. In terms of OXXO Brazil, it's too early. We're getting better and better. We're improving. We have been growing double digits over the last couple of years, double-digit revenues.

Speaker #4: Six-pack of eggs. We will have the best price, much better than the traditional trade, and maybe on par with some of the discounters in certain categories. As we become better known for daily replenishment, OXXO is a much better alternative than the corner store or even some of the discount stores.

Speaker #4: And we will go all in on winning our space in the pantry. And I know I'm not only talking to investors when I say it.

Speaker #4: We're going all in. In terms of OXXO Brazil, it's too early. We're getting better and better. We're improving. We had a couple of quarters that were not as we had been growing double digits over the last couple of years—double-digit revenues.

Speaker #4: We had a slowish quarter, but we grew mid-single-digit same-store sales. We are still iterating the model, but I think with OXXO Brazil, what we like is that every cohort, every new generation of stores keeps getting better and better.

José Antonio Fernández Garza-Lagüera: We had a lowish quarter where we grew mid-single digits same-store sales. We are still iterating the model. I think OXXO Brazil, what we like is that every cohort, every new generation of stores keep getting better and better. We think it's going to take us a few years, but eventually we're going to find a sweet spot when we can accelerate expansion. We feel Colombia is ready now. Colombia now can really accelerate, and hopefully we will begin to show an increasing faster pace of growth in Colombia. Does that answer you, Bob?

Speaker #4: And so we think it's going to take us a few years, but eventually we're going to find the sweet spot, when we can accelerate expansion, as we feel Colombia is ready now.

Speaker #4: Colombia now can really accelerate, and hopefully, we will begin to show an increasingly faster pace of growth in Colombia. That answers you, Bob.

Speaker #6: No, it does. Very exhaustively. Thank you so much.

Speaker #1: Our next question comes from Mr. Alejandro Fuchs from Itaú BBA. Please, Mr. Fuchs, you may proceed.

Robert Ford: No, it does, very exhaustively. Thank you so much.

Operator 2: Our next question comes from Mr. Alejandro Fuchs from Itaú BBA. Please, Mr., you may proceed.

Operator: Our next question comes from Mr. Alejandro Fuchs from Itaú BBA. Please, Mr., you may proceed.

Speaker #4: Hola, Alejandro.

José Antonio Fernández Garza-Lagüera: Hola, Alejandro.

Speaker #6: Hola, José Antonio Martín, Juan, Pamela, Enrique. Thank you for the space for questions and congratulations on the results. My question is on OXXO Mexico.

Alejandro Fuchs: Hola, José Antonio, Martín, Juan, Pamela, Enrique. Thank you for the space for question and congratulations on the results. My question is on OXXO Mexico. Wanted to maybe take you back, José Antonio, to the end of last year when you guys were preparing the budget for this year and seeing all of these changes that you wanted to make. I think that it was very clear, the four pillars. Can you elaborate maybe, José Antonio, which of the changes are working better maybe than you expected? Maybe which ones do you think there's opportunity to maybe even improve more when we look at this very strong same-store sales and traffic performance? Thank you.

Speaker #6: I wanted to maybe take you back, José Antonio, to the end of last year when you guys were preparing the budget for this year and seeing all of these changes that you wanted to make, right?

Speaker #6: I think that it was very clear, the four pillars. Can you elaborate, maybe José Antonio, on which of the changes are working better—maybe better than you expected—and which ones you think there's an opportunity to improve even more, especially when we look at this very strong semester in sales and traffic performance?

Speaker #6: Thank you.

Speaker #4: So again, I think I'm still confident that the pillars will all work out, and I'm seeing positive signs in all of them. But obviously, I will tell you, on impulse, becoming excellent or best-in-class in something that you were already great at, but now you're becoming the best, has become the one that most quickly turned the needle.

José Antonio Fernández Garza-Lagüera: Again, I think I'm still confident that the pillars will all work out, and I'm seeing positive signs in all of them. Obviously, I will tell you on impulse, becoming excellent or best in class in something that you were already great, but now you're becoming best, has become the one that most quickly turned the needle. We're gaining share like never before in beer. We're gaining share in tobacco. We're gaining share in soft drinks. In what we are already well-known for, we are doing very well in Q1, and obviously it continued with Q2, probably helped by the World Cup. I mean, the World Cup was there for many of the ANTAD and other supermarkets, and we clearly won a lot of market share in our core categories. I think we have a few trials in foodvenience and daily replenishment.

Speaker #4: We're gaining share like never before in beer. We're gaining share in tobacco. We're gaining share in soft drinks. In what we are already well known for, we are doing very well in the first quarter.

Speaker #4: And obviously, it continued with the second quarter, probably helped by the World Cup. But, I mean, the World Cup was there for many of the ANTAD and other supermarkets, and we clearly won a lot of market share in our core category.

Speaker #4: I think we have a few trials in opinions and daily replenishment. Both trials include execution things, assortment things, and pricing things.

José Antonio Fernández Garza-Lagüera: Both trials include execution things, assortment things, and pricing things. Foodvenience, especially on coffee, just getting coffee right, which is probably the easier part because we are already well-known in coffee, is showing the biggest dramatic increase. We still have a long way to go in developing what we call hero products that OXXO can get very well-known for, can use its scale to get very good quality, good pricing, and really feed millions of hungry Mexicans. I think that's still going to take a lot of time, and it requires a lot of infrastructure that we need to build in the supply chain and the supplier infrastructure side. I think daily replenishment, in one end, is the one that you can start more quickly even than foodvenience with pricing, even if you don't have the market ready for it.

