Fomento Económico Mexicano, S.A.B. de C.V. (NYSE:FMX) Q4 2022 Earnings Call Transcript

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And again, as Daniel said, in the rest of the country is Brazil being a perfect example, I think on a top line perspective, in terms of the product mix and the segmentation, those stores are performing much higher than what we expected originally. So that is definitely the good news as we scale out and start to absorb some of the fixed costs of the distribution center and the rest of the supply chain dynamics, but that bodes well in terms of being able to achieve, I mean, tens — I mean, hundreds of basis points of improvement in terms of ROIs in Brazil on a relatively quick basis. The same can be said, I think now that we’re expanding with the okay market acquisition in Chile and in Colombia, where still we have a lot of room to improve, be at scale to achieve, I mean, much higher returns and hopefully, at some point, be closer to the guidance of returns that we’re getting in Mexico.

Juan Fonseca: Ricardo, let me just — this is Juan. I mean, obviously following on what Daniel and Eugenio just said, scale being a big part of the, let’s call it, secret sauce that eventually allows other very good things to happen when you kind of know what you’re doing in terms of openings because we did say in the beginning Eugenio mentioned, we came a little bit short of the 800 target in Mexico. But that doesn’t mean that we’re slowing down. I mean, we’re so confident and we’re looking at the productivity of the new stores and what the pipeline is looking like that the target for this year is closer to 900. So we’re going to be opening again, getting towards the 1,000 stores targeted in Mexico. But the thing I wanted to highlight is that we are getting also close to a point where we’re opening in South America, almost 50% of what we’re opening in Mexico, right?

So that’s obviously never happened before. So if in Mexico, we’re somewhere between 800 and 900 in South America, obviously, the JV in Brazil, it’s a JV. But we’re probably talking about somewhere between 300 and 400 new stores, if not a little bit more. So it’s getting to the point where scale will be — begin to be achieved in these countries. And that means you can have your distribution centers and then your absorption is so much better. And then you begin to have the ROIC. You begin to close the gap. I think another place where this we can expect this to happen is not as dramatic. But when you look at the health division where you have Chile with certain scale on certain margins. And when you look at Colombia and Mexico and all kind of closing that gap and a big part of it has to do with scale.

So I just wanted to leave that out there because the numbers — we’re accelerating the openings and South America is definitely now beginning to move the needle.

Operator: Next question comes from the line of Álvaro García coming from BTG.

Álvaro García: Two follow-ups. Firstly, on a follow-up on Héctor’s question earlier, talking about the traditional channel. I think it would be helpful maybe to define exactly what Pronto is sort of — and then sort of what the strategic rationale is of sort of helping out your competitors. We’d always thought of OXXO eating into the traditional channel slowly, but surely sort of what the strategic rationale is there would be helpful. And then just a second follow-up on gross margin. I think you mentioned financial services is actually a drag. We’ve always thought financial services was a higher-margin business with — in the context of mix. So sort of what maybe — zooming in on what happened this quarter, maybe waiting how much was spin and how much was financial services.

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