Earnings call transcript: Alsea Q4 2024 shows strong growth, digital focus

Alsea SAB De CV (BMV:ALSEA.MX), with a market capitalization of $1.8 billion, reported a notable performance in Q4 2024 with an 11.1% year-over-year increase in total sales, reaching ARS 21.7 billion. Despite a 45.3% decline in net income to ARS 775 million, the company’s digital initiatives and strategic expansions contributed to a 13% rise in EBITDA. The stock rose by 4.85%, reflecting positive investor sentiment towards Alsea’s robust digital transformation and growth strategies. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value metrics, with analysts setting price targets suggesting up to 46% potential upside.

Key Takeaways

• Total (EPA:TTEF) sales increased by 11.1% year-over-year in Q4 2024.
• EBITDA rose by 13%, with a margin of 16.4%.
• The company opened 275 stores in 2024 and plans 180-220 new openings in 2025.
• Digital sales accounted for 33.5% of total sales in 2024.

Company Performance

Alsea demonstrated strong growth in Q4 2024, driven by strategic expansions and a focus on digital transformation. The company opened 275 stores, contributing to its sales increase. The digital sales segment, which accounted for 33.5% of total sales, was a significant growth driver. Despite a drop in net income, Alsea’s overall performance remained resilient, with positive trends in its core brands like Domino’s Pizza (NYSE:DPZ) and Starbucks (NASDAQ:SBUX).

Financial Highlights

• Revenue: ARS 21.7 billion, up 11.1% year-over-year
• EBITDA: ARS 3.6 billion, up 13% with a 16.4% margin
• Net income: ARS 775 million, down 45.3% year-over-year
• CapEx: ARS 6.5 billion, exceeding initial guidance

Outlook & Guidance

Alsea projects mid-single digit same-store sales growth and low teens top-line growth for 2025. The company plans to invest around ARS 6 billion in capital expenditures and anticipates mid-single digit EBITDA growth. A focus on traffic growth over price increases and sequential improvement in European margins is expected.

Executive Commentary

• "We want to have more traffic in each one of the stores," said CFO Federico Rodriguez, emphasizing the focus on increasing store visits.
• CEO Armando Torrado stated, "Our strategy regarding our pillars are the same," indicating consistency in the company’s strategic approach.
• Federico Rodriguez also mentioned, "We are analyzing maybe the portfolio management to disincorporate some other business unit," suggesting potential divestments.

Risks and Challenges

• Volatile coffee prices with increases between 30-100% could impact profitability.
• Economic conditions, including a forecasted 2% GDP growth, may affect consumer spending.
• The complexity of managing a large portfolio with potential divestments poses operational challenges.

Alsea’s Q4 2024 performance highlights its successful growth strategies and digital transformation efforts. While net income declined, the company’s focus on expansion and digital sales positions it well for future growth.

Full transcript - Alsea SAB De CV (ALSEA) Q4 2024:

Gerardo Lozoya, Head of Investor Relations, Alsea: Good morning, everyone, and welcome to our sales Fourth Quarter and Full Year twenty twenty four Earnings Video Conference. My name is Gerardo Lozoya, Head of Investor Relations and Companyverse. U verse. And today, our Chief Executive Officer, Armando Torrado and our Chief Financial Officer, Federico Rodriguez will be presenting the results. Before we continue, a friendly reminder that some of our comments today will contain forward looking statements based on our current view of our business and that future results may differ materially from these statements.

Today’s call should be considered in conjunction with disclaimers in our earnings release and our most recent Bolsa Mexican Nevada release report. The company is not obligated to update or revise any such forward looking statements. Please note that unless specified otherwise, the earnings numbers referred to are based on our pre IFRS 16 standards. I will now hand it over to Armando for his initial remarks. Please go ahead, Armando.

Armando Torrado, Chief Executive Officer, Alsea: Thank you. Good morning to everyone and thank you, Gerardo. And welcome, welcome to the Alsea’s fourth quarter and full year twenty twenty four earnings video conference. I would first like to thank our team members for their continued dedications to Alsea, the hard work and commitment that had been key to our solid performance this quarter and through the year. Today,

Gerardo Lozoya, Head of Investor Relations, Alsea: I will provide an overview of

Armando Torrado, Chief Executive Officer, Alsea: the quality and full year performance, covering our financial results, regional highlights and key brand developments. And I will also highlight our progress on digital transformation, ESG initiatives and expansion strategy. To begin with here the key highlights for the 4Q of ’twenty four. In the fourth quarter, we reported an 11.1 year over year increase in total sales, reaching ARS21.7 billion or a 12% increase when excluding foreign exchange effects. Same store sales grew 7.2%.

EBITDA increased by 13% in the fourth quarter, reaching a ARS 3,600,000,000.0 with a margin of 16.4%. It is relevant to notice the strength of our brands in different regions, which is in conjunction with the optimization of the portfolio with the sale of 54 units of Burger King in Spain, strategic pricing and cost control measures that were effectively on offset the minimum wages increases. We improved in both margin and financial strength. We served almost 34,000,000 digital orders in the quarter, amounting to ARS 7,300,000,000.0, which accounted for ARS 33.5 of our total sales. For the full year, digital sales also reached a 33.5% of our total sales, slightly up from 33.4% in 2023, evidencing the success of our digital strategy and growing consumer performance.

Regarding our brand performance in the four quarters, Arcea Starbucks Arcea same store sales increased by 5.2%. For Starbucks Mexico, same store sales increased by 3.3%, mainly supported on the counter and delivery channels with strong contributors for the morning daypart. For Starbucks Europe, same store sales declined 7.4% as we continue working toward recovering pre COBOT traffic. Performance was also impacted by reduced consumer traffic in key tourist area, particularly in Valencia, which was affected by the recently floating. And finally, in South America, same store sales increased by 30.5%.

