Fomento Económico Mexicano, S.A.B. de C.V. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Spin Progress: Launched digital wallet and rewards program, acquired NetPay and Conekta, achieved milestones like over 14.5M Spin by OXXO accounts and 58M Spin Premia accounts. Focus on omnichannel ecosystem, data-driven personalization, and potential financial services. Cash burn improving with scale.
• Proximity Americas: Mixed same-store sales, driven by Latam performance and OXXO USA consolidation. Added 334 net new stores, working on DK store conversions to OXXO.
• Bara: Accelerated store expansion, optimizing discount value prop and private label strategy.
• Valora: Solid results in Switzerland, converting stores to avec banner, improving operating margin.
• Health Division: Revenues up but operating income affected by restructuring; new management team taking actions to improve profitability.
• Capital Allocation: Committed to $900 million in buybacks from March 2025 to March 2026, with ASR program concluded, and focus on operational discipline and strategic investments.

Segment Performance

• Proximity Americas: Mixed results; same-store sales declined 0.4% in Mexico but grew in Latam. Total revenues grew 6.9%, gross margin 44.1%, added 334 net new stores. Bara: Opened 23 new stores, on track for 30%-40% growth in 2025, same-store sales up 8.9%. Valora: Revenues up 31.4% in pesos, gross profits up 25.6%, operating income up 54.4%. Health division: Revenues up 15.6%, same-store sales up 13.1%, but operating income affected by restructuring. Spin: Over 14.5M Spin by OXXO accounts, 58M Spin Premia accounts, acquired NetPay and Conekta, cash burn improving with scale.

Guidance

• Maintained expectations for stable full-year operating margins at Proximity Americas.
• Cautiously optimistic about second half of 2025 amid soft macroeconomic environment.
• Committed to $900 million in share buybacks from March 2025 to March 2026, with ongoing focus on capital allocation and operational efficiency.

Risks

• Weather Impact: Significant impact on traffic and same-store sales in Mexico, attributed to 39% of traffic decline.
• FX Fluctuations: Affected net income due to foreign exchange losses on U.S. dollar-denominated cash position.
• Tax Issues: Non-deductible labor expenses and Spin losses impacting effective tax rate.
• Spin Risks: Early stage of monetization in financial services, cautious rollout to manage risk-reward profile.

Question and Answer

• Q: About Spin's role in boosting Proximity Americas traffic A: Mentioned using Premia data for retail media, early monetization in financial services, and expanding Spin products beyond OXXO to drive traffic and engagement.
• Q: About FEMSA Digital fitting with OXXO A: Discussed independent culture at Spin, collaboration with OXXO teams, and focus on growth over immediate profitability while leveraging OXXO's physical footprint.
• Q: About OXXO Mexico same-store sales A: Highlighted category mix issues, weather impact, and initiatives like adjusting SKU presentations and promotional activities to improve traffic.
• Q: About capital allocation and buybacks A: Stated commitment to $900 million in buybacks, with ASR program concluded, and focus on market conditions for future buyback activities