Speaker #4: And food opinions, especially on coffee—just getting coffee right, which is probably the easier part because we are already well known in coffee.

Speaker #4: It's showing the biggest, most dramatic increase. We still have a long way to go in developing what we call hero products—products that we can also become very well known for. With scale, we can achieve very good quality, competitive pricing, and really feed millions of hungry Mexicans.

Speaker #4: I think that's still going to take a lot of time, and it requires a lot of infrastructure that we need to build in the supply chain and on the supplier infrastructure side.

Speaker #4: I think daily replenishment, in one end, is the one that you can start more quickly, even than food options with pricing, even if you don't have the market ready for it.

Speaker #4: We're doing some trials in certain parts of Mexico with promising results, but I think it's further down the line in terms of really moving the needle.

José Antonio Fernández Garza-Lagüera: We're doing some trials in certain parts of Mexico with promising results, I think it's further down the line in terms of really moving the needle. It's going to take us longer. What we call beyond trade, I'm really excited by what we are seeing in terms of encouragement of the new things coming in the pipeline for Spin Premia, for Spin by OXXO. Just by itself, it's getting a lot of momentum, and we are reducing our expenses there dramatically and still providing you an exciting product. I think we are off to a good start.

Speaker #4: It's going to take us longer. And what we call beyond trade, I'm really excited by what we are seeing in terms of encouragement of the new things coming in the pipeline for Steam Premium, for Steam by OXXO.

Speaker #4: But just by itself, it's gaining a lot of momentum. We are reducing our expenses there dramatically, while still providing new and exciting products.

Speaker #4: So, I think we are off to a good start.

Speaker #6: That was super clear. Muchas gracias, José Antonio.

Speaker #4: You know what? I’d just like to add, Alejandro, I mean, obviously we’ve just been talking about the drivers for top-line growth, but I also think, looking at the overall results, everything that happened below the gross margin, right?

Alejandro Fuchs: That was super clear. Muchas gracias, José Antonio.

José Antonio Fernández Garza-Lagüera: You know what? I just like to add, Alejandro, obviously, we've just been talking about the drivers for top-line growth, I also think, looking at the overall results, everything that happened below the gross margin, right? To have a small contraction at the gross, but actually a small expansion at the operating level and at the EBITDA level, there's a lot of work that's being done on the expenses side, on the cost side, on the efficiency side, that we've spoken about before in terms of these programs that are in place regarding corporate overhead and regarding all kinds of efficiencies on the labor front.

Speaker #4: Because to have a small contraction at the growth, but actually a small expansion at the operating level and at the EBITDA level, there's a lot of work that's being done on the expenses side, on the cost side, on the efficiency side, that we've spoken about before in terms of these programs that are in place.

Speaker #4: Regarding corporate overhead and regarding all kinds of efficiencies on the labor front. So just to highlight that, it hasn't just been the top-line efforts, which obviously that comes first.

Juan Fonseca: Just to highlight that, it hasn't just been the top-line efforts, which obviously that comes first, but also the work that's being done behind the scenes that's helping us to put out what I think is a very well-done quarter for OXXO Mexico.

Speaker #4: But also the work that's being done kind of behind the scenes that's helping us to put out what I think is a very well-balanced quarter for OXXO Mexico.

Speaker #6: Absolutely. Muchas gracias, Juan.

Speaker #1: Our next question comes from Mr. Hector Ugarte from Scotiabank. Please, you may now proceed.

Alejandro Fuchs: Absolutely. Muchas gracias, Juan.

Operator 2: Our next question comes from Mr. Hector Maya from Scotiabank. Please, you may now proceed.

Operator: Our next question comes from Mr. Hector Maya from Scotiabank. Please, you may now proceed.

Speaker #7: Hola, José, Martín, Juan, Quique—sorry, I'm Héctor Maya. I don't know what happened there, but thank you for taking it. Yes, thank you. On OXXO, I understand your strategy is different with—.

Hector Maya: Hola, José, Martín, Juan, Quique. Sorry, I am Hector Maya. I don't know what happened there. Thank you for taking me.

Héctor Maya: Hola, José, Martín, Juan, Quique. Sorry, I am Hector Maya. I don't know what happened there. Thank you for taking me.

José Antonio Fernández Garza-Lagüera: Hola.

Hector Maya: Yes. Thank you. On OXXO, I understand your strategy is different with core categories and value packs and pantry. Just wanted to know if you could give us a bit more clarity on how much further could you be willing gross margin to keep gaining share by category. With this, how do you expect your mix to maybe change, if any, in the long term, considering your focus on operating income optimization? Thank you.

Héctor Maya: Yes. Thank you. On OXXO, I understand your strategy is different with core categories and value packs and pantry. Just wanted to know if you could give us a bit more clarity on how much further could you be willing gross margin to keep gaining share by category. With this, how do you expect your mix to maybe change, if any, in the long term, considering your focus on operating income optimization? Thank you.

Speaker #7: Or categories and value packs and pantry, but just wanted to know if you could give us a bit more clarity on how much further you could be willing to move on gross margin to keep gaining share by category. With this, how do you expect your mix to maybe change, if any, in the long term, considering your focus on operating income optimization?

Speaker #7: Thank you.

Speaker #4: Again, it's a very good question, Maya, but it's also one that, at least for me, is very hard to answer. We like our people queue for this quarter.

