Earnings call transcript: Alsea sees sales rise, plans Chipotle launch in Q1 2025

Alsea SAB De CV, currently valued at $1.8 billion, reported a notable increase in total sales for the first quarter of 2025, alongside a strategic agreement with Chipotle to expand into the Mexican market by early 2026. Despite a decline in EBITDA and net income, the company’s stock experienced a 4.85% rise, reflecting investor confidence in its growth strategy and digital transformation efforts. According to InvestingPro analysis, the stock appears undervalued at its current price of $2.24.

Key Takeaways

• Total sales increased by 12.8% year-over-year.
• Strategic partnership with Chipotle to enter Mexico in 2026.
• Digital orders accounted for 38.7% of total sales.
• EBITDA decreased by 9.1%, with net income down by 23.9%.
• Stock price rose by 4.85% post-announcement.

Company Performance

Alsea demonstrated robust sales growth, with a 12.8% increase compared to the previous year, reaching ARS 20 billion. The company’s performance was bolstered by strong sales in South America, which rose by 32%, and Europe, which saw a 17.3% increase. The company maintains a healthy gross profit margin of 67.92%, though EBITDA of $397.13 million and net income saw declines of 9.1% and 23.9%, respectively, due to margin pressures and foreign exchange impacts.

Financial Highlights

• Revenue: ARS 20 billion, up 12.8% year-over-year
• EBITDA: ARS 2.3 billion, down 9.1%
• Net Income: ARS 335 million, down 23.9%
• Digital orders: 34 million, making up 38.7% of sales
• Loyalty program sales: ARS 5.2 billion, up 21.6%

Outlook & Guidance

Alsea remains committed to its 2025 guidance, projecting low-teen top-line growth and mid-single-digit EBITDA growth. The company anticipates a gradual recovery in working capital in the latter half of the year. Analysts tracking the stock maintain a consensus recommendation of "Buy," with price targets ranging from $1.78 to $5.00. The strategic partnership with Chipotle is expected to enhance Alsea’s market presence in the fast-casual segment by 2026. For deeper insights into Alsea’s growth potential and comprehensive financial analysis, check out the detailed research report available on InvestingPro.

Executive Commentary

CEO Armando Torrado emphasized the importance of maintaining customer traffic, stating, "Traffic is the name of the game. We want to preserve that." CFO Federico Rodriguez reiterated the company’s commitment to its 2025 guidance, indicating confidence in Alsea’s growth trajectory. Torrado also highlighted the value proposition of the Chipotle partnership, noting, "Chipotle offers a very solid value proposition with high standards."

Risks and Challenges

• Currency fluctuations impacting international sales.
• Margin pressures affecting profitability.
• Competition in the fast-casual dining segment.
• Potential delays in the Chipotle rollout.
• Economic uncertainties in key markets.

Q&A

Analysts inquired about the Chipotle entry strategy, with management discussing potential synergies. Questions also focused on the impact of coffee price increases and the company’s mitigation strategies. Additionally, Alsea provided insights into the recovery of the French market and the effects of calendar shifts on performance.

This comprehensive overview of Alsea’s earnings call highlights the company’s strategic initiatives and financial performance, providing insights into its future growth prospects and market positioning. With an overall Financial Health Score of 2.44 (FAIR) from InvestingPro, investors can access additional ProTips and over 30 financial metrics to make more informed investment decisions.

Full transcript - Alsea SAB De CV (ALSEA) Q1 2025:

Gerardo Lozoya, Head of Investor Relations and Corporate Affairs, Alsea: Good morning, everyone, and welcome to Alcea’s First Quarter twenty twenty five Earnings Video Conference. My name is Gerardo Lozoya, Head of Investor Relations and Corporate Affairs. And today, our Chief Executive Officer, Armando Torrado our Chief Financial Officer, Federico Rodriguez and our upcoming Chief Executive Officer, Christian Gurria, 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 Evalores 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 pre IFRS 16 standards. I will now hand it over

Armando Torrado, Chief Executive Officer, Alsea: to Armando for his initial remarks. Please go ahead, Armando. Thank you. Thank you, Gerardo, and good morning, everyone. Welcome to Alsea’s first quarter twenty twenty five earnings video conference.

I would like to begin by thanking our team, stakeholders for their continued commitments as we set our priorities for the year ahead. Before going into our quarterly information, I want to give a warm welcome to Christian Gurria that is here with us. And this is, this will be my last CEO call as a CEO of Alcera. Christian will be present present present, and he will present his strategy priorities as the new CEO in the next next earning call in July. Today, I will provide an overview of our quarter performance, covering our financial results, regional highlights and key brand developments.

