Fomento Economico Mexicano Q2 2025 Earnings Report

Fomento Economico Mexicano EPS Results

• Actual EPS: $0.42
• Consensus EPS: $0.91
• Beat/Miss: Missed by -$0.49
• One Year Ago EPS: N/A

Fomento Economico Mexicano Revenue Results

• Actual Revenue: $11.27 billion
• Expected Revenue: $216.71 billion
• Beat/Miss: Missed by -$205.44 billion
• YoY Revenue Growth: N/A

Fomento Economico Mexicano Announcement Details

• Quarter: Q2 2025
• Date: 7/28/2025
• Time: Before Market Opens
• Conference Call Date: Monday, July 28, 2025
• Conference Call Time: 11:00AM ET

Fomento Económico Mexicano, S.A.B. de C.V. (NYSE: FMX) is a Mexican multinational beverage and retail company headquartered in Monterrey, Mexico. Established in the late 19th century with origins in Cuauhtémoc Brewery, Femsa has evolved into a diversified operator in the consumer sector across Latin America and the Philippines. The company is a major bottler for The Coca-Cola Company through its subsidiary Coca-Cola FEMSA, which ranks among the world’s largest Coca-Cola bottlers by sales volume.

In addition to its beverage operations, Femsa owns and operates Oxxo, Mexico’s largest convenience store chain, offering snacks, beverages, financial services and quick commerce solutions. The company has expanded its retail footprint across Latin America, integrating digital payments, last-mile delivery and other innovations to meet evolving consumer demands. This extensive network supports cross-selling opportunities and reinforces Femsa’s position in high-frequency retail.

Femsa also manages a portfolio of health and pharmaceutical services through its Femsa Salud segment, which includes pharmacy chains and healthcare distribution networks in Mexico and selected Latin American markets. The company’s strategic investments include a long-term stake in Heineken N.V., further diversifying its beverage offerings and enhancing its global reach. By leveraging its distribution expertise and retail infrastructure, Femsa creates synergies across its beverage, retail and health businesses to drive operational efficiency and sustainable growth.

Governance at Femsa reflects its combination of family heritage and institutional oversight, with José Antonio Fernández Carbajal serving as chairman emeritus alongside a board focused on long-term value creation. Under the leadership of its executive team, the company emphasizes community engagement, environmental stewardship and digital transformation initiatives to strengthen its competitive position. Femsa’s diversified business model and broad geographic presence underpin its role as a leading consumer goods and retail platform in emerging markets.

Fomento Economico Mexicano Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Spin by OXXO has amassed over 14.5 million accounts (9.4 million active) with an average of 21 monthly transactions per user, while Spin Premia boasts 58 million accounts (26.6 million active), driving nearly 46 percent of OXXO sales through loyalty rewards.
• Positive Sentiment: Spin’s annual cash burn has improved from COP 4 billion to about COP 3 billion, aided by a 48 percent reduction in cost-to-serve through renegotiated dealer terms and direct integrations.
• Neutral Sentiment: FEMSA reported Q2 revenue growth of 6.3 percent and essentially flat operating income (+0.2 percent), but net income fell 64.3 percent due to a COP 4.1 billion FX loss and lower interest income.
• Negative Sentiment: OXXO Mexico saw same-store sales dip 0.4 percent (traffic down 6.6 percent), attributed to weather and category mix pressures; management is rolling out new packaging, promotions and loyalty-driven personalization to reverse the trend.
• Positive Sentiment: FEMSA remains on track to deploy COP 66 billion (~US $3.2 billion) by March 2026 via dividends and buybacks, has executed about 40 percent so far, and holds a conservative net leverage of 0.93 times.

Presentation

[Operator]

Good day, ladies and gentlemen, and welcome to FEMSA's Second Quarter twenty twenty five Results Conference Call. Please note that this event is being recorded. At this time, all participants are in listen only mode. We will be facilitating a question and answer session towards the end of today's prepared remarks. I will now turn the call over to your host for today, Juan Franzeca, Investor Relations. You may begin, sir.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

Thank you. Good morning, everyone. Welcome to FEMSA's second quarter twenty twenty five results conference call. Today, we are joined by Juan Carlos Guillermetti, CEO of Spin, formerly DigitalOfFEMSA Martin Arias, our CFO and Jorge Collazo, who heads Coca Cola FEMSA's Investor Relations team. This is the first time Juan Carlos joins us for a quarterly conference call as part of our ongoing efforts to provide more market access to our leadership team.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

The plan for today is for Juan Carlos to open the conversation with some background on SPIN followed by a strategic discussion on where we are today in our digital endeavor and just as importantly, where he sees SPIN going in the future. After his remarks, Martin will provide some detail on FEMSA's quarterly results. And finally, we will open the call for questions. Juan Carlos, please go ahead. Thank you, Juan. Good morning, everyone.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

It's a pleasure to be here today discussing and sharing with you some of the exciting progress that Spin has been making and what we're trying to build. Thank you for your interest and for joining us this morning. Let me begin by providing some brief context into why and how Spin came to be, not to make a trip down memory lane, but because so much of what Spin does today and will do in the future leverages and enables OXO and Pensive digital physical assets more broadly. As most of you know, OXO began developing a platform for basic cash payments and services many years ago, selling prepaid long distance telephone cards and evolving over time by enabling its customers to solve an ever growing number of needs from utility bill payments to correspondent banking to e commerce payment functionality, broadening the scope of its service offering along with the needs of its customers. More recently, as digital platforms in the market launched and evolved, it became increasingly clear that FEMSA had an opportunity as well as a strategic need to develop its own digital platform, not only to complement its physical cash based functionalities, but to evolve OXXO's broader value proposition and strengthen its role as the most convenient way to meet everyday needs.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

Looking into the future, convenience retail cannot be imagined without a seamless integrated digital experience. Spin is one of the most important aspects of how we ensure that OXXO continues to deliver convenience across both physical and digital ecosystems while accessing new profit pools. Since our foundation in 2021, we have envisioned an omnichannel ecosystem centered on payments and rewards. While we always saw it as an integrated experience, we launched Spin by OXO, our digital wallet and Spin Premiere, our rewards program as independent fast to market products focused on gaining early traction. We then saw the need to complement these assets with platform to expand our reach beyond OXO, which led to the acquisition of Netpay.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

We also acquired a minority equity stake and eventually the assets of Connecta, which has served as the enabler for OXO Pay, the e commerce payment platform where consumers can pay for their e commerce in cash or other means within the safety of the store. Leveraging Oxo's capillarity and reputation as a reliable and trusted service provider and the commitment of our growing team of spinners, we have been able to consolidate a meaningful position in the market. Since inception, we have achieved the following major milestones. Spin Bioxo has created more than 14,500,000 Spin Bioxo accounts of which more than 9,400,000 have been active in the last fifty six days. We operate across the Metairatory with strong penetration in nearly all municipalities.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

Our customer base is young and dynamic with two thirds under the 45 and more than 50% of our users are women. This is specifically relevant as women have historically been underserved by financial institutions. We continue to see strong adoption, repeat usage and most importantly, growing trust from our customers. Every month, 3,500,000 users trust us to move their money through Spin by OXXO, averaging more than 21 monthly transactions per monthly user, out of which 20% are related to OXXO, either cash in, cash out or card purchases, showing it is a very useful payment method. In SpinPremia, we have over 58,000,000 SpinPremia accounts, of which 26,600,000 have had transaction activity in the last ninety days.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

Currently more than 20,000,000 OXXO customers benefit from the Skin Preneur rewards program each month with an average of more than seven monthly accumulation and redemption transactions per active user. As of the second quarter, almost 46% of OXXO sales were already identified through our loyalty and rewards program. Our ecosystem is complemented by our B2B initiative, which includes Netpay and OXXO Pay and which we refer to as Spin It extends our platform beyond doctor stores by offering electronic payment solutions and services to micro, small and medium sized merchants, both in their physical establishments and in e commerce. Today, with SPIN Negotios, we reach almost 20,000 merchants and process almost COP 12,000,000,000 on a monthly basis. SPIN is defining how consumers and businesses connect by creating faster, simpler and more convenient ways to to meet everyday needs.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