José Antonio Fernández Garza-Lagüera: Again, it is a very good question, Maya. It is a very one that, at least for me, is very hard to answer. We like our P per Q for this quarter. We are willing to give gross margin if we see profit go up and if we see our operating income continue to go up. This is a very long-term race. We are getting into very competitive roles. We like that we enter this cycle of continue to grow market share in our core categories, beginning to grow market share in pantry, in what we call daily replenishment consumer locations, which obviously have a lot of house and basics of pantry. We see our gross profit as a little piece of a very big profit pie that starts with the FMCG and goes all the way to the consumer pocket.

Speaker #4: We are willing to give gross margin if we see traffic profit go up, and if we see our operating income continue to go up.

Speaker #4: But this is a very long-term race. We're getting into a very competitive world. We like that. We like that we continue—we enter this cycle of continuing to grow market share in our core categories, beginning to grow market share in pantry, in what we call daily replenishment, consumer occasions, which obviously has a lot of household and basics of pantry.

Speaker #4: We see our gross profit as a little piece of a very big profit pie that starts with the FMCG and goes all the way to the consumer pockets.

Speaker #4: We think our gross profit is a very small part of that because we see the enormous amount of profit that comes from the FMCGs.

José Antonio Fernández Garza-Lagüera: We think our gross profit is a very small part of that because we see the enormous amount of profits that come from the FMCGs. All FMCG companies that you know and that you guys cover, all the big ones name Mexico as one of their top five markets, especially the ones that are big relevant in our categories, beer, soft drink, snacks. We see a long way to go in terms of gross profit still. One part of that gross profit, we want to invest it in giving more value to some consumers that we see that could really benefit from OXXO, serving them half a dozen eggs at a very attractive price, or other traffic drivers that could be profitable, but that we are willing to give margin. Impossible for me to give you a number.

Speaker #4: All FMCG companies that you know, and that you guys cover—all the big ones—name Mexico as one of their top five markets, especially the ones that are big and relevant in our categories.

Speaker #4: Beer, soft drinks, snacks. So we see a long way to go in terms of gross profit still, but part of that gross profit we want to invest in giving more value to some consumers that we see could really benefit—for example, by also serving them half a dozen eggs at a very attractive price, or other traffic drivers that could be profitable but where we're willing to give up margin.

Speaker #4: So it's impossible for me to give you a number. What I can tell you is that I still see the FMCGs in Mexico as one of the most profitable stories in the world.

Speaker #4: And I think we can get a little bit of a bigger share as we continue to grow, adding three stores a year in OXXO, plus maybe one and a half stores a day in Bara.

José Antonio Fernández Garza-Lagüera: What I can tell you is that I still see the FMCGs in Mexico, one of the most profitable stories in the world. I think we can get a little bit of a bigger share as we continue to grow 3 stores a year in OXXO, plus maybe one and a half stores a day in Bara. We have a lot of potential and a number, but I am optimistic on that front, on the net income side.

Speaker #4: So, we have a lot of potential. I don't have a number, but I am optimistic on that front—on the net income side.

Speaker #7: Super. Thank you very much, José. Thank you.

Speaker #1: Our next question comes from Mr. Antonio Hernández from Actinver. Please, sir, the floor is now yours.

Hector Maya: Super. Thank you very much, Jose. Thank you.

Héctor Maya: Super. Thank you very much, Jose. Thank you.

Operator 2: Our next question comes from Mr. Antonio Hernandez from Actinver. Please, mister, the floor is now yours.

Operator: Our next question comes from Mr. Antonio Hernandez from Actinver. Please, mister, the floor is now yours.

Speaker #7: Hi, good morning. Thanks for taking my question. Congrats on your results—very solid ones. Just a quick one regarding prepared foods and coffee. Could you please share how much of a share they account for at OXXO in terms of revenues?

Antonio Hernandez: Hi. Good morning. Thanks for taking my question. Congrats on your results. Very solid ones. Just a quick one regarding prepared foods and coffee. Would you please share how much of a share do they account for at all in terms of revenues? If you have a specific target, and how do you see it profit-wise? Thanks.

Antonio Hernández: Hi. Good morning. Thanks for taking my question. Congrats on your results. Very solid ones. Just a quick one regarding prepared foods and coffee. Would you please share how much of a share do they account for at all in terms of revenues? If you have a specific target, and how do you see it profit-wise? Thanks.

Speaker #7: And do you have a specific target? And how do you see things profit-wise? Thanks.

Speaker #4: So we're not ready to give a big and precise number on coffee, but we're growing double digits in revenue in coffee. It's a growth category for us, even though we reduced prices.

José Antonio Fernández Garza-Lagüera: We're not ready to give a precise number on coffee, but we're growing double digits in revenue in coffee. It's a growth category for us, even though we reduce prices. More and more Mexicans are recognizing OXXO has very good quality coffee and a very good price point. We like what we see. We have a long way to go in terms of the percentage of food service in OXXO Mexico. It's in the mid-single digits. While in other parts of our operations, like Colombia or Europe, it's in the mid to high mid-teens. We have a long way to go. Our ambition is to get at least towards what Colombia has. I hope that answers enough, Antonio.

Speaker #4: More and more Mexicans are recognizing that OXXO also has very good quality coffee, and at a very good price point. So we like what we see.

Speaker #4: We have a long way to go in terms of the percentage of food service in OXXO Mexico. It's in the mid-single digits, while in other parts of our operations, like Colombia or Europe, it's in the mid- to high-teens.