Regarding Domino’s Pizza Alsea, we posted a 4.8% increase in same store sales. In Mexico, Domino’s same store sales increased by 5.1%, driven by effective commercial and operations strategies. In Spain, same store sales increased 3.5%, reflecting successful commercial strategy such as Cosantissima, which has been well received by our customers. And in Colombia, Domino’s performed well, achieving a 10.5% growth in same store sales, driven by higher in transactions volume. Passing to Burger King Alsea, same store sales excluding Argentina decreased by 1.1%.

In Mexico, Burger King reported a same store sales contraction of 1.1%. However, the continued rollout of digital kiosks and other digital strategies is expected to support future growth. In Chile, same store sales were flat. Regarding the full service restaurant segment, we delivered a 3.9% growth in same store sales. Vipps Mexico, who recently turned sixty years anniversary, we had a strong 3.8% year over year growth in same store sales, fueled by strong operational performance and expansion on delivery channel and successful seasons promotions.

In Mexico, Italia Italianis was the best performer with a high single digit growing same store sales, while the rest of the portfolio was in mid single digit range. In Spain, Dibs and Genos reported a solid same store sales of three point eight percent and three point three percent, respectively, disputing the impact of our the floating in Valencia. Our global expansion strategy is focused on capitalizing on the most profitable opportunities across our key markets. During the fourth quarter, we opened 107 new stores, including 74 corporate units and 33 franchisees, especially targeting high traffic areas. Alongside our expansion in high potential regions, we are also remodeling existing locations to enhance customer experience and drive growth.

Despite macroeconomic challenges, we successfully opened two seventy five stores in 2024, ’2 zero ’5 corporate units and 70 franchise stores. Looking ahead to 2025, we remain focused on identifying high potential areas to expand our footprint. Regarding our loyalty programs, our digital transformation continues to be to full growth. By the end of the quarter, loyalty sales grew by 33.1%, reaching ARS 5,100,000,000.0, accounting for 25,100,000 orders and contributing to 26% of total sales. Additionally, by the end of the fourth quarter, ClubBuy in Spain has surpassed 2,800,000 members, while Starbucks reached over 2,300,000 active users across all Alsea regions.

ESG and people. We continue to advance in our ESG initiatives this year, demonstrating our commitment to sustainability and social responsibility. As we reflect on our 2024 achievements, I want to highlight the collaborative efforts across company to shape our sustainability strategy. This work has been essential in establishing short, medium and long term goals focused on reducing emissions, enhancing packaging in circularity, ensuring responsible sourcing and certifying suppliers on their sustainable liquidity. Our commitment to the community and later development has been strengthened through these initiatives, ensuring that sustainability remains a core component of our operation and strategy.

By integrating sustainability into everything we do, we are not only shaping a better future, but also building a strong foundation for long term success. Additionally, Fundacion Alreas has a record investment in more than ARS90 million and serving more than 1,500,000 meals in Mexico through 34 soup kitchens. And we continue to ensuring food security for vulnerable communities and support human development through education and employability initiatives. Now I would like to hand it over to Federico Rodriguez. Please, Federico.

Federico Rodriguez, Chief Financial Officer, Alsea: Thank you, Armando. Good morning, everyone. The sales increased by 11.1% in the fourth quarter and 6.3% for the full year, driven by solid consumption preference for the company’s brands and effective commercial strategies in Mexico and Spain. Excluding the FX, sales increased 12% for the quarter and 10.9% for the full year. For the fourth quarter, sales in Mexico were up 8.5% to ARS 11,600,000,000.0.

In Europe, sales increased by 14.5% to ARS 6,500,000,000.0, while in Euro terms, sales increased by 0.8%. Finally, South America sales increased by 14.1% to ARS 3,500,000,000.0. For comparable proposals and attending the accounting rules, the operation of the 54 units of Prorke King in Spain as well as the sale of these assets has been included as a discontinued operation below EBITDA line. The EBITDA increased by 13% in the fourth quarter and 8.5% for the full year, driven by solid consumption and the preference for the company’s brands. Excluding FX, EBITDA increased 11.5% for the quarter and 11% for the full year.

In Mexico, the adjusted EBITDA increased by a strong 14.7% to ARS2.8 billion for the quarter. This growth was driven by lower material cost, increased sales, successful commercial and promotional campaigns and effective expense and labor management. Additionally, the 3.8% growth in same store sales continue to improve operating leverage. For the full year 2024, adjusted EBITDA increased 18.5% to ARS 10,500,000,000.0 with a margin expansion of 180 basis points. In Europe, the adjusted EBITDA decreased by 2.1% to ARS1 billion for the quarter and by 9.7% in euros, driven by a drop in same store sales.

This decline was primarily due to macroeconomic pressures and the previously mentioned brand boycott. For the full year, adjusted EBITDA decreased 4.4% to ARS3.3 billion with a margin contraction of 150 basis points. In South America, adjusted EBITDA declined by 17% to ARS488 million, driven by a reduction in the operating leverage and an increase in the cost of food and other inputs. For the full year, adjusted EBITDA decreased 21.5 to ARS1.8 billion with a margin contraction of three seventy basis points. Net income for the fourth quarter decreased 45.3% year over year to ARS775 million.

This was mainly due to a negative noncash effect from currency exchange translation, which increased the cost of our U. S. And euro denominated debt in Mexican pesos terms by the end of the quarter. For the full year 2024, EPS was ARS1.68, plus IFRS 16 EPS was ARS0.94. Going to the CapEx.

For the full year, we amounted ARS6.5 billion, slightly exceeding the initial guidance. This was mainly due to the start of constructions of the new distribution center in Guadalajara. This investment will strengthen our logistical capabilities and support future regional growth. We allocated 27% to maintenance CapEx, 58% to store openings and remodelings and 16% to other strategic projects. Throughout the year, we prioritized prudent and responsible investment with a truly focus on profitability.