This gives us a meaningful opportunity to reach the six out of 10 Mexicans who remain underserved by traditional financial institutions. We aim to do so not only by expanding access, but by reimagining convenience through a digital lens. Our team is excited and committed to simplify life by removing barriers and creating opportunities for all. As we look ahead, SPIN is here to bring Penta's physical relevance into the digital space and we're excited by the opportunity to leverage and enhance OXXO's unique value proposition to an increasingly digitized customer base. What differentiates SPIN is our unique ability to be where people truly are physically and digitally by combining accessible technology with trusted everyday touch points like Voxel.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

We have learned that our customers are looking for solutions that are neither purely digital nor purely in store. By offering digital solutions or in store digitally enabled solutions, we can maximize the value proposition delivered to our users. Cell phone top ups are a great example. The user journey can be digital only, but sometimes when customers run out of data and can no longer perform the top up transaction from their phone, making an in store cash top up can perfectly fit into the ecosystem closely. Similarly, digitalized customers can transfer money to recipients who only accept cash.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

These interactions allow someone to make a peer to peer payment to a service provider via QR code, which can then be cashed out in the store. Likewise, customers can pay for their online purchases through Oksupay and complete the physical payment again in the store. The data generated through the ecosystem will allow us to better understand each customer's context, deliver more personalized services and products and unlock two major opportunities for PEMSA. First, evolve convenience by enhancing OXO's value proposition through data and personalization, making everyday interactions more relevant and seamless. In the long term, this foundation will enable additional use cases such as retail media and expanded catalog, last mile delivery and other e commerce features like click and collect.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

And second, the opportunity to build financial services on top of payments and rewards offering both savings and credit products tailored to our target segments. Related to this topic, we remain active towards upgrading our license and establishing a partnership to significantly improve our risk reward profile. We can assure you that we will be cautious in testing and potentially rolling out these financial services and we'll keep you updated as developments unfold. We promise no surprises. Touching briefly on the current economics of the business, Spin's cash burn has been gradually improving as we continue to gain scale and cement best in class customer acquisition costs and cost to serve.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

From approximately COP 4,000,000,000 a couple of years ago to a range today that is closer to COP 3,000,000,000 per year for the core spin businesses. As an example of what we have done to reduce cash burn, we have implemented several initiatives such as renegotiating commercial terms with dealers and connecting directly to Spay, which together have allowed us to reduce our cost to serve by 48% compared to last year. These actions are part of our broader effort to strengthen Spin's financial sustainability. Additionally, it's important to note that we follow a conservative approach for cash burn accounting, a clear example of our Premier related expenses. While these costs are primarily reflected in Spin P and L, the vast majority of its current benefits of increased sales are captured at the OXXO business.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

Similarly, a significant portion of the benefits that Spin Bioxo generates to FEMSA are not fully reflected in the Spin Cash burn. For example, Spin Bioxo is the second largest driver of OXO's cash in activity with more than 25% of total transactions. Wrapping up, we would like to leave you with the message that we're uniquely positioned to help Mexico evolve towards financial inclusion. We want Spin to earn the same level of relevance, trust and customer love in the digital world that OXXO has earned in the physical one with the intention not of replacing but complementing the store to create an omni channel digital approach. And beyond offering a trusted platform for day to day needs, we are committed to driving financial education.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

It means opening new opportunities and supporting our customers through financial education. We have been focused on bringing world class capabilities and talent to spin and our leadership and way of work has evolved to one of the consumer tech organization facing fast paced change and challenges. We're building something ambitious, something that matters, not only for us, but for the next one hundred years at FEMSA. And we believe we have everything it takes to get it done. And with that, let me turn it over to Martin to discuss FEMSA's second quarter results. Martin, please go ahead.

[Martín Yániz, CFO at Fomento Económico Mexicano]

Thank you, Juan Carlos. Good morning, everyone. Let me begin by discussing our consolidated results for the second quarter of twenty twenty five. During the quarter, we delivered total revenue growth of 6.3% despite a challenging environment in Mexico impacting both proximity and Coca Cola FEMSA, which was offset by solid top line trends outside Mexico, currency tailwinds and the consolidation of the OXXO USA operation. Operating income increased by only 0.2% year over year as the more challenging consumer environment in Mexico did not allow us to absorb the inflationary effects on our costs and expenses as effectively.

[Martín Yániz, CFO at Fomento Económico Mexicano]

In addition, our operations were geared to a stronger consumer environment than the one that materialized, plus our costs and expenses ran a bit ahead of actual volume and traffic. While this impacted profitability, we remain confident in our ability to navigate short term headwinds by maintaining strong operational discipline and leveraging the solid fundamentals of our business. Net consolidated income decreased by 64.3% to COP 5,600,000,000.0, driven mainly by: one, a noncash foreign exchange loss of COP 4,100,000,000.0 compared to a gain of ARS 6,100,000,000.0 last year, a swing of more than ARS 10,000,000,000 related to FEMSA's U. S. Dollar denominated cash position, which was negatively impacted by the sequential appreciation of the Mexican peso in the period.

[Martín Yániz, CFO at Fomento Económico Mexicano]

And number two, lower interest income of ARS 2,100,000,000.0 compared to ARS 4,100,000,000.0 the previous year, reflecting lower interest rates. Turning to our operating results and beginning with the Proximity Americas division. Overall, the division delivered mixed results this quarter, improving sequentially at the top line level, but still reflecting a challenging consumer environment in Mexico that was partially mitigated by a robust performance in our other markets in LatAm. Same store sales declined modestly by 0.4%, once again reflecting a combination of a solid average ticket growing 6.6%, offset by weaker traffic, which contracted 6.6% as well. It is worth noting that while same store sales remain lackluster in Mexico, they grew nicely in OXXO LATAM, increasing in the high teens even after accounting for foreign currency tailwinds.

[Martín Yániz, CFO at Fomento Económico Mexicano]

While these operations are small in relative terms, these are promising results. While we are encouraged by the team's ability to drive average ticket above inflation, leveraging our targeted promotional activities and the positive seasonal effect of larger baskets around Holy Week, the sustained weakness in traffic in Mexico is a clear focal point for our commercial initiatives as we start the second half of the year. As has been the case for several quarters now, the decline in average traffic was mainly attributable to a persistently weak consumer environment in Mexico, combined with atypically adverse weather conditions across the country. This hit some core convenience categories such as soft drinks, beer and tobacco, particularly hard. On this point, our data suggests these convenience categories may have lost competitiveness relative to others across channels during the quarter.

[Martín Yániz, CFO at Fomento Económico Mexicano]

We believe this effect is not driven by SKU level pricing, but rather by the mix of presentations such as multi serve returnable beverages, smaller snack presentations and low cost cigarette alternatives, which are currently available in other channels such as the traditional trade but not at OXXO. Total revenues for Proximity Americas grew 6.9% or 2% on an organic and currency neutral basis, mainly driven by the continued expansion of our network by 1,500 stores year on year, a strong performance in our LatAm markets, the consolidation of OXXO USA as well as a favorable exchange rate. Gross margin remained stable at 44.1% and expanded by 120 basis points if we exclude the options outside Mexico. Operating income decreased by 2.8%, while operating margin decreased by 90 basis points to 9%. Operating expenses grew faster than revenues.

[Martín Yániz, CFO at Fomento Económico Mexicano]

However, it is worth noting that selling expenses, the biggest component of our OpEx, grew in line with our expansion of 6.3%, thus reflecting our continued efforts to offset labor cost increases with greater FTE efficiency in the stores through the use of data analytics and new, more flexible shift policies. On the expansion front, Proximity Americas added three thirty four net new stores in the quarter, in line with our plan. In The U. S, we continue to make progress in the conversion of DK storage into OXOs, focusing currently on the Midland Odessa and Lubbock metro areas of West Texas, where we have converted 40 stores as of the end of the second quarter. Later in the year, we will begin the process in El Paso, applying the learnings from the earlier conversions.

