Fomento Economico Mexicano SAB de CV Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Full year 2024 results showed double-digit growth in earnings and margin expansion across business units.
• FEMSA Forward divestitures nearly complete, having monetized ~$10.7 billion. Capital return plans include repurchasing debt and returning capital to shareholders.
• Proximity Americas saw store expansion, gross margin improvement, and strong commercial income.
• Proximity Europe had revenue growth in pesos and currency-neutral terms.
• Health division performed well with same-store sales growth.
• Digital ecosystem rebranded as spin, with active user growth and loyalty program momentum.
• Coca-Cola FEMSA delivered strong growth due to disciplined revenue management and CapEx investment.

Segment Performance

• Proximity Americas: Total revenues grew 13.2% (8.1% organic), gross margin expanded by 230 basis points (excluding US ops) to 47.7%, operating income up 18.7%. Added 205 net new stores, with focus on Colombia and Brazil.
• Proximity Europe: Total revenues up 21.5% in pesos (5.3% currency-neutral) driven by retail revenue growth.
• Health division: Total revenues grew 13.3% in pesos, same-store sales up 9.4%, operating income up 109.7%.
• OXXO Gas: Same-station sales up 9.7%, total revenues up 8%.
• Digital: Spin by OXXO platform had 8.6M active users, SPIN Premia loyalty program 24.6M active users.
• Coca-Cola FEMSA: Double-digit income statement growth, driven by revenue management and CapEx investment.

Guidance

• Plan for 2025: Deploy almost MXN 66 billion (approx $3.2 billion) including ordinary dividends, extraordinary dividends, and share buybacks.
• Plan for 2026: Deploy almost MXN 41.4 billion (approx $2 billion) including ordinary dividends and minimum additional capital return.
• Accelerating capital returns to reach target leverage of 2 times net debt-to-EBITDA ex cost by end-2026.

Risks

• Macro uncertainty and softer consumer environment in Mexico.
• Traffic decline in OXXO stores, partially due to cannibalization and weather.
• Labor cost pressures impacting margins, with ongoing minimum wage increases.

Question and Answer

• Q: Regarding buybacks and OXXO store expansion, A: Mix of Mexican Bolsa purchases and ASRs for buybacks; OXXO store expansion monitored for value creation, with new formats like OXXO Smart and Meters.
• Q: Cannibalization and operating leverage in Mexico, A: Traffic has multiple components; labor cost pressures a key factor in margin differences.
• Q: US growth strategy and Brazil operations, A: US growth mostly organic with experiments; Brazil stores doing well, focus on Sao Paulo state, and ongoing discussions with partners.
• Q: Gross margin trends and Brazil business, A: Gross margin expansion driven by commercial income and financial services; Brazil stores performing well with operational improvements.
• Q: Bara format and dynamics, A: Bara format has strong growth potential, focusing on private labels and expanding regions.
• Q: Traffic dynamics in early 2025 and Delek operations, A: Traffic softness temporary; Delek operations finding opportunities for improvement, with focus on creating operational platforms.
• Q: M&A and Europe same-store sales, A: Focus on core businesses, patient with M&A; Europe same-store sales dynamics due to diverse product portfolios.