Our pre IFRS 16 gross debt increased by ARS 6,900,000,000.0 year over year, reaching ARS 33,000,000,000 by the end of twenty twenty four. This rise was due to the debt incurred to finance the minority shareholder acquisition in Europe, as well as due to the impact of a weaker Mexican pesos on the foreign currency debt at quarter end. At the end of twenty twenty four, ’80 ’9 percent of the debt was long term with 65 denominated in Mexican pesos and 35% in euros. We remain committed to maintain a strong balance sheet and are confident in comfortably meeting all debt covenants and obligations, thanks to our healthy capital structure. At the end of the year, we posted a cash position of ARS6.5 billion.

Turning to financial ratios. The total debt to pre IFRS 16 EBITDA ratio closed the year at 2.8 times, while the net debt to EBITDA ratio stood at 2.3 times. Before going to the Q and A session, I want to add some details to our other current liabilities line and cash flow. The other current liability lines includes a pending $40,000,000 payment to minority shareholders of the European entity, Huacquer, in 2024. This obligation was already paid a couple of days ago.

Therefore, you won’t see this effect going forward. Additionally, more than 60% of this account, the other current liability is explained, as we have said in previous communications of derivative instruments for hedging, recurring and variable compensation of the management and the store managers, etcetera, operating and supply provisions such as water, electricity, Internet, etcetera, legal and legal research among others. I also want to highlight the company’s strong cash flow generation. Several times, we have explained the seasonality component of the business. The Christmas season being the relevant driver to generate a positive working capital in the last quarter, while we usually see the opposite during the first half of each year.

Despite some one off impacts like the payment to our growth suppliers in Argentina and the change in payment conditions to bearishable product suppliers in Europe in the first half of twenty twenty four, we delivered solid cash flow conversion before dividend payments. Before discussing the 2025 guidance, I want to highlight that excluding FX, we successfully achieved our revenue and EBITDA growth guidance with a 10.911% growth in 2024, respectively. Our 2025 guidance reflects the commitment to sustainable growth, operational efficiencies and disciplined capital allocation.

Armando Torrado, Chief Executive Officer, Alsea: We

Federico Rodriguez, Chief Financial Officer, Alsea: expect a mid single digit same store sales growth, a top line growth in the low teens between one hundred and eighty and two twenty new store openings, around 60% to 70% of them will be corporate ones, CapEx of around Ps. 6,000,000,000. Regarding the EBITDA ratios, per IFRS 16 expectations, an EBITDA growth of approximately mid single digit, a total debt to EBITDA ratio between 2.6 to 2.8 times and post IFRS 16 expectations, EBITDA growth of roughly mid single digit, a total debt to EBITDA ratio between three and three point two times. These assumptions considered in the guidance are at 2.2 GDP average growth in all the regions, including Mexico, Argentina, the 12 countries where we participate and an exchange rate of MXN20.8 per dollar and MXN22.8 per euro. Despite external challenges, we remain confident in the ability of Alsea to execute the strategy, capitalize the high potential opportunities and sustain strong results.

I will now pass you over to the operator for the Q and A session. Thank you very much.

Conference Operator: We will now start the Q and A session. The first question is from Mr. Alejandro Fuchs from Itau BBA. Please go ahead.

Alejandro Fuchs, Analyst, Itau BBA: Thank you, operator. Ola Armando, Federico Gerardo. Thank you for the space for questions and congratulations on the results. Two quick ones from my side one in Europe. Looking at semiconductor sales in Starbucks, it seems that sequentially, we’re seeing a better performance.

Wanted to see if you can walk us through maybe the monthly results on the brand. Was maybe November better than October, December better than November? And how you see that maybe to start the year. That will be the first one. And the second one, very quickly, on profitability also in Europe.

Although the EBITDA at a store level saw margin contraction, when you see the EBITDA as Europe as a whole, we saw margin expansion, right, year over year. Want to see if you can walk us through maybe what are some of the saving initiatives and efficiency programs that you’re seeing in Europe as well?

Armando Torrado, Chief Executive Officer, Alsea: Hello, Alexis. Thank you very much. Yes, in France, we’re continuing working towards recovering from the pre boycott traffic. And we have seen, of course, the situation improvement, as you can see in the report, with a much of course, there is a issue comparable base, but the traffic is performing better. As we mentioned, the full recovery, and I will tell you that to the market to you guys, will take a little bit more than eighteen to twenty four months.

But we are we expected a full year by the end to recovery by the end of twenty twenty six. But we can I mean, we still continue implementing commercials, promotion campaigns, and there’s some bundles and some digital things that we are doing? We are, as I said, expected and we are looking and seeing a global recovery in these first nine weeks of the year. The declining is only a low single digit now. So I think by the end of the year, we will have a better numbers in this region that in order, I mean, it’s they are very small again in our completed portfolio regarding EBITDA margins.

But our recovery, it’s continuing and in good way to for the future.

Federico Rodriguez, Chief Financial Officer, Alsea: Regarding hello, Alex. Regarding the EBITDA expansion that you’re mentioning, we are working in all the lines, not only in Europe, but in the rest of the company, we’re impressions from minimum wage, obviously, the depreciation of the FX as you have seen in the guidance. We’re working across all these initiatives. We have several plans. And as Armando said, in Europe, the same store sales in France have started to improve sequentially from the previous quarter.

And additionally, the portfolio management that we did with this incorporation of the 54 units of Burger King in Spain are helping us. So we are fully concentrated in the cash flow generation of the portfolio with Europe and South America, both private and bright.