[Martín Yániz, CFO at Fomento Económico Mexicano]

These include evolve not just rebranding, but also the addition of several 100 SKUs, including our Adaptive Coffee value proposition, and early results in terms of incremental sales are promising. We will continue to test through concepts and to tweak the overall value proposition, and we will keep you updated on developments. At Vada, during the quarter, we continued our accelerated store expansion, opening 23 new stores, and we remain on track to achieve a 30% to 40% growth rate in 2025. We continue optimizing our discount value proposition, while scaling our private label strategy. Vada same store sales grew 8.9, but they grew in the low teens as we exclude the convenience categories, reflecting the current consumer trends and consistent with the dynamics seen at OXXO.

[Martín Yániz, CFO at Fomento Económico Mexicano]

In Europe, Valora delivered solid results as total revenues increased by 31.4% in pesos or 5.9 percent on a currency neutral basis, driven by strong performance in our retail business in Switzerland, partially offset by lower sales in our B2B and B2C foodservice. We continue to focus on converting stores into the successful Avec banner, which has proven to offer a compelling value proposition tailored to the evolving needs of consumers in the region. Originally launched in Switzerland, our Avesque format travels well across borders and presents an attractive opportunity for organic growth. Gross profits grew 25.6% in pesos or 1.2% currency neutral, representing a dilution of 190 basis points compared to last year due to the slowdown in our higher margin B2C business as well as the impact of changes to the operating model with our retail operations. Alona reported a 54.4% increase in operating income, 24% on a currency neutral basis, accompanied by a 70 basis point improvement in operating margin.

[Martín Yániz, CFO at Fomento Económico Mexicano]

This result reflects continued progress in cost discipline and operational efficiency across the business. Now let me walk you through the performance of our Health division. Total revenues increased 15.6% in pesos with the same store sales growing 13.1%, mostly explained by strong top line performance in Colombia and Ecuador supported by favorable FX dynamics. On a currency neutral basis, total revenues grew 6.7%. The growth in revenues occurred despite the continued challenging environment in Mexico, which saw same store sales declines and the closure of four thirty two underperforming stores versus the same quarter in 2024.

[Martín Yániz, CFO at Fomento Económico Mexicano]

Operating income rose 5.7%, but declined 5.2% on a currency neutral basis, resulting in an operating margin dilution of 30 basis points to 3.8%. This performance of operating income reflects onetime restructuring charges in Mexico and in Chile. The new management team has been in place for over one hundred days and is well advanced in its diagnostic process, and they are taking some decisive actions to improve profitability. In addition to the closure of four thirty two underperforming stores in Mexico in the last twelve months, the team has executed a significant overhead reduction, which is reflected in the operating expenses. For its part, Colombia retail continued to show solid momentum driven by robust same store sales growth, new store openings and improved mix towards retail versus institutional, while Ecuador delivered a strong set of results as it focused on expense control and revitalizing existing formats.

[Martín Yániz, CFO at Fomento Económico Mexicano]

Finally, Chile sales remained positive, but profits were flat due to overhead restructuring charges, which pressure on margins. At OXXO Gas, same station sales increased by 4.9% and total revenue grew by 0.6%, reflecting growth in retail volume offset by a decline in the wholesale business. Gross margin stood at 12.6% and operating margin at 4.7% as we continue to look for further efficiencies and savings to support profitability in areas like labor and other selling expenses. Now moving to Coca Cola FEMSA. During the quarter, revenues increased 5% in the face of adverse weather conditions and a tougher demand environment, particularly in Mexico and Central America where volumes declined by nearly 10%, while lower operating leverage put pressure on profitability.

[Martín Yániz, CFO at Fomento Económico Mexicano]

Despite these temporary headwinds, Coca Cola FEMSA remains well positioned to execute its strategy, leveraging recent investments to increase production and distribution capacity, along with a diverse brand portfolio to meet evolving consumer demand. For a detailed analysis of their results, you can access the webcast of their earnings call held last Wednesday. Before we close, let me give you a brief recap on capital allocation and our outlook for the second half of the year. As part of the FEMSA Forward Plan, we successfully completed the divestiture of the bulk of our remaining logistics business on July 1. In terms of capital deployment, our top priority remains in investing and growing our core operations, which includes an ongoing multiyear investment plan across all business units to support long term growth.

[Martín Yániz, CFO at Fomento Económico Mexicano]

Regarding shareholder remuneration, we remain on track with our commitment to deploy a COP 66,000,000,000, approximately $3,200,000,000 between March 2025 and March 2026 through a combination of ordinary and extraordinary dividends as well as share repurchases. As of the July, we have executed approximately $374,000,000 in share buybacks, including repurchases in the local market and a $250,000,000 accelerated share repurchase program, or ASR, which concluded last week. Additionally, we have paid out of the four installments of ordinary we have paid out two out of the four installments of ordinary and extraordinary dividends for the year, totaling nearly $1,200,000,000 As of the second quarter, we reached a leverage ratio of 0.93x excluding Corporal Pemsa and have deployed $1,600,000,000 in extraordinary returns, representing half of the 3,200,000,000 commitment announced earlier this year. As we look ahead, we remain confident in the strength and resilience of our diversified portfolio, and we are maintaining our expectations for stable full year operating margins at Proximity Americas. Last Wednesday, our Polar FEMSA shared a similar message, maintaining their long term perspectives unchanged, so we are directionally in sync.

[Martín Yániz, CFO at Fomento Económico Mexicano]

As we look at the next couple of quarters, we remain cautiously optimistic for the second half of the year, acknowledging potential volatility amid the soft macroeconomic environment. Beyond that, we believe our continued focus on operational discipline, strategic investments and rigorous capital allocation position us well to navigate the evolving consumer environment and deliver sustainable growth ahead. Finally, regarding our management succession, and as Jose Antonio mentioned during the February call, FEMSA's Board of Directors appointed a special committee for this purpose. The committee is currently working on this process, and we expect to have more news for you later in the year. And with that, we are ready to open the call for questions.

[Operator]

Thank you. Ladies and gentlemen, we will start now the Q and A session. The first question comes from the line of Ben Thoreau calling from Barclays. Please go ahead.

[Benjamin Theurer, Managing Director at Barclays Corporate & Investment Bank]

Yes. Good morning and thank you very much for taking my question. Wanted to take the opportunity to dig a little bit more into some of the comments you made in the opening and talking a little bit about SPIN and the opportunities here and particularly how you think to bring this back into Proximity Americas and to like hopefully trying to see some sort of a recovery. You've seen the business evolving over the last couple of years from the early stages to now and obviously, you're showing progress here on still acquiring new customers with them actually using as well the platform. What would you say are the missing pieces in order to really make the most out of Spin and Spin Premier as it relates to really boosting again maybe some of that traffic or some of that recovery of the proximity stores, particularly in Mexico? That would be my question.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

We're going to take a couple of seconds. We'll be on mute first a little bit.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

Thank you for the question. I'd like to first highlight that in terms of where we see the future from an OXXO perspective, we're already well underway in leveraging the data that comes from our Premier Rewards program to accelerate our retail media efforts. And the early results are quite promising as we have more data on our customers and we continue to penetrate further our base. Our expectation is that how we can personalize and customize our offers is going to continue to improve, allowing us to drive higher commercial income. On the spin side of things, we're very early in our monetization journey as we're currently only starting to explore financial services, including savings and credit products.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

We launched our first personal loans earlier in the year and are very excited about the prospects of how this can evolve in the future, but recognize that we're going to be doing so in a very careful manner and taking time to progress our financial services value proposition. Lastly, I'd highlight that we have interest in moving all of our same products beyond OXXO, beyond Proximity and Health to have a much wider value proposition and we're also quite early in that journey that will start primarily focused on payments and rewards and evolve into financial services as well.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

I think I would also add Ben, this is Juan. I mean, you just look at the tender, this figure that we've been reporting of what percentage of OXXO sales are going through the program, through the PREMIA program. And that's a number that goes up by one or two percentage points per month, right? I mean, we were discussing among ourselves, we gave you a figure today of I think 45.8%, almost 46%. But the reality is that June was already at 47%, right?