I will also highlight our progress on our digital transformation, ESG initiatives and expansion strategy. Before diving into the highlights and previously announced, I’m pleased to share that we signed a strategic agreement with Chipotle Mexican Grill to launch the brand in Mexico. The first locations are expected to open in early twenty twenty six. This partnership strengths our portfolio with a high potential concept and aligns with our long term growth strategy. Chipotle offers a fast casual dining experience, centered on a customized and fresh high quality ingredients, providing a different concept.

To begin, let me give you some highlights from this quarter. In the first quarter, we reported a 12.8% year over year increase in total sales, reaching ARS 20,000,000,000 or a 7% increase when excluding foreign exchange effects. Same store sales grew by 5.1%. EBITDA decreased by 9.1% in the first quarter, reaching 2,300,000,000.0, with a margin of 11.7. This decline was primarily driven by negative calendar effect, the depreciation of the Mexican peso and three, weak labor disruptions in Chile and persist macroeconomic pressures.

In the context and with a long term perspective, we maintain cautious approach to pricing environment on elevating input costs, as we remain focused on driving traffic while sustaining brand competitiveness and customer preference. We served over almost 34,000,000 digital orders in the quarter, amounting for COP 7,400,000,000.0, which accounted for 38.7 of our total sales. This performance confirms the continued effective transactions of our digital strategy. Regarding our brands performance in the quarter, Starbucks Alcea same store sales increased by 4.7%. For Starbucks Mexico, same store sales increased by 3.5%, mainly driven by a loyal customer base and solid in store performance despite a negative calendar effect and more cautious consumer backdrop.

For Starbucks Europe, same store sales declined 2.2% as we continue progressing toward traffic recovery following last year’s boycott in France. There’s early signs of improvement and emerging. This is supported by local initiatives and target commercial strategies, a main at rebuilding consumer engagement. And finally, in South America, same store sales increased by 18.6% decreased by 6.7% excluding the effect of Argentina. In Domino’s we posted a 2.6% increase in same store sales.

In Mexico, Domino’s Pizza same store sales increased by 1.5%, supported by stable performance in the delivery channel, although growth was moderated compared to prior periods due to the softer trends in the telephone ordering channel. In Spain, same store sales increased by 2.4%, reflecting effective promotion strategies and solid customer response to product innovation, including our continued successful campaign of Corzantisima. And in Colombia, Domino’s delivered a strong result, achieving a 10.57% same store sales growth, mainly driven by effective marketing campaigns such as Domino’s Mania, which contributed to higher volumes and strengthened in our brand momentum. Burger King salsa same store sales grew in Argentina decreased by 4.8%. In Mexico, we reported same store sales contraction of 7.8%.

This contraction was driven by a slowdown in delivery and in our premium offerings. However, we expect digital kiosks and more efficient promotions to support future growth. The full service restaurant segment delivered a 3.4% growth in same store sales. This segment continued to deliver resilient result, posting mid single digit and same store sales growth consistently over the past three years, reflecting the strength of our value proposition and operational excellence Bips Mexico achieved a solid 2.8 year over year growth in same store sales, fueled by strong guest response to menu offerings and consistent store execution.

That reinforced the brand’s value proposition. In Mexico, most of the full service restaurant brands has a good performance with a mid single digit growth in same store sales. And in Spain, Bibs and Genos reported a solid same store sales growth of 3.52.2%, respectively. Our global expansion strategy remains focused on capturing the most profitable opportunities across our key markets. In line with our guidance, we opened 34 new stores during the first quarter, including 27 corporate units and seven franchisees, especially targeting high traffic areas.

We expect openings to accelerate as the year progress. As part of this strategy, we are expanding into flagship locations such as our upcoming Starbucks stores, the store in the Santiago Bernabeu shopping mall in Madrid, which under scopes our commitment to long term brand position and strategic growth. Along our expansion in high potential regions, we are also remodeling existing locations to enhance customer experience and driving growth. Regarding our loyalty programs, our digital transformation continued to full growth. By the end of the quarter, loyalty sales grew by 21.6%, reaching 5,200,000,000.0, accounting for 25,300,000 orders and contributing for a 27.4% of total sales.