Gerardo Lozoya, Head of Investor Relations, Alsea: Alejandro, this is Gerardo. So if I may add some color on kind of the sequential improvement that we have seen in Europe, but I would say this is for the complete portfolio of our brands. I would say December was a pretty strong month as we mentioned in our opening remarks. If you compare that December versus October, November was definitely higher. So it was again sequentially improving through the quarter.

And so far, I would say in the first take couple of months that we already passed in 2025, top line and same store sales continue to be, I would say, robust.

Alejandro Fuchs, Analyst, Itau BBA: Thank you very much. Armando Fray, go ahead, Eduardo. Thank you.

Conference Operator: Thank you very much for your question. Our next question is from Mr. Ben Thoreau from Barclays (LON:BARC). Please go ahead.

Ben Thoreau, Analyst, Barclays: Yes. Good morning. Thank you very much for taking my address, Normando Federico. Congrats on a solid financials call this way. Two questions as well, if I may.

So number one, looking at your growth outlook for next year, could you maybe give us a little more nuanced views as it relates to the same store sales growth you’re expecting with single digit and obviously on a consolidated basis? But maybe just high level what you think of Mexico versus South America versus Europe? That would be my first question. And then second, if we could just dig a little bit into the CapEx and the new store openings, it feels like at the midpoint, it’s about 30% less stores than what we had in 2024 on the opening side. But CapEx is kind of like seen only less than 10% lower than what it was last year.

So just wanted to understand what’s driving that higher inflation just given that the store openings are actually down more meaningful on a year over year basis. Is it that Guadalajara Distribution Center or what’s behind it? So maybe just a little bit more nuance details here as well. Thank you.

Alvaro Garcia, Analyst, BTG Pactual: Yes, sure, Ben. Thank you

Federico Rodriguez, Chief Financial Officer, Alsea: very much, Ben. Regarding the growth that we are seeing in the top line for the next year, as you have seen in the guidance, we have a mid single digit increase in the different countries. I would say it’s pretty similar for the different regions. Obviously, we have a sequential improvement in France. It is not going to be so relevant as we wish, but I would say that for Mexico and the rest of the regions, it should be on a mid single to high single digit depending on the region.

It’s pretty similar. And additionally, the 3% to 4% depending on the region of the new openings. So we will have considered all the different things. And additionally, you should consider the FX depreciation that we have into the top line because of the euros that we convert to pesos. It’s really different.

It’s an increase of around 2 to 2.5 pesos from an average perspective from 2024. That would be the guidance for top line in 2025. And regarding the CapEx decreasing, regarding new openings, yes, we are not so interested in new openings, especially because as we have said, obviously, we do not have at this point the 100 of the transactions that we had in France Two Years ago. So we are delaying a little bit the pipeline for this region. We want to grow, yes, both on a profitable way.

And additionally, the CapEx is not having a relevant decrease because of the service in Guadalajara, the distribution center, the new distribution center. The total CapEx for this facility is around MXN $750,000,000. We spent around MXN 200,000,000 last year and this year will be the difference to accomplish with this gap. Do you want to add something?

Jose Rafael Fernandez: [SPEAKER JOSE RAFAEL FERNANDEZ:]

Armando Torrado, Chief Executive Officer, Alsea: No, just we’ve been very rationally side and just very productive in the CapEx allocation. And we’re still doing. I mean, the budget that we did last year, we only cover 90% or 89% by the end of the year. So we’re going to still do the same this year, just seeing where we need to spend, how we need to spend, remodel is opening and every. And as Federico says, we are using more cases, especially in Benelux and where to open also in South America.

So I think that’s good news because the pipeline in the store is robust but full of very profitable stores. And then just to mention on the same store sales, the budget and the projections that we have is positive traffic in all regions. Not it’s not leveraged by any chance, just in the ticker average. All the regions and all the brands like last year was the same. They are positive in traffic.

Federico Rodriguez, Chief Financial Officer, Alsea: And then regarding top line, I have to add that we are focusing on defending traffic. That’s a critical part of the same store sales. Obviously, we have taken inflation. This is zero way. We are not interested to roll through ticket.

That’s artificial. But we want to increase the traffic in each one of the store, each one of the region, each one of the brands. I would say that’s a challenge and that’s the reason we’re not planning to trespass a fully on a fully weighted inflation that we have in the raw materials.

Conference Operator: Our next question is from Mr. Diego Jarduin from Citi. Please go ahead.

Diego Jarduin, Analyst, Citi: Good morning, Armando, Federico, Gerardo. Thank you for taking my questions. I would like to explore two points here. So we already discussed a little bit same store sales for the guidance, but maybe if we can get into a little bit more of detail into the store openings. If I’m not mistaken, it was 180 to 120.

So just wondering whatever new information you could give us on brands, geographies, just so we could understand the focus and opportunities on the store openings. Okay. And the second point I would like to address here is to hear a bit from you on the Domino’s brand. We saw an overall pretty solid same store sales, right? Mexico ended up 5.1 and Colombia’s extraordinary 10.5%.

So just wondering how’s the competition going?

Alejandro Fuchs, Analyst, Itau BBA: How do you

Federico Rodriguez, Chief Financial Officer, Alsea: see it for the

Diego Jarduin, Analyst, Citi: different geographies? And again, whatever opportunities you see here? And yes, that’s it from my side. Thank you.

Federico Rodriguez, Chief Financial Officer, Alsea: Yes. Thank you, Thiago. Good morning. Regarding the openings for 2025, ’80 percent of the openings will be based on Starbucks and Domino’s Pizza. And the main regions where we are allocating this new openings, Mexico and Europe, with around 80% to 85% of the pipeline.

The remaining stores will be casual dining in Spain and Mexico and barely around five to seven new stores in South America.

Armando Torrado, Chief Executive Officer, Alsea: Yes. Thanks for mentioning that Domino’s Pizza, I think, is super important. We did an extraordinary well year, I would say, and just a great quarter. And while it was that in Spain, we launched a new product innovation that is called Antisima. We had a record weeks all year all the six of all the thirteen weeks of the quarter.