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

And so I'm sure three months from now, we're going to be talking somewhere in the 50s. I think we're still very much in the early stages of people embracing this and to having it impact their habits, right, in terms of going to OXXO more frequently and choosing OXXO versus other alternatives because it gives you those rewards and then how this feeds through the engagement on whether you're using your physical card or your app and then the kind of the broader purpose of spin as an ecosystem. But I still think I mean, the growth rates this thing has only been around for a couple of years, right? A little bit more than a couple of years. And the slope of that curve is really remarkable.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

So I do think there's a lot more to come in terms of just people, again, internalizing that if you do the transaction at Ulta versus elsewhere, it gives you these benefits that you didn't have not that long ago.

[Benjamin Theurer, Managing Director at Barclays Corporate & Investment Bank]

Can I just quickly follow-up on that? So with that tender going up, are you seeing better traffic data with the ones that are signed up for SPINSPIN PREMIA than traffic data with the customers that aren't signed up. So is there something potentially can help you recovering the traffic as we move into the coming quarters and then into 2026?

[Martín Yániz, CFO at Fomento Económico Mexicano]

In fact, we do because that 47% of sales is tends to favor heavy users. In other words, the percentage of users that represent that 47% is a lower percentage. So what that indicates to you is it drives loyalty and engagement with people. So people are obviously choosing to go more to the store more frequently to buy more things driven by To The Points. And that's the value proposition of that program is still going to experience significant improvement in terms of customization, in terms of the types of promotions you offer.

[Martín Yániz, CFO at Fomento Económico Mexicano]

As we refine the data, we improve the data, we learn more how to use the data without obviously overwhelming the consumer.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

I think there's also a kind of a double click you can do on the tender number because that's the number we give you is percentage of sales, but we're increasingly tracking and incentivizing the number of transactions, which would probably kind of connect with traffic more directly. And then, of course, there's a second click, which has or a third click in this case that has to do with services transactions, right? Because those give you a lot of information that it's very different what you can glean from a transaction of somebody buying a Coke as opposed to somebody paying their bills. And so there's still a lot of room to keep improving that data acquisition and processing and then implementation within the spin ecosystem.

[Benjamin Theurer, Managing Director at Barclays Corporate & Investment Bank]

Perfect. Thank you very much. I'll pass it on.

[Operator]

Next question comes from the line of Alvaro Garcia calling from BTG. Please go ahead.

[Alvaro Garcia, Associate Partner at BTG Pactual]

Hi, thanks for the space for questions. My question is for Juan Carlos, given he's on the line, much as I'd love to ask about OXXO. On culture, sort of other kinds of subsidiaries, very much focused on profitability. You've had the benefit of sort of being isolated from that mentality for some time now at FEMSA Digital. How do you feel about FEMSA Digital fitting within OXXO to really leverage that physical footprint?

[Alvaro Garcia, Associate Partner at BTG Pactual]

And this is obviously in the context of potentially leaning into sort of a it's a second question within digital, which is how you feel about not burning cash necessarily, but being a lot more aggressive when it comes to leaning into specific revenue streams like net pay, like credit, like merchant acquiring, etcetera? Thank you.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

Thanks for the question. Generally, we're excited. I think the environment inside of is one where we have the independence and the autonomy to drive a differentiated culture within SPIN than the rest of FEMSA. It's a culture that is much more consumer tech focused, where we have a strong emphasis in agility and rapid iteration testing based on customer needs and demand. And hence, we've been able to develop our own culture within SPIN.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

Now I recognize that our right to play starts from the assets that we have within TEMSAM, more specifically with the capillarity that we have with OXO and the significant footprint and customer presence across the OXO platforms, which requires tremendous amount of collaboration between our teams that although it is a challenge given the differences around culture, the reality is that we have strong alignment both at the board as well as at the management level that we need to evolve our thinking towards digital. And hence, this is a strategic imperative for the company. And there's tremendous amount of focus from the OXXO team in working together with SPIN as we evolve our value prop. On your question related to cash burn and our ability to be more aggressive on the growth side and not necessarily as focused on profitability, you're absolutely right. Within SPIN, we recognize that for us to be a relevant digital platform, we have to have the scale, the massive penetration within Mexico and the frequency of use.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

And that requires us investing in the business to be able to drive that stickiness that ultimately will enable us to drive two big opportunities, as we mentioned earlier in our remarks. The first one being evolving OXXO's convenience value proposition into digital with a much more digital value prop that leverages both their existing physical footprint, but our spin digital ecosystem. And then two, driving financial services both for savings and credit where we see a significant monetization opportunity and we're very early in that journey of deploying credit.

[Martín Yániz, CFO at Fomento Económico Mexicano]

I would complement on just two small points. One, the issue of alignment between the two organizations. We hope to by the end of this year so that it applies next year, we come up with a system of joint P and Ls and joint KPIs where key executives that need to cooperate in OXXO and in SPIN will be receiving their bonuses, a significant portion of their bonuses tied to the same exact objective. So we hope that will align interests and will align efforts a lot more. And number two, and out of fairness to spin, we are quite conservative in how we measure the cash burn of spin.

[Martín Yániz, CFO at Fomento Económico Mexicano]

As Juan Carlos mentioned, if you think about Premiere, the percentage increase in sales that you would have to believe to make Premiere, just Premiere a breakeven business is very low, very, very low single digits. In other words, if you just take the incremental sales, multiply it times the gross margin, think of that having 47% of your sales tied to Premia has to be driving incremental sales. Premia, there is no doubt that Premia today is profitable. The problem is we wanted to avoid measurements such as that because they can then justify any number of things with regards to just spending more and more and more. And so we purposely for purpose of the P and L and cash burn and spin, we said, no, no, no, just want to know the cost that you're spending and the points that you sell to OXXO.

[Martín Yániz, CFO at Fomento Económico Mexicano]

Incremental sales doesn't get included into your P and L, but we well know that this is driving a significant amount of incremental sales.

[Alvaro Garcia, Associate Partner at BTG Pactual]

Thank you.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

Thanks, Ivan.

[Operator]

The next question comes from the line of Santiago Portolucci calling from Goldman Sachs. Please go ahead.

[Thiago Bortoluci, Equity Research Analyst at Goldman Sachs]

Yes. Hi, good morning, everyone. Thank you very much for taking our questions. I would like to explore more the same store sales dynamics at OXXO Mexico. Right now, it's been roughly the fourth quarter in a row that we are discussing traffic and what is happening there, what are the pressures, and when will it inflect?

[Thiago Bortoluci, Equity Research Analyst at Goldman Sachs]

Obviously, there are a lot of moving parts, weather, macro that comes from the elections. But one thing that caught our attention this quarter was in the beginning of the presentation in Martin's prepared remarks. He said, you know, some loss of competitiveness versus other channels and other points of sales, number one. And on the opening remarks on the press release, I see a focus from management to work on assortment

[Martín Yániz, CFO at Fomento Económico Mexicano]

It's not like we've been increasing the prices on an SKU like to SKU like basis. But again, I think the the best example is, for example, beer. Before you were buying one way glass presentations, so you were buying cans and now because you have a little bit less money in your pocket because of the economy and when you have some friends over, you're going to buy the one liter returnable beer package and share it with a group of friends. If Oxford doesn't have that packaging presentation, then in effect, it's at a competitive disadvantage. But that second part we believe is generally addressable and we're working on that both in beverages as well as snacking with smaller presentations as well as lower priced tobacco products.

[Martín Yániz, CFO at Fomento Económico Mexicano]

But an example is we're seeing it with Vada as well. If you sparse up Vada and you strip out convenience categories, and you just leave the categories that go head to head with other similar discount channels, you can clearly see that we're doing fine on the non convenience categories. But in the convenience categories, the consumer is simply being more conservative and more cautious in addition to the weather issues, which central anybody who's in Mexico City knows that the last quarter was particularly cold for the time of the year and in other parts of Mexico, more rain. But we have to react to that. And there's a laundry list of very, very, very long initiatives that's been triggered by the OXXO team around beer, soft drinks, packaging formats, our coffee value proposition, more promotional activity with our supplier partners that we hope that during the second half of the year will help improve this issue with the traffic.

[Thiago Bortoluci, Equity Research Analyst at Goldman Sachs]

That makes sense. Thank you very much, Martin. If I may have a follow-up. Now on it's more on health and also Grupo Nos in Brazil. I know in health, you've been very vocal on rationalizing the portfolio and you've been closing stores over the last few quarters.