Speaker #4: So, we have a long way to go, and our ambition is to get at least towards what Colombia has. I hope that answers enough, Antonio.

Speaker #7: Yes, thanks. That's very helpful. And from a profitability perspective, is there a big difference between how you see food billings, or prepared food here in Mexico versus Colombia and Europe?

Antonio Hernandez: Yes. Thanks. That's very helpful. From a profitability perspective, is there a big difference between how you see food business or prepared food here in Mexico versus Colombia and Europe? How the margins differ?

Antonio Hernández: Yes. Thanks. That's very helpful. From a profitability perspective, is there a big difference between how you see food business or prepared food here in Mexico versus Colombia and Europe? How the margins differ?

Speaker #7: How do margins differ?

Speaker #4: They are in all those places, and in Mexico, highly accretive. Once you are able to control drink and food, it becomes a very good profit driver for all of our operations.

José Antonio Fernández Garza-Lagüera: They are in all those places, and in Mexico, they're highly accretive. Once you are able to control shrinkage, food becomes a very good profit driver for all of our operations. From what I see, other operations I study across the world in convenience, if you do food right, it becomes highly accretive. Even for a very profitable chain like OXXO Mexico, food can become a good source of traffic, of revenue, and retain profit.

Speaker #4: And from what I see, other operations I study across the world in convenience—if you do food right, it becomes highly accretive. Even for a very profitable chain like OXXO in Mexico, food can become a good source of traffic and revenue.

Speaker #4: And retain profit.

Speaker #7: Perfect. Thanks a lot. Appreciate it. Have a nice day.

Speaker #4: Thank you, Antonio.

Speaker #1: Our next question comes from Mr. Emiliano Hernández from GBM. Please, Mr. Hernández, you may now proceed.

Antonio Hernandez: Perfect. Thanks a lot. Appreciate it. Have a nice day.

Antonio Hernández: Perfect. Thanks a lot. Appreciate it. Have a nice day.

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

Operator 2: Our next question comes from Mr. Emiliano Hernandez from GBM. Please, mister, you may now proceed.

Operator: Our next question comes from Mr. Emiliano Hernandez from GBM. Please, mister, you may now proceed.

Speaker #4: Hola, Emiliano.

Speaker #7: Hola, José Antonio, Martín, Juan. Congrats on the results and thanks for the space for questions. Just a quick one on Proximity Europe results. They were resilient, but maybe looking ahead?

José Antonio Fernández Garza-Lagüera: Hola, Emiliano.

Emiliano Hernandez: Hola, José Antonio, Martín, Juan. Congrats on the results, and thanks for the space for questions. Just a quick one on Proximity Europe results have been resilient, but maybe looking ahead, where do you see the biggest opportunities to accelerate growth over the medium term? Is it starting maybe in store expansion, maybe continue to redefine the value proposition or something else? More broadly, how should investors think about this medium-term strategy and how do you think about this business as a growth driver in five years? Thank you very much.

Speaker #7: Where do you see the biggest opportunities to accelerate growth over the medium term? Is it maybe in store expansion, continuing to redefine the value proposition, or something else?

Speaker #7: More broadly, how should investors think about these medium-term strategies, and how do you think about these businesses as a growth driver in five years?

Speaker #7: Thank you very much.

Speaker #4: We are very excited about what we have been able to do in Europe so far in terms of increasing promotional income and net profits dramatically, especially in our retail operation in Switzerland.

José Antonio Fernández Garza-Lagüera: We are very excited from what we have been able to do in Europe so far in terms of increasing promotional income and net profits dramatically, especially in our retail operation in Switzerland. In Germany, in the retail side, we continue to gain significance and dominance. We've been growing especially through fuel operator agreements. We just signed another agreement with a fuel operator in Austria to operate 200 stores, and we like that asset-light model for expansion in Europe. We're seeing opportunities to expand with other fuel operators that are recognized as not very good at the store and need a partner like us that are not big in fuel but can become very good operators.

Speaker #4: In Germany, on the retail side, we continue to gain significance and dominance. We've been growing especially through fuel operator agreements. We just signed another agreement with a fuel operator in Austria to operate 200 stores.

Speaker #4: And we like that asset-light model for expansion in Europe. We're seeing opportunities to expand with other fuel operators that are recognized as not very good at the store, and need a partner like us that are not big in fuel, but can become very good operators.

Speaker #4: Overall, we are obviously monitoring carefully all opportunities across Europe, but our main focus right now is our obsession to continue to expand our Mexico and South America operation, where again, we see ourselves as small and underdogs compared to much larger retail players in the region.

José Antonio Fernández Garza-Lagüera: Overall, we are obviously monitoring carefully all opportunities across Europe, our main focus right now is our obsession to continue to expand our Mexico and South America operations, where, again, we see ourselves as small and underdogs compared to much larger retail players in the region. That's our main expansion. Pursue opportunistically throughout Europe and even North America, we're not close to anything right now.

Speaker #4: So that's our main expansion, but also, opportunistically, throughout Europe and even North America. But we're not close to anything right now.

Speaker #7: Thank you, José Antonio. I appreciate your time.

Speaker #1: Our next question comes from Mr. Freuland Mendes Solter of J.P. Morgan. Please, Mr. Mendes Solter, you may now proceed.

Emiliano Hernandez: Gracias, Antonio. Appreciate the time.

José Antonio Fernández Garza-Lagüera: Yeah.

Operator 2: Our next question comes from Mr. Froylan Mendez Solther by J.P. Morgan. Please, mister, you may now proceed.