Just making it’s a little bit hard to innovate in this business, but that one is just a great product that make the difference. And that was a little bit of growth that we have in Spain. Also, I would like to say the carryout strategies that we’ve been focusing the last eighteen months here competing with our competitors that had carryout promotions are also being very successful in all the regions. Another thing, of course, the digital transformation, we invest in our own application now. And the conversion rate on that application is being in double high double digit.

So that is transforming well. We are also doing some the tender and the digital channels on Domino’s are also being very successful. So I think it’s not going to be the case this year. We are doing well in that brand. Of course, that one in Mexico is affected a little bit by the exchange rate because our cost of goods is really a little bit more aligned or the Calagalo to cost.

But I think that all overall, the business unit had a very successful year, and hopefully this year will be the same.

Conference Operator: Our next question is from Mr. Antonio Hernandez from ActingVeb. Please go ahead.

Jose Rafael Fernandez: Hi, good morning. Thanks for taking my question. Congrats on your results. Could you please elaborate a little bit more on the trend that you’re seeing so far during the year now in Mexico? I mean, thanks for the color on Europe.

Any more color that you could provide on Mexico? And also wanted to know if part of your guidance is based on a better second half versus the first half given the different comps and also calendar effect in the first half?

Federico Rodriguez, Chief Financial Officer, Alsea: Well, Antonio, mucho, Gastonio. We saw some resiliency of the consumer in the last months of the year. As Gerardo and Armando said, it was a fantastic last quarter of the year, not only because of the strong seasonality of December, but all the brands have a positive trend. Talking around the same store sales board, more important, around traffic. It was amazing with the exception brands.

The rest of the brands in Mexico had a positive behavior, not only in Mexico, but in the rest of the region, South America and Europe too. And obviously, as I said before regarding the guidance for 2025, we are building a positive guidance with 2% of GDP. Obviously, the private consumption, it is not going to be easy. It is going to be positive, we hope. But additionally, we think that we must have a mid single digit growth in all the different geographies.

I would say that the behavior in the first half and the second half is really similar, talking around the guidance. So it is not going to be really different from our perspective.

Conference Operator: Our next question is from Mr. Declan Hallon from Santander (BME:SAN). Please go ahead. Our next question is from Mr. Declan Hallon from Santander.

Our next question is from Ms. Renata Cabral from Citibank. Please go ahead.

Renata Cabral, Analyst, Citibank: Hi, everyone. Thanks so much for taking my question. It’s actually a follow-up about the quarter in Mexico. Can you give us a little bit of trends? What happened, especially in Starbucks, which is a really, really important grant for you in terms of pricing and traffic for the quarter?

Thank you so much.

Federico Rodriguez, Chief Financial Officer, Alsea: Yes, Renata. In the last quarter, we had a positive same store sales for the brand in Mexico around mid single digit, especially as we before and which we related with the message for 2025. We’re having trend regarding traffic. We are not increasing because of the ticket inflation. We think that with the current economic environment and the volatility, the worst thing that we can do in Alsea, not only in Mexico for the start of the spot for the rest of the portfolio is have higher prices for the customer.

So we are being really positive around the comparable store base and additionally the openings that we’re having in Mexico. And this message has been repeated more than once during the last year. We’re having paybacks better than the stores that we opened twenty two years ago when we set the first store in Pasco De La Reforma in Mexico. So we are having returns on investment below two years. So we are pretty happy.

We will increase the footprint and increase the penetration for Stavox in Mexico. But additionally, I want to highlight what happened with the cash flow mining in Mexico and in Spain during the whole year. We have a figure from high to from mid to high single digit regarding same store sales. More than 60% of this figure was built with traffic. And we want to highlight because a lot of time, we receive several questions around Starbucks or Domino’s.

But the casual dining portfolios are relevant later of the strategy of Paltzia for the future, and we will continue increasing the footprint as we will do with the Starbucks in Mexico and the rest of the geographies. Thank you very much.

Renata Cabral, Analyst, Citibank: Thank you, Federico. That’s a great color. If you allow me, just a very quick second question regarding coffee prices here in Brazil as we are a great exporter. We are talking a lot about that, the increasing prices. If you can give a little bit of color what are you expecting for the year and how is the contracts you have qualitative terms with Starbucks in terms of purchase of the coffee going to Mexico would help us a lot to understand the main dynamics.

Federico Rodriguez, Chief Financial Officer, Alsea: Okay. This answer regarding coffee as we have established before, obviously we saw the trends that has the market regarding coffee. We have seen several increases of about 30% to 100% depending on the day. As we acquire the coffee from a Starbucks, the parent company, we never have a significant increase or a significant decrease. The main part of the FX that we are putting in place into the guidance is related with the FX that we are having From a 17.5 pesos per dollar that we have as an average in 2024, we are going to a 20.8 as we said in the guidance of FX.

And that’s the depreciation that we are reflecting into the guidance. So I would say that even when we are aware of the increases in the coffee and we have a strategy for the pricing for the final customer, we are more worried around the FX because, obviously, 1 peso is around 30 basis points on the final composition mix of the EBITDA, both for 2025 and with the futures that we are seeing at the market, it’s around 100 basis points.

Armando Torrado, Chief Executive Officer, Alsea: And Jose, Renata, to be clear, since this thing started, I mean, the higher of the prices and the futures of the prices of the coffee, we’re still talking, of course, with our partner in Seattle regarding what other options that we have in case there’s any tariffs or whatever around sale. And there’s a lot of options in the table of Venezuela. As we know, we use Mexican coffee most than what is roasted in The U. S. And come back to Mexico, that is not a taxable

Gerardo Lozoya, Head of Investor Relations, Alsea: product. So we are still there, but we

Armando Torrado, Chief Executive Officer, Alsea: are looking other options in Asia and, of course, Colombia that we are sourcing at that great coffin there with a good partner of Starbucks. And we are working there and that’s something whether we are on top in a so we can avoid any inflation and any increase of the price that is the strategy for this year in order to continue to build traffic in our brands.