[Thiago Bortoluci, Equity Research Analyst at Goldman Sachs]

And this quarter, we also saw some net closures in Brazil, right? Where would you say FEMSA is in terms of optimizing the portfolio? And how should we think about net unit growth across these two divisions going forward? Thank you very much.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

Thiago, let me take the first crack at this and then Martin can complement. I think the two are in very, very, very different situations, right? And on the one hand, in Health, you're talking about Mexico specifically, which is going through a three major surgery. And there's different things that are being analyzed by the team in terms of how to move forward. Clearly, the national strategy and entering into some parts of the country where the brand was not well known and trying to compete head to head with some of the incumbents has not turned out to be the right strategy. And so the 400 plus closures in Mexico and restructurings that we're going to talk a lot more going forward about how and there's some really cool ideas, I think, internally that we're thinking about how we could disrupt this industry or do things differently. But that's one thing. Brazil, we closed a few stores of the earlier cohorts. We continue to kind of learn about what works and what doesn't in Brazil.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

The growth in Brazil should be at about 20% for the foreseeable future. We are super bullish about Brazil. And so I just want to be clear that the fact that we closed a lot of stores in Mexico Health, a few stores in Grupo Nos have nothing to do with each other in terms of the causality of what's going on there.

[Martín Yániz, CFO at Fomento Económico Mexicano]

You know what, and I'd like to go back to your first question. I specifically asked the OXXO team before this call to run an analysis for stores that were near hard discount channels. And to give me a sensitivity whether there was a decline in sales, same store sales in those stores and the difference is really very small, very, very small. I would characterize it as 1%. So when you look at the categories, I also ask them to help me map all the categories of a hard discount, which I know is the subject of a lot of comments that we get.

[Martín Yániz, CFO at Fomento Económico Mexicano]

If you ask somebody to map out the categories that are in a hard discount score versus in an OXXO, the overlap is probably in the 20% range. In other words, the consumer occasion of going to buy a coffee, going to pay financial services, buying Coca Cola product or buying, I think, hormonal product as you walk down the street, buying a quick snack because you're hungry or accessing to buy some bread for a quick snack. Those occasions are significantly different than the one that's being offered in the hard discount models. We think it competes head to head in Barra without a doubt. But with regards to OXXO, we do believe that the format will continue to coexist with relatively contained overlap.

[Martín Yániz, CFO at Fomento Económico Mexicano]

I wanted to address that because that's the subject of a lot of questions, if one gets and commentary that we see in the analysis that's published.

[Thiago Bortoluci, Equity Research Analyst at Goldman Sachs]

That's helpful. Martin, Juan, thank you very much, guys.

[Martín Yániz, CFO at Fomento Económico Mexicano]

Thanks, Thiago.

[Operator]

The next question comes from the line of Rodrigo Alcantara calling from UBS. Please go ahead.

[Rodrigo Alcantara, Director - Equity Research at UBS Group]

Hi, thanks. Good morning and thanks for taking my question, Martin and Juan. Want to take the discussion, Proximity Americas, yes, but on the OpEx side, right? On one hand, selling expenses, I mean, what's really, really impressive, the achievements that we saw, right, when you guys decelerating the pace of OpEx growth. I mean, you mentioned there about the initiatives to have a more efficient labor usage, right?

[Rodrigo Alcantara, Director - Equity Research at UBS Group]

So my question on the OpEx side related to labor is, is it fair to assume this run rate that we saw this quarter to project this going forward, which again was quite impressive, the efficiencies that you achieved on the labor front. And how would you say in relation to the forty hour working week, how compliant would you say you are currently right now to comply with that new regulation as a result of these changes that you have implemented? And my question on the and the other question for the OpEx side would be on the G and A, the administrative expenses, where we continue to see this line growing considerably. You give some explanation in the press release, right, but just curious on, I mean, really what's driving here? I mean, you hiring more people or what is driving the G and A and when can we expect some sort of leverage or stabilization this line? That will be my question. Thank you very much.

[Martín Yániz, CFO at Fomento Económico Mexicano]

Sure. A couple of quick things. Let me start with your compliance question. Look, we're always trying to get a little bit ahead of the curve because as you know, OXXO is a very big ship. And so it's not a ship that moves on a dime and it's not moved from one quarter to another.

[Martín Yániz, CFO at Fomento Económico Mexicano]

And changes require changes in the operations, systems, culture and so on. So today we are not compliant with the forty hours because it's not the law. And so but we have been running experiments in certain platters, certain areas at forty five hours and at forty hours to see how we would change our operations. And those plans are producing very valuable insights of how you want to use dynamic shifts. So in other words, not everybody in a store has to be at the store at the same amount of time.

[Martín Yániz, CFO at Fomento Económico Mexicano]

So you can start the day with less people if it's a slow breakfast store and then bring in more people during lunch when you have a lot of activity, if it's a store in a downtown business district. And then in the evenings also you can move down and you can move people so that they work a total of forty hours or forty five hours or forty three hours, wherever the labor reform ends up. But you could ask them to work a little bit more certain days and a little bit less other days or give them more days off so that you use them. There are a lot of learnings that are being developed as we speak. So when the law is passed and we have greater clarity, we will be in a position to roll out that as quickly as possible.

[Martín Yániz, CFO at Fomento Económico Mexicano]

With regards to the issue of administrative expenses, this is a focus of the OXXO management team. We hope over the next couple of quarters to give you a little bit more insight on that. I think they are very sensitive to one, they need to prioritize their transformational initiatives. The growth in that has been driven in many cases has been driven by the issue of thinking about transformational initiatives and the instruction that has come from FEMSA is we need to prioritize in times like this, we need to focus and have them very clear and we can postpone some of them for some period of time. Number three, that number is a little bit impacted also remember by the OXXO USA incorporation into the consolidation of Proximity Americas.

[Martín Yániz, CFO at Fomento Económico Mexicano]

So the number is a little dirty relative to that. And there, we're having to build out an overhead because remember, this was a carve out of the business. So you'll probably see a little bit of that impact and a little bit of that effect. But we would expect to see that improve during the second half and certainly during the beginning of next year. Again, understanding this is a big organization and we need to be thoughtful on changes that we make.

[Martín Yániz, CFO at Fomento Económico Mexicano]

And then finally, as to the trend on labor expenses, again, the government will continue to likely increase minimum wage. I think the number that they're targeting is 12%. So we're going to continue to battle with that percentage. Again, it's very hard for me to predict to you where is the physical limits of the savings that we can drive through this issue of use of technology and more variable shift policies. I can assure you we will leave no rock on turn.

[Martín Yániz, CFO at Fomento Económico Mexicano]

But to give you I'm not in a position right now to give you a guidance as to how much more we can extract from that. I do think that there is more that we can extract, but it's hard to tell you where the limit is.

[Rodrigo Alcantara, Director - Equity Research at UBS Group]

No, yes, for sure. Absolutely. Thank you, Martin, for the detailed answers.

[Operator]

The next question comes from the line of Riccardo Albais calling from Morgan Stanley. Please go ahead.

[Ricardo Alves, Lead Analyst at Morgan Stanley]

Hi, everyone. Thanks so much for the call and for the opportunity to ask you questions. First question on net income. Considering your operations were relatively in line with what we expected at least. But as it pertains to the bottom line, we saw a big miss relative to what we expected.

[Ricardo Alves, Lead Analyst at Morgan Stanley]

We saw higher taxes and significantly lower equity income, I believe, from Ps. 90,000,000 in the first quarter to almost Ps. 800,000,000 in the second quarter. Probably, I would assume that most of that could be related to OXXO Brazil. So can you just share more details on what's driving this volatility below the line just so that we have a better basis to model the second half of the year as it relates mainly to equity income, the equity income line and then also taxes because effective taxes were also higher than expected.

[Ricardo Alves, Lead Analyst at Morgan Stanley]

So that's my first question on EPS. The second question is actually a follow-up on OXXO Mexico. We shared the view that the second half could be better in terms of traffic and same store sales, but we are lacking evidence of that yet. And I think that some of the discussions that we had with you guys, with senior management, as it relates to all the initiatives that you are taking to improve traffic, I think that, that discussion is very timely. It's very important and it's very helpful.

