Betterware de Mexico SAPI de CV Q1 FY2025 earnings call

• Reflected on market volatility affecting short-term results, with Mexico, US, and China challenges impacting revenue and margins. - Highlighted company strengths: low fixed expenses, resilient commercial model, diversified brands (Betterware and Jafra), and agile internal culture. - Outlined strategies for Betterware Mexico: strategic pricing, increased promotional activity, enhanced Salesforce engagement, innovation, and monitoring of sourcing options. - Outlined strategies for Jafra Mexico: rebalancing product mix, brand renovation and innovation, advancing ease of doing business, and leveraging the Jafra Queretaro plant.

Consolidated net revenues decreased 2.9% year over year due to the challenging macroeconomic environment. Consolidated gross margin declined by 303 basis points, primarily driven by the impact of the Mexican peso depreciation and lower sales volumes. Consolidated EBITDA decreased 29.1%, reflecting weaker sales volumes and compressed gross margin. Betterware Mexico revenue dropped 9.8% year over year, with its EBITDA falling 31.6% mainly due to lower sales volumes and margin compression. Jafra Mexico's growth slowed from double digits to single digits, and its EBITDA decreased 25.2% due to margin pressure and promotional expenditure. The business remains strongly profitable with an EBITDA margin of 15.3% this quarter. Free cash flow was negative in the quarter due to increased inventory from Jafra's brand renewal strategies and higher taxes, but is expected to improve going forward.

• Maintained full-year guidance for 2025 with net revenue and EBITDA growth expected in the range of 6 to 9%. - Will continue to review daily costs, inventories, and cash flow, and closely monitor external economic conditions.

• Market volatility and uncertainty in operating regions. - Softening consumer trends, especially in discretionary categories in Mexico. - Weakened Mexican peso and US-created uncertainty affecting consumption. - Escalating tariffs in China where 80+% of Betterware products are manufactured. - Disruption in US consumption and exchange rate fluctuations.

Q: Could you talk about the inventory and how we should be thinking about the flows on that? I noticed you noted that it was a little bit high for Q1. How should we be thinking about that going forward as a potential driver of free cash flow?

A: Inventory increased in Q1 due to Jafra's branding renovation and innovation preparation, a one-time increase, and we expect inventory to decrease going forward.

Q: On one hand, you have great relationships with your suppliers there. And you've used them before. Given what's going on in the States in terms of orders, are there opportunities there for you to improve overall returns from your China product going forward? Or opportunities in terms of flowing product better going forward?

A: Container prices are coming down, which is an advantage, but we can't confirm better prices from Chinese manufacturers yet due to US order cancellations.

Q: Could you talk about how the quarter progressed and at what point you started to see more marked deceleration? And are you seeing any change in the trend so far in April relative to Q1?

A: Saw softening in consumption as Q1 progressed, hard to pinpoint exact point, believe Mexican economy and consumption may not rebound soon but could stabilize.

Q: In light of Q1 performance, what gives you confidence to hold the guidance? What company-specific initiatives help overcome economic challenges?

A: Strong internal fundamentals, strategy, and big market share growth opportunities in Mexico; believe can deliver growth if macroeconomy stabilizes.

Q: You mentioned halting expansion into the US. What does that mean?

A: Halted expansion into Betterware US, will stop investing in growth, keep website running to service existing customers, may revisit if environment stabilizes