Renata Cabral, Analyst, Citibank: Thank you so much for the color, Mende Federico.

Conference Operator: Thank you very much for your question. Our next question is from Mr. Alvaro Garcia from BTG Pactual. Please go ahead.

Alvaro Garcia, Analyst, BTG Pactual: Hi, gentlemen. I have three questions. I’ll go one by one. On the guidance on margin specifically, I was wondering if you can maybe give a regional breakout. Given all of your comments thus far on the call, it seems like most of the pressure will be concentrated in Mexico given the FX dynamic, but I was wondering if you can give a bit more color on and we do have easier comps right in Europe and LATAM.

So any color on sort of the regional breakout on the margin pressure specifically embedded in your guidance would be helpful. Yes, sure, Alvaro. Well, I

Federico Rodriguez, Chief Financial Officer, Alsea: would say that the pressure that is the near pressure that was opened for the 2025 is set in Mexico. Established with Renata’s questions, our depreciation of MXN one impact the gross margin on approximately 30 basis points. So this impact could be 100 basis points at the gross margin level. This obviously is without doing nothing. So we are working on efficiencies, strategies as Armando said, with the different suppliers, the strategy to have a stockpile of the different key products like the cheese or the coffee, so we can mitigate part of these impacts.

In Europe, we should see a sequential improvement in the margins in the whole year, and I would say a pretty similar thing for South America. That was the first question.

Alvaro Garcia, Analyst, BTG Pactual: Yes, great. The second one is on higher D and A, also for you, Fede. We saw a materially higher depreciation. I was wondering if you have a little bit more color on that.

Federico Rodriguez, Chief Financial Officer, Alsea: Yes, sure. Regarding the variations and the peaks that you are seeing in the regional components of the V and A post IFRS 16, we standardized the criteria of the different leasing contracts. The IFRS 16 law, this accounting law is really complex and obviously, we signed a different lease contracts for cash flow line in the Starbucks and Nutrien (NYSE:NTR) on different ways. It is not the same in Mexico than the landlords that we have in Europe, etcetera. So we are standardizing this criteria.

This does not imply and I want to highlight this, Alvaro and for the rest of the industrial community, this is not implying an increase in the rental expenses. But in the way we account the leases from an IFRS 16 perspective. Obviously, we manage the business and we have established several occasions on our IFRS 16 situation because that’s the way we control the cash flow. We signed with a mandatory term of five years, none more. So it is really easy to go out without paying any kind of penalty when we want to exit from some of the, on the sites that we are exploding right now.

Alvaro Garcia, Analyst, BTG Pactual: Nice. So most of the impact was a shift in mix was more IFRS 16, I’d say.

Federico Rodriguez, Chief Financial Officer, Alsea: Yes, it’s totally accounting rule and we commented this with the auditor obviously because it was going to make a lot of noise, but the rental expense is the same when you see from a cash flow perspective. The conditions, the terms would have 60% of the rent of the rental or the resets with a fixed component and the remaining 40%, especially shopping malls, airports, etcetera, on a variable basis.

Alvaro Garcia, Analyst, BTG Pactual: Yes. And then my last question, and thanks so much for the space for question. My last question is for Armando on Cristian, on Cristian Guri on the new appointment of the CEO. Your mandate obviously was a post pandemic mandate and sort of rightsized the ship and did a great job and it was great to be a part of this time. But what do you think Christian’s mandate might look like?

Is it going to be the same or do you think do you expect a shift in his mandate or change in mandate with him as CEO?

Armando Torrado, Chief Executive Officer, Alsea: Thank you for the question. I think exactly we are in an invention program, as I told you guys and I said to you guys in January when I had the privilege to see you. He’s going to be in the program of four, five months. I mean, he’s been in the company for the past twenty something years. So he’s specialized.

He knows all the brands. He’s been in the three regions in two regions out of the three, so he knows. I think our strategy that I’ve been given to the market regarding the pillars strategy that we are doing now, how we are focusing in pillars in economic units, I mean, that won’t change. I mean, the Board is the one with him set the strategy for the future that we just had the board yesterday and last week, we got together. And the strategy regarding our pillars are the same.

The talent of attraction in this company, retention talent, just be the best employer of the business will be the same. Operation excellence since I arrived. This company is about operating well restaurants, great service, great product, great image, and that will create people to come back. Of course, Alvaro, this digital transformation since I arrived, I was very focused on changing all the POS of the company, the systems, the technology, now we are doing some AI. So there is a lot of things right now in the digital transformation in Burger King with Accios that has to be continuity and then I will say get some return of investment on that one.

I mean, the portfolio growth, you’ve been seeing that our portfolio growth is just been very focused on the brands that are giving us the best results. Strong balance sheet, I mean, the same. We’ve been focused on the CapEx. We’re trying to pay debt last year, give some dividends. And then so I assume that the balance sheet always, of course, innovating, being a great partner in sustainability with our community.

So I think, yes, I mean, and the synergy and critical mass of this company to create more value will still the same. So I think that the plan for Christian, myself, the board is very clear and we’re going to attach to that plan.

Conference Operator: Thank you very much for your question. Our next question is from Mr. Floyd Mendez from JPMorgan. Please go ahead.

Armando Torrado, Chief Executive Officer, Alsea0: Hello. Thank you for taking my question. I was wondering, after seeing the divestment of Burger King and when you think about and you have said about focusing on the most profitable brands, is there anything left that can be sold in your portfolio? That’s the first question. And second, I would like to understand how is the stand alone Starbucks strategy going in Mexico?