[Ricardo Alves, Lead Analyst at Morgan Stanley]

But it's not very clear to us where what do you think is going to move the needle most into the second half? Can you go into the qualitative examples of the biggest initiatives that you're taking? Is it the new proposition with the tobacco companies? Is it the soft drinks initiatives that you're taking, retail media? What do you think is going to really move the needle for us to see a second half that is better for us to see a rebound?

[Ricardo Alves, Lead Analyst at Morgan Stanley]

So also that we can have better visibility into the key drivers to see the light at the end of the tunnel, if you will. I don't know, maybe July was better. Maybe that could be an evidence. Those are my questions. Thank you so much.

[Martín Yániz, CFO at Fomento Económico Mexicano]

Let me start with the below the line question. The single most important reason for the decline in net income is one thing, is that billion pesos swing caused by foreign exchange losses on our U. S. Dollar excess cash balances. And that just happened to be that it was a very good year last quarter, the second quarter of twenty twenty four.

[Martín Yániz, CFO at Fomento Económico Mexicano]

And here it was worse because the pace of decline. And in that way, it's a little not tricky, particularly difficult to understand, but the balance sheet items are impacted quarter on quarter with FX moves quarter on quarter, while P and Ls tend to are moving really with year to year FX movements. And so if you back that $10,000,000,000 out, that explains most of it. So without a doubt, if you believe that the exchange rate is going to remain stable, that number should be towards zero. If you believe the peso will devalue, you will see again periods where we have very good profit.

[Martín Yániz, CFO at Fomento Económico Mexicano]

So I would tell you below the line that is the thing that's moving. The second thing is the issue of taxes. I'm sure somebody will ask about this. And we explain it in quite a bit of detail in the press release. The taxes in a period where our pretax income has been impacted by this loss, it tends to magnify two things in a relative marginal tax rate perspective, which is: one, the nondeductible expenses part of labor.

[Martín Yániz, CFO at Fomento Económico Mexicano]

As you know, in Mexico, you cannot deduct 100% of labor expenses because a portion of labor expense doesn't pay income tax. So the government is taking the position, well, if employees are not paying income tax on this part of their compensation, They only allow you to deduct, and I'm going say approximately 50% of that portion of your labor expense, which the employee doesn't pay. As our operations have continued to grow and the labor expense has grown, such has so has the nondeductible amount. And that is unlikely to change. There is a second part, which is the spin losses.

[Martín Yániz, CFO at Fomento Económico Mexicano]

The spin losses, because of where they're located within our corporate structure, at this point, we cannot deduct them and we are not growing or adding to our tax assets from the future application of those losses to profits from the spin business simply as a conservative, prudent accounting matter, we no longer do that. Remember that in Mexico, accumulated losses only last ten years, so they don't last until infinity. And so therefore, at some point, you have to make a judgment whether you will be using those losses within the remaining life of those losses before they expire. That second item is really noncash. If you think about it because if you're removing the losses from spin, you just don't have a tax shield on it.

[Martín Yániz, CFO at Fomento Económico Mexicano]

And so it increases your relative tax rate. But the tax rate on the remaining businesses, which generate the profit of the business, don't have that 40% marginal tax rate that you saw. It's a tax rate much more than the 35%. Also reminding you that we have operations that pay higher taxes than the Mexico tax rate. The number you're seeing is consolidated.

[Martín Yániz, CFO at Fomento Económico Mexicano]

Brazil has a higher marginal tax rate than Gulf Of Mexico. And there are some other countries in South America where the tax rate is above 30%. That is as to this issue of what's happening below the line. If you can remind me your second question.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

There was more evidence to be optimistic about second half, talk a little bit about July. I would like to talk a little bit about July. Martin always gives me a little bit of a hard time because I the look green shoots. I mean, the month of July ended today, same store sales are positive in the low single digits. That's for whatever that's worth.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

Certainly, I think on the other part of that question, in terms of some of the stuff that's being done, that rotation in and out of larger presentations, returnables, kind of changes to the price package, those have happened over time several times, right? I mean in my tenure, I've seen it happen probably two, three times where the consumer begins to ask for those multi serve presentations in both beer and soft drinks, where returnable mix goes up and then eventually things get better and people don't want to deal with the hassle of returnables and then you go back to the single serves one ways. I think we're kind of in the middle of that. And obviously, we're in this process where more of the SKUs at OXXO are going to resemble some of those SKUs at the mom and pop, where you can kind of do the sharing that Martin was talking about in the multi service and the returnables. But there are also these two big external factors, right?

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

The weather and again, if you look at the cold front numbers and other people that have reported, they all seem to converge on how beverages and convenience categories suffered during the quarter. And then just the overall health of the Mexican consumer and whether construction activity picks up a little bit in the second half, which is something we all hope and expect will happen and it has a lot to do with permitting and kind of government policy. So I mean, I don't know Martin if you have more on that.

[Martín Yániz, CFO at Fomento Económico Mexicano]

Yes. Again, some of these things are out there control, the economy and weather. And I would suspect you guys have a view on this, particularly on the economy, I assume not in the weather. And implementing many of these commercial activities, you don't just flip a switch when you want to introduce returnable packaging into the OXO system. You have to develop the systems for recollecting the models and cases and the amount of accounts for them.

[Martín Yániz, CFO at Fomento Económico Mexicano]

As a boss of mine used to say, the most expensive packaging in the world is a returnable package that doesn't return. So that has to be accounted for and we need to adjust. And then we need to negotiate with our suppliers. And as you can imagine, some suppliers want to save certain packaging presentations for certain channels and then that's where it's important that OXO uses its commercial muscle to demand sort of legal treatment in terms of packaging and until now positive. There are also some commercial negotiations with some very, very, very important suppliers that are being finished as we speak, which should give us an uplift.

[Martín Yániz, CFO at Fomento Económico Mexicano]

I prefer not to identify them, but there are some important categories where we've made some very important negotiations in terms of promotions, commercial income, the margin as a retailer, we're going to be able to keep on them that should flow through towards the second half that you don't see today in the first half. Also, we had been planning for the labor reform to occur this year. We're pretty confident it's not going to happen this year. I think the government has been very sensitive to the fact that in the current economic environment, reducing work hours is likely to be somewhat recessionary. And so I think that's going to give us some breathing room with regards to things that we had otherwise planned for this year.

[Ricardo Alves, Lead Analyst at Morgan Stanley]

Martin, Juan, thank you. Thanks again.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

Thanks, Ricardo.

[Operator]

Next question comes from the line of Bob Ford calling from Bank of America. Please go ahead.

[Robert Ford Aguilar, Senior Analyst at Bank of America Merrill Lynch]

Thank you. Good morning Juan, Juan Carlos, Martin. Thanks for taking my question. Juan Carlos, how do you think about the sustainability of SPINS consumer fee based revenue? And how do you see that evolving over time, if at all? And can you talk a little bit about your deal with McAvopago? How should we think about the fee income and traffic generation with McAvopago versus other correspondent banking agreements? And is the deal limited to cash in and out or does it encompass pickup returns or other services? Thank you.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

Thank you. I'll start with the second part of your question, which is the deal with McAlepagal. There I would highlight that we're committed to continuing to open our infrastructure to all players in Mexico. We see an opportunity to continue to grow our ecosystem. And hence, we view the deal with MercadoPalo similar to many of the other fintechs that are now part of our network as an enabler of consumer choice and ensuring that we have a robust offering as customers access the store. It's primarily related to both cash in and cash out.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

There are currently some pilots around Puro pickup and drop off that we are doing with MercadoLibre, where we are excited about the prospects of how that can evolve into a digital solution over time, enabling our customers to be able to purchase on MercadoLibre and hence pick up and drop off depending on their needs directly in the store. Those are still very early stage. However, we do think that that's going to be something that could be relevant down the line, especially as we continue to evolve our own digital ecosystem. As it relates to your first question on fees and how we see an increased electronification of cash, The reality is that, that is an ongoing trend. Having said that, our correspondent banking fees continue to be quite strong and hence through spin, we see an opportunity to parlay our position in physical cash into the digital ecosystem.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

And there monetization is going to come from the opportunities that we see in financial services, primarily credit, which were early in build out.