Operator: Our next question comes from Mr. Froylan Mendez Solther by J.P. Morgan. Please, mister, you may now proceed.

Speaker #5: Hola, José. ¿Qué tal? I want to ask if you could help us frame the degree of normalization that we should expect in the second half in OXXO Mexico, both in terms of same-store sales and gross margin, given all the discussion that we have had.

José Antonio Fernández Garza-Lagüera: Hola, Froylan.

Fernando Froylan Mendez Solther: Que tal? I want to ask if you could help us frame the degree of normalization that we should expect in H2 in OXXO Mexico, both in terms of same-store sales and gross margin given all the discussion that we have had. Can you help us understand H2, what should be something expected in terms of same-store sales normalization, gross margin normalization, just to understand the seasonality versus the action, especially under the weak consumer environment? Thank you.

Speaker #5: But can you help us understand the second half? What should be expected in terms of same-store sales normalization and gross margin normalization, just to understand the seasonality versus the actual, especially under the weak consumer environment?

Speaker #5: Thank you.

Speaker #4: Freuland, I will let Juan and Martín help me with guidance towards the second half. I am cautiously optimistic, for we still see a soft consumer and, obviously, the World Cup is over.

José Antonio Fernández Garza-Lagüera: Froylan, I will let Juan and Martín help me with guidance towards the H2. I am cautiously optimistic, we still see a softer consumer, and obviously the World Cup is over. I think the most I can say is what I already said in my comments. We're working hard to make sure the hangover is not so hard, and we continue to gain share. I will let Martín and Juan complement me.

Speaker #4: So, I think the most I can say is what I already said in my comments. We're working hard to make sure the hangover is not so hard, and we continue to gain share.

Speaker #4: But I will let Martín and Juan complement me.

Speaker #7: Juan, look, I think forecasting the next six months is, in many ways, like forecasting the next five years, right? I mean, lots of things could happen.

Juan Fonseca: This is Juan. Look, I think we can go forecasting the next 6 months is in many ways like forecasting the next 5 years, right? Lots of things could happen. Historically, as you know, we've defaulted to I hate to call it algorithm because it's too basic to be an algorithm, but generally our same-store sales will tend to grow inflation plus one, right? If you look at a long enough time series. Right now, we can make the case that the consumer in Mexico a little bit softer than normal, so that would be an argument against inflation plus one. On the other side, and José mentioned this a few minutes ago, we're actually looking at pretty good numbers in the last few weeks, right? Even post-World Cup

Speaker #7: But historically, as you know, we've defaulted to—I hate to call it an algorithm, because it's too basic to be an algorithm—but generally, our same-store sales tend to grow at inflation plus one.

Speaker #7: Right? I mean, if you look at a kind of long enough time series, right now we can make the case that the consumer in Mexico is a little bit softer than normal.

Speaker #7: So that would be an argument against the inflation plus one. But on the other side, and José mentioned this a few minutes ago, we're actually looking at pretty good numbers in the last few weeks, right?

Speaker #7: So, even post-World Cup, the second half of July is looking a little bit better than we thought. So, I guess we have a few arguments for, a few arguments against.

Juan Fonseca: The second half of July is looking a little bit better than we thought. I guess we have a few arguments for, a few arguments against, but at the end of the day, the mid-single digit is where we tend to land on a normalized series. If inflation is going to be close to four, then same-store sales should be close to five. I know that's kind of a soft answer, but there's enough uncertainty that I don't think we can be more granular than that.

Speaker #7: But at the end of the day, the mid-single digit is where we tend to land on a normalized series. So if inflation is going to be close to 4%, then same-store sales should be close to 5%.

Speaker #7: I know that's kind of a soft answer, but there's enough uncertainty that I don't think we can be more granular than that.

Speaker #5: And gross margin, Juan, any thoughts? I also believe that part of the, let's say, the incremental gross margin that you had came from retail media.

Fernando Froylan Mendez Solther: Gross margin, Juan, any thoughts? I also believe that part of the, let's say the incremental gross margin that you had came from retail media, you were able to give some back to the consumer, et cetera, but H2 in that specific metric or.

Speaker #5: You were able to give some back to the consumer, etc. But second half, in that specific metric, what are the...?

Speaker #7: Yeah, I think it's important to remember that the commercial income is still there, right? I mean, for the big CPGs, the relevance of OXXO for them keeps getting bigger every day because we have more stores.

Juan Fonseca: I think it's important to remember that the commercial income is still there, right? The big CPGs, the relevance of OXXO for them, every day keeps getting bigger because we have more stores. In many ways it's within our control, right? José and Martín spoke in their remarks about this balance that we're going to obviously reduce the gross margin as little as possible, ensuring that the EBIT margin continues to grow gradually. It's going to be a little bit of hit and miss. I think if you look at the Q2, if you can take out the one-offs, the World Cup stuff, I think that's what it should look like, right? That gross margin contraction could be smaller than what we saw this quarter.

Speaker #7: And so, in many ways, it's within our control, right? And so José and Martín spoke in their remarks about this balance that we're going to go for.

Speaker #7: Obviously, reduce the gross margin as little as possible, ensuring that the EBIT margin continues to grow gradually. And it's going to be a little bit of hit-and-miss.

Speaker #7: But I think if you look at the second quarter, if you can take out the one-offs, kind of the World Cup stuff, I think that's what it should look like. Contraction could be smaller than what we saw this quarter.

Speaker #7: I suppose there will be quarters where it could be a little bit higher, but at the end of the day, the levers are there, and they're for us to manage.

