FEMSA signals at least a decade of store growth for OXXO Mexico amid strategic focus on value and efficiency

Earnings Call Insights: Fomento Económico Mexicano, S.A.B. de C.V. (FMX) Q3 2025

MANAGEMENT VIEW

* Executive Chairman and CEO Jose Antonio Fernandez Carbajal emphasized the completion of the FEMSA Forward strategy, stating, "everything we set out to do when we announced FEMSA Forward, we have delivered on. We told you what we were going to do, and then we did it." He highlighted $11 billion of asset divestitures and reiterated commitment to distribute approximately $7.8 billion of capital between March 2024 and March 2027 through dividends and share buybacks.
* Fernandez Carbajal described OXXO Mexico as having "at least a decade of continued store growth at the current pace, world-class returns on capital, and a full range of levers to adjust as we ensure our value proposition continues to satisfy a growing number of needs for an always evolving consumer." He noted leadership transition to Carlos Arroyo and identified Brazil, Colombia, and Bara as significant long-term growth opportunities.
* The CEO pointed to ongoing multiyear investment at Coca-Cola FEMSA and acknowledged upcoming tax increases in Mexico as a challenge, stating, "we believe this will be the -- like the one we have faced in the past. And we will make the necessary adjustments."
* Jose Antonio Garza-Laguera, CEO of Proximity & Health Division and incoming FEMSA CEO, reported "same-store sales for Proximity Americas increased 1.7%, with average ticket rising 4.9%, and average traffic contracting 3.1%." He stressed improved competitive position in key categories like beer, soft drinks, and snacks, attributing the inflection to internal adjustments rather than macro changes. Garza-Laguera outlined initiatives centered on affordability, product assortment, and aggressive promotions, supported by a "fit-for-purpose corporate overhead efficiency program, which will make our organization leaner and achieved significant cost savings over the next several quarters."
* CFO Martin Arias Yaniz reported, "we delivered total revenue growth of 9.1% despite a still challenging but improving environment in Mexico... Operating income increased by 4.3% year-over-year." He noted net consolidated income decreased by 36.8% to MXN 5.8 billion due to a noncash FX loss and higher interest expense, and addressed volatility in the effective tax rate, which was 29.3% for the quarter.

OUTLOOK

* Management stated, "we are cautiously optimistic. As we mentioned before, we are beginning to see signs of improvement in the October data in Mexico... we will have the additional tailwind from the FIFA World Cup to be held in our continent." Garza-Laguera reinforced strategic continuity and a focus on capital allocation, expressing confidence in long-term value creation through OXXO Mexico, OXXO Brazil, Colombia, Bara, and digital initiatives like Spin. No explicit EPS or revenue guidance was stated.

FINANCIAL RESULTS

* Arias Yaniz detailed, "same-store sales increased modestly by 1.7%... Total revenues for Proximity Americas grew 9.2%, or 4.8% on an organic and currency-neutral basis," driven by store expansion, LatAm growth, and U.S. operations. Gross margin expanded to 45%. Operating income rose by 7.1%.
* The health division saw total revenues increase 2.9% in pesos, with same-store sales up 0.8%. Operating income in this segment declined 4%. In Europe, Valora revenues rose 10.1%, and operating income increased 29.1%.
* Arias Yaniz noted an ordinary and extraordinary dividend distribution totaling MXN 11.8 million for the quarter, with no share buybacks executed in Q3.

Q&A

* Benjamin Theurer, Barclays: Asked about OXXO Mexico traffic, sequential improvement, and outlook for Q4 and 2026. Fernandez Carbajal responded, "I am glad that I see a reversing of the trends in OXXO Mexico on this quarter... October is still not over, but I am very encouraged by the results."
* Alejandro Fuchs, Itau: Inquired about OXXO Mexico's gross margin drivers and long-term growth for Brazil and Bara. Fernandez Carbajal cited commercial income, mix, and affordability initiatives as drivers, and described Brazil and Bara as "two of the most exciting avenues for long-term growth."
* Antonio Hernandez, Actinver: Sought updates on Health in Mexico and Chile. Fernandez Carbajal reported market share gains and growth in Chile, but described Mexico as underperforming and in need of operational fixes.
* Alvaro Garcia, BTG Pactual: Asked about the fit-for-purpose program and interest expense. Garza-Laguera confirmed current focus on OXXO Mexico, with future broader review. Arias Yaniz attributed higher interest expense mainly to lease accounting and U.S. consolidation.
* Several analysts probed initiatives in food and digital ecosystems. Garza-Laguera emphasized experimentation in coffee and breakfast, and identified Spin as "a digital extension of OXXO's value proposition."

SENTIMENT ANALYSIS

* Analysts' tone was cautiously optimistic, frequently pressing for evidence of sustained traffic recovery, margin expansion, and strategic execution. Questions reflected interest in granular operational drivers and competitive positioning.
* Management maintained a positive and confident tone, citing "encouraging signs" and "very optimistic" outlook for core businesses. Prepared remarks reflected high confidence, while Q&A responses balanced optimism with realism on ongoing challenges, especially in Health Mexico and traffic trends.
* Compared to the previous quarter, current management sentiment was more upbeat regarding traffic and margin improvements, and analysts displayed slightly less skepticism but remained focused on execution risks.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language shifted from "cautiously optimistic for the second half" in Q2 to "cautiously optimistic" with specific mention of improving trends in October and World Cup-related tailwinds in Q3.
* Strategic focus evolved from emphasizing digital and margin initiatives to highlighting affordability, product mix, and efficiency programs as key drivers for recovery.
* Key metrics improved: Q2 reported a same-store sales decline of 0.4% in Proximity Americas and 6.3% total revenue growth, while Q3 showed a 1.7% same-store sales increase and 9.1% total revenue growth.
* Management confidence increased in Q3, signaling inflection in traffic and operational performance, with more granular disclosure on store expansion and cost savings programs.
* Analysts' tone remained constructive but shifted toward verifying sustainability of recent positive trends and probing for evidence in core retail categories.

RISKS AND CONCERNS

* Management acknowledged the challenging macro environment in Mexico and the impact of a recently announced tax increase but expressed confidence in mitigation strategies.
* Traffic in OXXO Mexico, although improving, remains below desired levels, with management "not satisfied" but "very encouraged by the results."
* Health division in Mexico continues to underperform, with closures and ongoing turnaround efforts highlighted as priorities.
* Higher interest expense and volatility in effective tax rate were addressed, with explanations provided for underlying drivers.
* Competitive threats from discount channels and the need for continued investment in affordability and product innovation remain areas of focus.

FINAL TAKEAWAY

Management highlighted the successful execution of the FEMSA Forward strategy, ongoing margin and traffic improvements at OXXO Mexico, and robust growth prospects in Brazil, Colombia, and Bara. The company reinforced its commitment to long-term value creation, cost efficiency, and capital allocation, with a decade of continued store growth forecast for OXXO Mexico. While macro and regulatory headwinds persist, leaders expressed confidence in their ability to adapt, innovate, and leverage digital initiatives to sustain growth across core businesses.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/fmx/earnings/transcripts]

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