[Robert Ford Aguilar, Senior Analyst at Bank of America Merrill Lynch]

Very helpful. Thank you so much.

[Martín Yániz, CFO at Fomento Económico Mexicano]

Yes. Only thing I would add, one of the things that has surprised me and proves the power of the platform of OXO is every time a new fintech player gains access to OXO, they put out press releases sort of almost describing it as new strategic partnerships that we're developing. And the reality, they're being managed by all the other people who access our payment platform.

[Martín Yániz, CFO at Fomento Económico Mexicano]

There's nothing special or unique about what Mercado Nibre is doing within our OXXO stores as compared to what any other traditional financial institution or other e commerce businesses. So for us, it's sort of business as usual to bring in and to give access to more players that gives more optionality to our customers.

[Robert Ford Aguilar, Senior Analyst at Bank of America Merrill Lynch]

You guys are special and unique and I think that's why they're excited about the But thank you.

[Martín Yániz, CFO at Fomento Económico Mexicano]

You can say that, I won't. But thank you.

[Operator]

The next question comes from the line of Antonio Fernandez calling Please go ahead.

[Antonio Hernández Vélez, Head - Equity Research & Director at Actinver]

Hi, good morning. Thanks for taking my question. Two quick ones actually. First one, do you have to see an improvement or well? Actually from a well perspective, you mentioned this and it was just as you commented, it was already quite expected.

[Antonio Hernández Vélez, Head - Equity Research & Director at Actinver]

But if you could exclude the weather impact on traffic and same store sales, how was the quarterly performance? And then I have a comment for those. Thanks.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

Traffic ex weather is the question. And that's what the team is focused on.

[Martín Yániz, CFO at Fomento Económico Mexicano]

Further evidence that this is weather driven is the fact that Coca Cola FEMSA also had a very complicated Mexico. So when you look back at April and May how hot it was during those months relative to these years, in addition to the issues of the election and the economy and so on. But again, Coca Cola FEMSA's market share numbers are rock solid. They're doing well. There's no indication that there's a competitiveness issue at Agora Borla FEMSA.

[Martín Yániz, CFO at Fomento Económico Mexicano]

And they also had a very, very complicated second quarter in terms of volume. Again, weather impacts the consumption of beverages more than people realize, not only the temperature, but the rain. So the more it rains, the less people go out and so the less they buy single one way servings.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

And at the margin, it impacts, for example, somebody was telling me about other companies that are more in the coffee business and why their same store sales were better than ours. Well, when it's cold, people drink coffee more than they will drink a cold beer. And so again, this is kind anecdotal, but it actually does happen in the real world.

[Antonio Hernández Vélez, Head - Equity Research & Director at Actinver]

Okay. Thanks. Appreciate the color. And just quick follow-up. Having said that, how does that play out with your openings expectations for both OXIS and DARA?

[Antonio Hernández Vélez, Head - Equity Research & Director at Actinver]

How does that play out? Are you maybe decelerating a little bit your opening space or just business as usual on that side? Thanks.

[Martín Yániz, CFO at Fomento Económico Mexicano]

If I understood correctly, the question has to do whether this performance is impacting our plans for opening stores in OXXO and BADA. With regards to BADA, I would say it doesn't. The reality is we're on a long journey here to expand that value proposition. And so there are very few of any changes on that. On OXXO, at least for the time being, again, major changes.

[Martín Yániz, CFO at Fomento Económico Mexicano]

I do think and this is more of a trend that we've been seeing over the last year, year and a half, not particularly pushed by the recent performance, which is we're seeing a larger percentage of the stores we're opening being OXO nichos, which is again, it's stores that are in enclosed secure environments, so inside universities, hospitals, plants, office buildings, etcetera. We're seeing the percentage of that increasing as a percentage of the stores that we're opening because we see a very unique opportunity to position ourselves in that market and we want to try to capture as much of that market as we can because we think it's very strategic and very valuable. And there's a lot of demand for it in some of our Nicho stores, the feedback we get from the HR of some of the factories in which we've opened this is that it actually reduces there's a correlation between opening the OXXO Nietzsche and the rotation and absenteeism that people see within the factory because people were missing work to be able to execute financial services and they're being able to execute them inside their workplaces now in a very safe environment. But for the time being, we may revisit that in the second half of the year to slow down maybe some of the expansion if it makes sense.

[Martín Yániz, CFO at Fomento Económico Mexicano]

But for the time being, it's we're going to continue to open the pace that we've been guiding to in Mexico, which is 1,000 to 1,100 stores net additions.

[Antonio Hernández Vélez, Head - Equity Research & Director at Actinver]

Perfect. I appreciate the color.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

Thank you.

[Operator]

Next question is from Ulises Argotti calling from Santander. Please go ahead.

[Ulises Argote Bolio, Executive Director - Head of Mexico Equity Research, Strategist & Mexico Consumer Analyst at Santander]

Hey, guys. Thanks for the question. I just had one maybe to get a follow-up there related to Vara. So on the release, you said that some weakness there on the convenience categories, right? Could you share some additional color around how much is convenient there from the mixing Vara?

[Ulises Argote Bolio, Executive Director - Head of Mexico Equity Research, Strategist & Mexico Consumer Analyst at Santander]

You put some numbers there on the release and thanks for that, but any additional color is obviously appreciated. And then kind of a segue into the second part of the question would be how do you see this into the future, right? Is the focus there to further expand non risk categories in Barra? Or are you kind of fully comfortable with the current mix? You.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

Hey, Ulises, it's Juan. So the mix of convenience within Barra is around 30. So it's not insignificant. We continue to see value in the Barra customers being able to buy the national brands for beverages, certainly Coke and the big beer brands. However, having said that, if you ask me, Kenneth, read the tea leaves or look into the future, certainly the focus internally is put on the private label part of things and on at least doubling the mix of private label and really continue to move the value prop towards a more of a harder discount, which then would mean that convenience component would weigh less, right?

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

So as we go from somewhere in the 20s where the private label is right now into hopefully the 30s and the 40s and beyond, I would expect the relevance of convenience to come down. But that's just directional. I don't really have I don't think we have visibility into what the number will look like five years from now.

[Ulises Argote Bolio, Executive Director - Head of Mexico Equity Research, Strategist & Mexico Consumer Analyst at Santander]

That's perfect. It's a great question. Thank you. Thank you very much.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

Thanks, Vinicius.

[Operator]

The next question comes from the line of Carlos Laboy calling from HSBC. Please go ahead.

[Carlos Laboy, Managing Director at HSBC]

Hello. Juan Carlos, I was hoping that you could speak to your interactions with the Board of Directors, with their level of support and how their skill and their understanding of the firm's changing digital needs, how it's evolving. Thank you for the question.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

Interaction with the Board has been great. I'm very excited about the commitment that they have behind the spin efforts. If anything, they're looking for us to be much faster in our deployment and execution and really looking for the synergies that come from providing a value prop that has the mix of the physical assets on the OXO side with SPIN's digital value prop. In terms of the expertise on the Board, there's been significant changes and I'll let maybe Martin and Juan talk to them over the course of the last couple of years. We do have a number of Board members that are quite well versed in the digital arena having gone through transformations on their own both by within big tech companies in The U.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

S. And driving those value props across different markets, as well as through traditional retail and moving towards a more digital offering that have been quite helpful and vocal in the needs and the strategic imperative for us to move quickly in terms of the two big opportunities that we've highlighted, which is enhancing the value prop of OXXO, driving a better convenience value prop through digital as well as the opportunity that we have in financial services and involving our current cash based correspondent banking into a broader set of offerings that moves us beyond payments and rewards into savings and credit.

[Martín Yániz, CFO at Fomento Económico Mexicano]

There are two people in particular who have been now on the Board for a year and a half, two years. Would be Gewu Thomas and Daniela Leia. Both of them in previous jobs have had involvement in digital businesses. And in one case, one is now very involved in media business. The areas of focus for the questions and the challenges that they do on the Board are around the cooperation of OXXO and SPIN and how do we make sure that those two organizations cooperate better.