Juan Fonseca: I suppose there will be quarters where it could be a little bit higher, but at the end of the day, the levers are there, and they're for us to manage, which is really good to have so many of the variables within our control.

Speaker #7: Which is, it's really good to have so many of the variables within our control.

Speaker #5: Perfecto. Thank you very much.

Speaker #7: Thank you, Frank.

Speaker #1: Our next question comes from Mr. Álvaro García from BTG Pactual. Please, Mr. García.

Fernando Froylan Mendez Solther: Perfecto. Thank you very much.

Juan Fonseca: Thank you, Fred.

Speaker #4: Hola, Álvaro.

Operator 2: Our next question comes from Mr. Alvaro Garcia from BTG Pactual. Please, Mr. Alvaro, proceed.

Operator: Our next question comes from Mr. Alvaro Garcia from BTG Pactual. Please, Mr. Alvaro, proceed.

Speaker #8: Hey, gentlemen. Thanks for the space for questions. Hey, José, how are you? I was wondering, I have a strategic question on labor in OXXO Mexico in the context of sort of solving for operating income growth, which you mentioned earlier, and given all the emphasis on recovering traffic and food venues and coffee, it would seem that you need better staffing.

Alvaro Garcia: Hey, gentlemen. Thanks for the space for questions. Hey, Jose, how are you? I was wondering, I have a strategic question on labor in OXXO Mexico in the context of sort of solving for operating income growth, which you mentioned earlier, and given all the emphasis on recovering traffic and foodvenience and coffee, it would seem that you need better staffing or higher average staffing over the medium term. I was wondering if you could maybe comment on how you're thinking about that third shift and how you're thinking about people in the context of having more people at OXXO.

Speaker #8: Or higher average staffing over the medium term. So, I was wondering if you could maybe comment on how you're thinking about that third shift, and how you're thinking about people in the context of having more people at OXXO.

Speaker #7: It's a very relevant

Speaker #4: Question, Álvaro, because it's obvious that as we continue to look at our value proposition, it's clear that our value proposition is very uneven at certain times of the day.

José Antonio Fernández Garza-Lagüera: It's a very relevant question, Alvaro, because it's obvious that as we continue to look at our value proposition, it's clear that our value proposition is very uneven at certain times of the day. Obviously, the third shift as it lost a little bit of relevance, it became like a self-fulfilling cycle that since it was becoming less relevant after COVID, we closed a lot of third shift options, or we closed the door or to be honest, the OXXO system and the consumer expects an OXXO that's open 24 hours in most places, not always, but most places, the store should be open 24 hours with two people serving the store, one for cleaning and taking inventory and receiving suppliers, and one for servicing the customers, at least. We let that slip in many regions.

Speaker #4: Obviously, the third shift as it lost a little bit of relevance, it became like a self-fulfilling cycle that since it was becoming less relevant after COVID, so we closed a lot of third shift options or we closed the door or and to be honest, the OXXO system and the consumer expects an OXXO that's open 24 hours in most places, not always, but most places, the stores should be open 24 hours with two people serving the store, one for the cleaning and taking inventory and receiving suppliers, and one for servicing the customers, at least, at least.

Speaker #4: And we let that slip in many regions. We were squeezing as much or trying to reduce our operating headcount in many places, and I think we overdid it.

José Antonio Fernández Garza-Lagüera: We were squeezing as much or trying to reduce our operating head in many places, and I think we overdid it, and we are going back to many regions and looking store by store, and many of them really deserve a very well-staffed third shift. That will increase at the beginning our SG&A, but it will also increase our traffic. What we're seeing, interestingly, in the places we did a big third shift reopening in the northeast of Mexico, what we saw is that the first shift started seeing frequent sales because obviously the store is very savvy at using the third shift for getting the store very ready for the first shift. We are going to continue to do that. The store deserves at least two people for most of the third shifts. That will increase SG&A, but overall, over time, the value proposition should stand.

Speaker #4: And we are going back to many, many regions and looking store by store, and many of them really deserve a very well-staffed third shift.

Speaker #4: That will increase, at the beginning, our SG&A, but it will also increase our traffic. What we're seeing, interestingly, in the places where we did a big third shift reopening in the northeast of Mexico—and what we saw is that the first shift starts getting frequent sales, because obviously, the store is very savvy at using the third shift for getting the store very ready for the first shift.

Speaker #4: And so, we are going to continue to do that. The store deserves at least two people for most of the third shift. That will increase SG&A, but overall, over time, the value propositions should stand.

Speaker #4: Obviously, as the cost of labor continues to increase, and with that labor reduction, things could change here and there. But our commitment should be to invest ahead of time in processes that allow us to retain that level of service and that level of commitment without significant—or at least trying to mitigate—labor cost increases as much as possible.

José Antonio Fernández Garza-Lagüera: Obviously, as costs of labor continues to increase and labor reduction, these things could change here and there, but our commitment should be to invest ahead of time in processes that allow us to retain that level of service, and that level of commitment without significant increase or at least trying to mitigate the labor increase costs, as much as possible. The rest of it, obviously try to negotiate with our suppliers to compensate with gross margin. I think it's a whole balance of things that we will continue to do so. The labor thing pressure will continue to rise with labor intensity, with the regulations. We feel confident that we have the right price mix and the right level of service to tackle that. As we continue to gain share, we feel confident that we will be able to cover most of it.

Speaker #4: And the rest of it, obviously, try to negotiate with our suppliers to compensate with gross margin. So, I think it's a whole balance of things that we will continue to do.