You have been mentioning that going forward, a lot more of the new stores will be more stand alone, probably in highways, a little bit different from the footprint that we know through in Mexico. Just want to understand where we’re at in that Starbucks strategy.

Federico Rodriguez, Chief Financial Officer, Alsea: Thank you, Rory. Regarding the first question with the incorporation of Burger King in Spain, the first reason to incorporate Burger King is because we were not able to work with this brand in Spain because there are some other players that hold the MFA rights and they were not permitting our share to have more units because it was really a cash cow into that territory and that was a different reason to disincorporate board working. Additionally, we are on a daily basis looking for new opportunities to unlock value for the different investors. So yes, the answer is yes. We are analyzing maybe the portfolio management to disincorporate some other business unit.

At this point, they are not relevant into the whole pie composition of Alsea around revenues and EBITDA. And the message that we want to trespass, especially because we hear you or the investor community is that the business is too complex. So we want to simplify not only for you, but for the management. And we want to give them the right voice to the major concepts like Starbucks Domino’s Pizza and the cash aligning strategy in Mexico and in Spain. And the second

Armando Torrado, Chief Executive Officer, Alsea: one Regarding the openings out of the 180 to two twenty that we gave in the guidance, of course, that’s probably the half or only 100 stores that will be opened by our Starbucks pillar. Of those ones, 90% are corporate stores. The other one are sub franchisees, the licensees that are going to be in Europe. And out of the 90 stores more or less that we’re going to open, yes, we in Mexico especially, where we have a little bit target of 50 to 70 stores, There is where we have some drive through stand alones that are going to be open. That takes a little more time.

But all those stores, as Federico says, the good news here is the stores that we open now and that we open in the last twenty four months and the one that we have in the budget for next year, all of them, the value, the creation, the return of investment is still higher than the first store that we opened. And on the unit economics, the way we are enforcing the rent negotiation with the landlords. Probably sometime they pay for the Shell (LON:SHEL). And then the investment that we are putting with the green stores that we are executing, everything is giving us a good return. Drive thrus are working well, but the rest of the stores also are working well.

So I think the portfolio for this year regarding not only Starbucks, I will say, a casual dining division and all the dominant stores are they are already in place. We already have practically that the pipeline is set and ready, someone in construction. So I think there’s going to be a good there’s going to be good quality pipeline and to for good success in our store openings.

Armando Torrado, Chief Executive Officer, Alsea0: Very clear. Thank you so much for your answers, Gracias.

Conference Operator: Thank you very much for your question. Our next question is from Ms. Julia Rizzo from Morgan Stanley (NYSE:MS). Please go ahead.

Federico Rodriguez, Chief Financial Officer, Alsea: Julia? We can see you, Julien.

Gerardo Lozoya, Head of Investor Relations, Alsea: Now we can see you,

Federico Rodriguez, Chief Financial Officer, Alsea: but not hear you. Julian,

Armando Torrado, Chief Executive Officer, Alsea1: we update. Thank you, I’m sorry. I think I lost the connection. Thank you for getting my questions. It’s really quick.

Can you give us a little bit more color on the, I think, the non store expenses, which I think was quite surprising that we saw some reductions compared to previous year, a very good level, if that is recurring on expectations for 2025? Then, again, I will do a follow-up later. Thank you.

Alvaro Garcia, Analyst, BTG Pactual: Sure.

Federico Rodriguez, Chief Financial Officer, Alsea: Thank you, Giulia. Regarding I saw the paper regarding non store expenses question. Probably when you see the operating income and the EBITDA and the adjusted EBITDA, which is the EBITDA for the store level EBITDA that we have, you are still losing two components, the preopening expenses that are totally related with the new openings than we have. And in the last year, probably, we have a completely different pipeline than in 2023. Maybe that’s a reason that you are seeing a saving, an artificial saving.

But obviously, we still have some different efficiencies in the G and A part. And obviously, as you remember, we have into the other current liabilities some of the provisions to pay the long term incentive for the management. There is part of the cancellation that we are performing like all the years that we are doing because we are not achieving the target set by the by our CEO. And that’s the reason. But I would say that the major deviation is related with the preopening expenses at the different pipeline that we had in the last quarter from 2023.

Armando Torrado, Chief Executive Officer, Alsea1: Can I give you the Ruth Park, what was preopening expenses on the last quarter?

Federico Rodriguez, Chief Financial Officer, Alsea: Year? Yes, for example, training expenses, all the rental expenses that you have previously to open on a formal weighted store. Sorry, some part of the construction of the building, all the electricity expenses to set a to do a fine tuning of the stores. Those are the preopening expenses. And you have these into the different geographies.

Their SAGA is not only related with SG and A between the EBITDA forward and the operating income.

Armando Torrado, Chief Executive Officer, Alsea1: Okay. And a follow-up on Mexico, the margins. The margins were really impressive. The resilience, especially given the context of wages and also the commodity price going up. I would like to understand what is your view going forward if that ’24 or high 23 rate is sustainable?

Or if perhaps something has to do also with the mix,

Gerardo Lozoya, Head of Investor Relations, Alsea: A little bit of the outlook. Thanks for that because I

Armando Torrado, Chief Executive Officer, Alsea: think it was an impressive number. We saw it since the beginning of in the last weeks November, and we just prepared the whole organization in staffing and operations in order to achieve that. Yes, the Casualty business division was an impressive number, but also continuing with Domino’s. And yes, the start of it was not the assumption. Yes, we’re going to see we’re going to observe some normalization in that with growth rates.

Armando Torrado, Chief Executive Officer, Alsea1: I think it was, yes.

Gerardo Lozoya, Head of Investor Relations, Alsea: You lost me?

Armando Torrado, Chief Executive Officer, Alsea1: Yes. Sorry, can you repeat?