[Martín Yániz, CFO at Fomento Económico Mexicano]

That has been I mentioned already previously that we're looking to have joint P and Ls going forward between executives who share responsibilities. Number two, I think they and other members of the Board who are less than the digital world have urged caution with regards to the credit part of the business. And that's why, as you can see in all our calls, we try to transmit the cautiousness with which we will be approaching the credit part of the monetization strategy around this and the continued promise of no surprises. We will keep everybody abreast of what we're doing in this regard and the bets are very contained and small now as we build up capabilities. And we continue to explore if possible trying to find partners for some or all of the financial services part of the offering that we're trying to develop.

[Martín Yániz, CFO at Fomento Económico Mexicano]

So I would add those two comments to what Juan Carlos just mentioned.

[Carlos Laboy, Managing Director at HSBC]

Yes. And I would just to finalize the Board is not static, right? And just as FEMSA, we've gone through the whole FEMSA forward process and our mix of core businesses, obviously, has changed over the past decade, so too has changed the composition of the Board, right? And I think that it connects with the efforts of Jose Antonio in reducing the size of the Board, but also in getting new blood and new talent and new experience into it that is fully consistent with the challenges that the company is looking at and really the DNA of the company today as opposed to what it was ten, twenty, thirty, fifty years ago.

[Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano]

And maybe one final point on my end, you know getting perhaps to read between the lines of the question of you know do we have the right expertise on the digital arena around our board and our management team. I would like to highlight that also the recent changes in administration in Oxo Mexico have been quite positive. Carlos Arroyo's addition to the team having led the digital efforts at Choco and then also having been intimately involved with the transformation in Walmart in Central America has created a different type of discourse for us at Spin as we think about our collaboration efforts between OXXO Mexico and Spin in a very positive manner that is allowing us to gain momentum across our teams and have a much better alignment behind the strategic vision that we're trying to deploy.

[Carlos Laboy, Managing Director at HSBC]

This is all really helpful insights. Thank you.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

Thank you, Carlos.

[Operator]

There is a follow-up question coming from Ricardo Albais calling from Morgan Stanley. Please go ahead.

[Ricardo Alves, Lead Analyst at Morgan Stanley]

Thanks for the follow-up guys. My line was cut, so I'm sorry if this was asked. But a quick question for Martin on capital allocation. We did see the conclusion of the ASR program. And based on what's been announced, I think that you made reference to that in your preliminary remarks, that would imply perhaps another ASR.

[Ricardo Alves, Lead Analyst at Morgan Stanley]

So just wanted to see if you have any expectations around that. I'm not sure, for instance, what was your perception with the execution of the last ASR relative to your preliminary expectations? And as it pertains to local buybacks, we've been following how active the company is on that front this year. I think that that's appreciated. That needs to be acknowledged.

[Ricardo Alves, Lead Analyst at Morgan Stanley]

But just wanted to have your latest thoughts on if we could expect a resumption of that now that the second quarter is behind us. Thanks again for the follow-up guys.

[Martín Yániz, CFO at Fomento Económico Mexicano]

No problem. Just real quick, again, commitment is we're targeting $900,000,000 of buybacks from March 25 to March 26. We're about 40% there. We're $375,000,000 I think is the number between the local market purchases and the ASR. Number two, again, this is what people should expect.

[Martín Yániz, CFO at Fomento Económico Mexicano]

They should expect during windows where we can trade, executing the local markets and buying and launching ASRs. We can't do this outside the windows. That's number one. Number two, sometimes we have to close windows because we have material and public information about deals or things that are happening. And I can't communicate when a window has been opened or closed, just simply I am unable to announce that.

[Martín Yániz, CFO at Fomento Económico Mexicano]

So don't expect us to be operating in every single window. Don't expect us to announce everything that we're doing simply because it's impossible for me, but you should be focused on the $900,000,000 March to March as our target. And obviously, it will always depend on market conditions, But that really should be what people are focusing on March to March in $900,000,000 more than anything that happens or doesn't happen from one quarter to another.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

And I would just add, Ricardo, I mean, the end of the day, we're kind of halfway the three year timeframe that we provided to get to the two times. And we're at 0.93. I think that number changed more in the last three months than it had before. So we're almost at the halfway mark if we think about kind of that North Star of 2x. And I think, again, that's what the market should be.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

Assume that we are going to move towards that target as much as we can with all the caveats that Martin just mentioned.

[Ricardo Alves, Lead Analyst at Morgan Stanley]

Much appreciated again, Juan and Martin.

[Martín Yániz, CFO at Fomento Económico Mexicano]

Thank you, Ricardo. Thank you.

[Operator]

And the last question comes from the line of Emiliano Hernandez calling from GBM. Please go ahead.

[Emiliano Hernández Marvan, Research Analyst at GBM]

Hi, everyone. Thanks for the stage. Most of my questions have already been asked, but maybe you hear me there?

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

You cut off a little bit, but can you restate the question?

[Emiliano Hernández Marvan, Research Analyst at GBM]

Yes. I was wondering if maybe you can share it for Europe, sales in February was heading into the quarter. I wonder if you can comment on how you're seeing the consumer demand there and anything you could share on the strategy you have mentioned in the past to review the banners and plan to start with the organic expansion?

[Martín Yániz, CFO at Fomento Económico Mexicano]

I understood the question. This is Europe, right? Consumer demand and expansion and expansion.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

Thing, thank you, Emiliano. One message that we've certainly shared on the European operation is that obviously, the nature of the organic growth in Europe is a little bit different from what we have in our LatAm market for sure. In terms of you're not the abundance of corners where it would make sense to set up, in the case of Europe, an Avec store is not as plentiful. And what we've seen is it's very successful by the Valora team transactions where they will work with an operator of gas stations where Valorac, because of their high level of execution and the level of recognition that they have through the Avec brand and beyond, they're asked to come and operate the stores for those gas stations.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

And so that's something that you should expect to continue. There's another route which involves, for example, the stores in Germany that are the Deutsche Bahn and the train stations, the Deutsche Bahn, the DB banner that are going to be converted into Avec stores. So that's an upgrade. So the point I'm trying to make is a lot of the new stores that we will have or the converted upgraded stores that we will have will be on existing stores, whether somebody else that was running in the gas stations or groups of stores like the ones that we will convert in the Deutsche Bank stations more than just Greenfield, build the store from scratch. Although there is certainly a thesis that in the outskirts of certain cities, there are white label mom and pops that are definitely convertible and upgradable into one of our banners.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

So that's what I would comment on the organic growth. I don't know, Martin, if you

[Martín Yániz, CFO at Fomento Económico Mexicano]

Nothing to add.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

Yes. I don't know if hopefully that's helpful.

[Operator]

Well, there are no further questions. So I will hand it back to your host to conclude today's conference.

[Martín Yániz, CFO at Fomento Económico Mexicano]

Thank you everyone for your time and your interest in FEMSA.

[Juan Fonseca, Director - IR at Fomento Económico Mexicano]

And as always, Pam and Alex and myself are always available for follow ups. So have a great week. Thank you, guys.

[Operator]

Thank you for joining today's conference. You may now disconnect.

Participants

Analysts

• Juan Fonseca, Director - IR at Fomento Económico Mexicano
• Juan Carlos Guillermety, CEO - Spin at Fomento Económico Mexicano
• Martín Yániz, CFO at Fomento Económico Mexicano
• Benjamin Theurer, Managing Director at Barclays Corporate & Investment Bank
• Alvaro Garcia, Associate Partner at BTG Pactual
• Thiago Bortoluci, Equity Research Analyst at Goldman Sachs
• Rodrigo Alcantara, Director - Equity Research at UBS Group
• Ricardo Alves, Lead Analyst at Morgan Stanley
• Robert Ford Aguilar, Senior Analyst at Bank of America Merrill Lynch
• Antonio Hernández Vélez, Head - Equity Research & Director at Actinver
• Ulises Argote Bolio, Executive Director - Head of Mexico Equity Research, Strategist & Mexico Consumer Analyst at Santander
• Carlos Laboy, Managing Director at HSBC
• Emiliano Hernández Marvan, Research Analyst at GBM