Speaker #4: So the labor pressure will continue to rise with labor and the regulations. But we feel confident that we have the right price mix and the right level of service to tackle that.

Speaker #4: As we continue to gain share, we feel confident that we will be able to cover most of it. I don't know if I answered you, Álvaro.

Speaker #8: Yeah, that was great. And I hate to do this, but I want to follow up with just a clarification, which is: you mentioned in your prepared remarks the 60% uplift at OXXO Mexico that was tied to the World Cup.

José Antonio Fernández Garza-Lagüera: I don't know if I answered you, Alvaro.

Alvaro Garcia: Yeah, that was great. I hate to do this, I want to follow up with just a clarification, which is, you mentioned in your prepared remarks the 60% uplift at OXXO Mexico that was tied to the World Cup. I was just wondering if you can clarify if that's on a traffic basis or on a full-fledged same-store sales basis, that would be helpful.

Speaker #8: I was just wondering if you can clarify if that's on a traffic basis, or on a full-fledged same-store sales basis. That would be helpful.

Speaker #4: I mentioned it on a traffic basis. To be honest, it's hard to measure it very carefully. If we had not done anything, if Carlos and all the management would have gone and not move any levers and we continue on the back slide, we probably would have lost another point of traffic.

José Antonio Fernández Garza-Lagüera: I mentioned it on a traffic basis. To be honest, it's hard to measure it very carefully. If we had not done anything, if Carlos and all the management would have gone and not move any levers, and we continue on the back slide, we probably would have lost another point of traffic. Without the World Cup happening, just because of seasonality, a little bit of bad weather in certain parts of Mexico, some insecurity. If you put all of that, the continuous slide or decreasing traffic in top OXXOs, by not doing anything, I think we probably would have lost 1%. We made that and another two points, mostly because the World Cup helped, mostly because the Panini, which comes from the World Cup, also helped a lot. Also because we increased market share in many categories.

Speaker #4: And without the World Cup happening, just because of the seasonality, a little bit of bad weather in certain parts of Mexico, and some insecurity.

Speaker #4: If you put all of that—the continuous slide or decreasing traffic, decreasing traffic in top-ups—by not doing anything, I think we probably would have lost 1%.

Speaker #4: We made that and another two points mostly because the World Cup helped, mostly because the Panini, which comes from the World Cup, also helped a lot.

Speaker #4: But also because we increased market share in many categories, and as you can see, we gained share across most retailers, across Nielsen, and across every way you measure it—we gained a lot of share.

José Antonio Fernández Garza-Lagüera: As you can see, we gained share across most retailers, across Nielsen, across every way you measure it, we gained a lot of share. I think we liked what we were able to deliver, although I hope to start to see more traffic gains after the World Cup, which I hope that we can sustain.

Speaker #4: So, I think we liked what we were able to deliver, although I hope to start to see more traffic gain after the World Cup, which I hope we can sustain.

Speaker #8: Awesome. Thank you very much. Really appreciate it.

Speaker #1: Yeah, I mean, a data point. And also encouraging is, as we seek to track market share relative to different channels, we continue to see that doing well for us.

Alvaro Garcia: Awesome. Thank you very much. Really appreciate it.

Martín Arias Yániz: A data point, also encouraging is we seek to track market share relative to different channels. We continue to see that doing well for us, particularly relative to the bigger formats. Curiously, traditional trade is also doing well and recovering relative to previous measurements that we had. That does give us confidence that the World Cup helped everybody, and it seemed to help us equal to or slightly better than other channels. That gives us some confidence that this is not just World Cup related.

Speaker #1: Particularly relative to the bigger formats. Curiously, traditional trade is also doing well and recovering, relative to previous measurements that we've had. So that does give us confidence that the World Cup helped everybody.

Speaker #1: And it seemed to help us equally or slightly better than other channels. So that gives us some confidence that this is not just World Cup related.

Speaker #8: It's very clear. Thank you.

Speaker #2: Our last question comes from Mr. Carlos Lavoie from HSBC. Please, Mr. Lavoie, you may now proceed.

Alvaro Garcia: Very clear. Thank you.

Operator 2: Our last question comes from Mr. Carlos Laboy from HSBC. Please, Mr., you may now proceed.

Operator: Our last question comes from Mr. Carlos Laboy from HSBC. Please, Mr., you may now proceed.

Speaker #7: Hola, Carlos.

Speaker #5: Hola, José. Thank you for this time. José, I don't think there's a bottler in the last 34 years that's positively impacted the next frontier capabilities and the economic model of the Coke system more than Coca-Cola FEMSA.

José Antonio Fernández Garza-Lagüera: Hola, Carlos.

Carlos Laboy: Hola, José. Thank you for this time. José, I don't think there's a bottler in the last 34 years that's positively impacted the next frontier capabilities and the economic model of the Coke system more than Coca-Cola FEMSA. As you've settled into your job here, I'd like to understand a little better, what's your vision and ambition for the bottler as you think out over long term?

Speaker #5: And as you've settled into your job here, I'd like to understand a little better: What's your vision and ambition for the bottler as you think about the long term?

Speaker #4: Thank you, Carlos. I am obviously biased, but I agree with you on the huge impact of Coca-Cola FEMSA in the Coke system—another Latin American bottler.