Armando Torrado, Chief Executive Officer, Alsea: No, no, I can repeat. Of course, we had a great since November. In the November, we saw the trends. We were very prepared. Of course, we did a lot of things not only to our campaign to grow, we doubled down in some strategies, commercial strategy in order to fulfill better the restaurants.

So yes, casual dining was strong, Domino’s Pizza was very strong and Starbucks was not the exemption. It was very strong. We did grow well in traffic in the last four, six weeks of the year. Yes, we will observe some normalization in our growth rate. We are still at a little bit of just compression in the market.

But I think we’ve experienced this. We do have tools of digital in Starbucks Rewards and we have other things that are coming, trying to get all the opportunities that we can in order to fulfill the account for better traffic in our stores and in all the regions. And also, we’re not only seeing Mexico, I think. I’m talking here globally. We just have a good conversation with all my 200 team members just one hour ago and seen we have to capitalize every opportunity.

And in this business, all the time there’s opportunity in all the stores as you go of attending one more client or selling a little bit more to one. So I think I feel confident of the guide and I feel confident that we’re going to have a tough year, but we always been this has always been challenged, and I think we will make it happen.

Federico Rodriguez, Chief Financial Officer, Alsea: And Giulia, in the long term plan, obviously, 2025, there’s an FX. It is not only in our sale body and the rest of the industry. We have to reframe what we want to do. And as I said before and we have established, we want to have more traffic in each one of the stores. Armando have liked that.

And obviously, we will return the margins that we had in the last quarter of twenty twenty four. Of course, they are sustainable in the long term. And this kind of volatility, somebody could tell me what is going to be the exchange rate for the rest of the year, that would be great. But nobody knows. But of course, we have a strategy and we cannot be only worried because of the short term.

Armando Torrado, Chief Executive Officer, Alsea1: Yes. But for the ’24, the really good margins of the fourth quarter, is there is something that you can give us a little bit more color on how you

Armando Torrado, Chief Executive Officer, Alsea: With the issue?

Armando Torrado, Chief Executive Officer, Alsea1: Yes, to offset the pressures on wages and

Jose Rafael Fernandez: or just modest.

Armando Torrado, Chief Executive Officer, Alsea1: Maybe that’s related with the mix with I don’t know how schedule mining margins compared to the rest of the portfolio. Just something to understand Of

Federico Rodriguez, Chief Financial Officer, Alsea: course, both these are the basics of the business. We have discussed regarding minimum wage increases. We have offset this kind of impacts during the last six years because it did not occur only in 2024. We have had a 20% increase during the last six years in this country. What are the tools to offset these increases?

The increase in productivity, what does productivity means? Transactions per labor hour. We measure all these kind of initiatives, the right mix of promotions. Maybe we have sometimes 40 promotions on delivery, then we have 20 promotions, the implementation of bundles, obviously, trying to understand our customer. The EBITDA margins that we have in the cash line in the business are pretty similar to those we have in the Starbucks or Domino’s business.

In fact, in some of the stores are better because a lot of these brands are corporate ones. So we are not paying royalty to the franchise stores. But as I said, we have two major components, the cost of food, you know the tactics and you know what is happening in ’twenty five because I have just explained and the productivity. That sits under the control of Alsea. For example, in France, we know how to open a store with two berries at 08:00 in the morning.

Here, we have a different composition, different transaction, we have six. So we have a huge gap between what is happening in Mexico or in South America to what is happening in Europe and some other geographies where the productivity have to be controlled in a different manner. So I think we have the tools and that’s the reason that we achieved those margins in the last quarter. There are not something there is nothing extraordinary or any provision cancellation into the period that we had in the last quarter to be really concrete with your question. And we had a benefit cash flow generation, but we can do a follow-up.

Thank you very much, Julian.

Conference Operator: Thank you very much for your question. Our next question is from Mr. Enrique Sofo from Fundamentals. Please go ahead.

Ben Thoreau, Analyst, Barclays: I’ve just got one quick question. Given the current implied valuation, how has your perspective or opinion changed regarding share repurchases and intensifying

Alejandro Fuchs, Analyst, Itau BBA: what they saw currently being done? Thank you.

Federico Rodriguez, Chief Financial Officer, Alsea: What was this?

Gerardo Lozoya, Head of Investor Relations, Alsea: The insurance line, right, Enrique? Tendekel?

Armando Torrado, Chief Executive Officer, Alsea: Sure. Exactly.

Federico Rodriguez, Chief Financial Officer, Alsea: Yes. Okay. Sorry.

Gerardo Lozoya, Head of Investor Relations, Alsea: Yes. No, I think, well, we’ve been somewhat active as you have seen in the past, I would say, couple of months. Now with the price where it is, the valuation, we follow, I would say, the EBIT to EBITDA multiples very closely. So I would say at these levels, we will continue to be active, Enrique. As you know, the plan for the company is to cancel these shares in the coming, let’s say, months in the next shareholders meeting.

So that is also something positive to the investment thesis for Alcea that we’re expecting, I would say, dividends as in the past plus some of these cancellation of shares. So I would say the return to shareholders would be a little bit higher. So you should expect us to continue to be active on the share buyback, Enrique, again, as we continue to see value, let’s say, trapped in the stock price.

Armando Torrado, Chief Executive Officer, Alsea1: Rise.

Conference Operator: That was the last question. I will now hand over to Mr. Armando Toreador for final comments.

Armando Torrado, Chief Executive Officer, Alsea: Well, so thank you very much for joining our quarterly video conference. And like always, if you have any further questions, please contact our Investor Relations team. And thanks, have a great day. Thank you very much.

Federico Rodriguez, Chief Financial Officer, Alsea: Thank you very much.

Gerardo Lozoya, Head of Investor Relations, Alsea: Thank you.

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