José Antonio Fernández Garza-Lagüera: Thank you, Carlos. I am obviously biased, but I agree with you on the huge impact of Coca-Cola FEMSA in the Coke system and other Latin American bottlers. Obviously, I've been following Coca-Cola FEMSA since 1993 very closely, I've never seen a more interesting future for Coca-Cola FEMSA in both the organic and the inorganic front. If you see organically, as you well know, Carlos, we have a huge opportunity for Venezuela again, that keeps me incredibly excited. The level of commitment for Coca-Cola FEMSA to invest behind Venezuela is incredible. What we're doing in Colombia is, I've never seen numbers like that in decades. Maybe Guatemala for a while, but we're entering a cycle of very market share gains, but also profitability, plus scale, plus investing. The level of alignment with the Coca-Cola system has never been there before.

Speaker #4: Obviously, I’ve been following Coca-Cola FEMSA since 1993 very closely, and I’ve never seen a more interesting future for Coca-Cola FEMSA on both the organic and inorganic front.

Speaker #4: If you see organically, as you well know, Carlos, we have a huge opportunity for Venezuela again. And that keeps me incredibly excited. The level of commitment for Coca-Cola FEMSA to invest behind Venezuela is incredible.

Speaker #4: What we're doing in Colombia is – I've never seen numbers like that in decades, maybe Guatemala for a while. But we are entering a cycle of very significant market share gains, plus profitability, plus scale, plus investing. The level of alignment with the Coca-Cola system has never been there before.

Speaker #4: And the digital tools that we have in Coca-Cola FEMSA, I wish I could take some of that to Oxfam, and I'm learning just by seeing how the supervisor in Coca-Cola FEMSA has become almost a microeconomic expert with the digital tools that are at their disposal.

José Antonio Fernández Garza-Lagüera: The digital tools that we have in Coca-Cola FEMSA, I wish I could take some of that to OXXO. I'm learning just by seeing how the supervisor in Coca-Cola FEMSA has become almost a microeconomic expert with the digital tools that it has at its disposal. Coca-Cola FEMSA is set for a very brilliant future in organic growth, it's now becoming very clear that the Coca-Cola system, from what I sense, feels comfortable with big bottlers much more than ever before. The management in the Coca-Cola system is a Coca-Cola system that rewards and wants to see big bottles. This is my supposition, but I think there's been public comments from Coke executives around that.

Speaker #4: So, Coca-Cola FEMSA is set for a very brilliant future in organic growth. And it's now becoming very clear that the Coca-Cola FEMSA—the Coca-Cola system, from what I sense, feels comfortable with big bottlers.

Speaker #4: Much more than ever before. The management in the Coca-Cola system is a Coca-Cola system that rewards and wants to see big bottlers. This is my supposition, but I think there's been public comments from Coke executives around that.

Speaker #4: And so, I think there is an upcoming future where I would love to see Coca-Cola FEMSA be a big part of the consolidation that I think could take place in Latin America.

José Antonio Fernández Garza-Lagüera: I think there is an upcoming future where I would love to see Coca-Cola FEMSA be a big part of the consolidation that I think could take place in Latin America, we will do anything that requires us to be part of that success. Carlos, I know you would love to hear me say something much more sensible, but that's all I can say for now, Carlos. We're very excited for Coca-Cola FEMSA and very excited for its future.

Speaker #4: And we will do anything that requires us to be part of that success. Carlos, I know you would love to hear me say something much more sensible, but that's all I can say for now, Carlos.

Speaker #4: But I'm very excited for Coca-Cola FEMSA. I'm very excited for its future.

Speaker #5: That's very helpful. Thank you, José.

Speaker #4: And let me just clarify, because I was corrected by Juan Fonseca. OXXO in Brazil grew same-store sales in the double digits last quarter.

Carlos Laboy: That's very helpful. Thank you, Jose.

José Antonio Fernández Garza-Lagüera: Let me just clarify, because I was corrected by Juan Fonseca. OXXO Brazil grew same store sales in the double digits the last quarter. It was growing in the high teens, now it's growing in the low teens, but OXXO Brazil is still growing. Sorry for that mistake earlier.

Speaker #4: It was growing in the high teens, and now it's growing in the low teens, but also, Brazil is still growing. Sorry for that mistake earlier.

Speaker #7: No, no worries, José. And really, I mean, we have spoken in the past about how the whole period of unwinding the JV, and prior to that, conversations with the partner.

Juan Fonseca: No worries, Jose. Really, we have spoken in the past about how the whole period of unwinding the JV and prior to that, conversations with a partner. Clearly the last year or so was not a typical year, but it is remarkable. We did slow down the opening of new stores because of that. It is remarkable that they've managed to keep the same store sales in the double digits recently. Thank you.

Speaker #7: I mean, clearly, the last year or so was not a typical year, but it is remarkable. We did slow down the opening of new stores because of that, but it is remarkable that they've managed to keep the same-store sales in the double digits recently.

Speaker #7: Thank you.

Speaker #4: Thank you, everyone.

Speaker #2: This concludes the questions and answers section. At this time, I would like to turn the floor back to Mr. Fonseca for any closing remarks.

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

Operator 2: This concludes the questions and answers section. At this time, I would like to turn the floor back to Mr. Fonseca for any closing remarks.

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

Speaker #7: Thanks, everyone, for joining us today. Obviously, the team is always available for follow-ups and any questions that might have gone unanswered today. Other than that, have a great rest of your week.

Juan Fonseca: Thanks everyone for joining us today. Obviously, the team is always available for follow-ups and any question that might have gone unanswered today. Other than that, have a great rest of your week.

Operator 2: 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.

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