Additionally, by the end of the first quarter, Club Buy has surpassed 3,100,000 members, which represent almost 7% of Spain population, while Starbucks Rewards reached over 2,300,000 active users across all ASEAS region. Regarding ESG and people, this quarter we continue advancing in our ESG and digital transformation agenda, We are affirming our commitment to sustainable value creation through transparency, innovation and social responsibility. As part of this effort, we are currently working in our 2024 integrated annual report set to publish later today. For the second time, this report will include a double materiality assessment, a vignette and evaluation of how ESG factors impacting our financial performance and how our operations impact the communities and environments where we operate. This approach allow us to identify the ESG priorities, most value of our stakeholders and the long term substantively in our business.

In line with this commitment, we invested over 13,000,000 in social programs this quarter and directly benefiting more than 80,000 people that it demonstrates our ongoing dedication to that community well-being and delivering meaningful social impact. Looking ahead, we will continue to align our ESG and digital priorities with our long term strategy goals, ensuring a responsible and innovation path forward for ALCEA and our stakeholders. I would like to hand it right now to Federico Rodriguez.

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

Gerardo Lozoya, Head of Investor Relations and Corporate Affairs, Alsea: and good

Federico Rodriguez, Chief Financial Officer, Alsea: morning, everyone. Sales increased by 12.8% in the first quarter, driven by the preference for the company’s brands and the effective commercial strategies in Mexico, Spain and Colombia. Excluding foreign exchange effects, sales increased 7%. We remain firmly committed to the 2025 guidance we provided earlier this year, and we believe we are making good progress toward achieving it, supported by the disciplined execution. Despite being repetitive, both negative calendar effects the Easter and the leap year were included into our 2025 guidance.

For the first quarter, sales in Mexico were up 5.9% to MXN 10,700,000,000.0. In Europe, sales increased by 17.3% to ARS 5,900,000,000.0, while in euro terms, sales decreased by 5.3%. Finally, South America sales increased by 32% to ARS 3,300,000,000.0. EBITDA decreased by 9.1% with a margin contraction of two eighty basis points, reflecting a more complex macroeconomic backdrop and a negative calendar effect, including one less day in February and the shift of Easter from March to April. In Mexico, adjusted EBITDA represented 67% of total EBITDA and declined by 7.2%, primarily due to the depreciation of the Mexican peso and inflationary pressure on dollar denominated inputs, both impacting gross margin by approximately 100 basis points each.

Additionally, the 2.5% growth in same store sales was not enough to continue to improve operating leverage. In Europe, the adjusted EBITDA accounted for 22% of the total EBITDA and grew 3.6% year over year, supported by positive same store sales and a stable performance across key markets. However, a negative calendar effect weighted on margins resulting in a year over year contraction when excluding FX. In South America, adjusted EBITDA represented 11% of the total EBITDA and declined by 10.5%, mainly due to the three week labor disruption in Chile, negative calendar effect in all the regions and softer consumer trends across the region, despite the solid performance in Colombia. The net income for the first quarter decreased 23.9% year over year to ARS335 million.

These results reflect a lower financial impact compared to the same period last year, mainly driven by the loss of treasury position in Argentina in 2024. Going to the CapEx. The CapEx for the first quarter totaled 1,100,000,000.0. 60 4 percent were allocated to store development initiatives, including the opening of 13 new units, the renovation and remodeling of existing locations and equipment replacement across the brands. The remaining 36% was directed to strategic projects focused on technology upgrades, process improvements and software licenses, reinforcing our long term competitiveness and operational efficiency.

At the end of the first quarter, our pre IFRS 16 gross debt increased by ARS6.2 billion year over year, reaching ARS34.3 billion. This increase is related with the postponed payment of the remaining minority stake in our European operations that we acquired in the first quarter of twenty twenty four. The net debt, excluding the IFRS 16 effect, totaled billion, up ARS 7,600,000,000.0 compared to the same period last year. Including lease liabilities, consolidated net debt reached ARS 48,600,000,000.0. At the end of the quarter, 86% of the debt was long term with 64% denominated in Mexican pesos and 36% in euros.

We remain focused on maintaining a healthy capital structure supported by prudent financial management and a strong commitment to meeting all obligations. At the end of the quarter, our cash position stood at MXN 4,100,000,000.0. Turning to financial ratios, the total debt to post IFRS 16 EBITDA ratio closed the quarter at 3.1 times, while the net debt to EBITDA ratio stood at 2.9x. As expected and mentioned in previous calls for this time of the year, there was a high use of cash during the first quarter, reflecting the typical seasonality of the business and the temporary use of working capital. We anticipate a gradual recovery in working capital over the second half of the year as it is every year.

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

Conference Operator: The first question is from Mr. Alejandro Fuchs from Itau BBA. Please go ahead.

Alejandro Fuchs, Analyst, Itau BBA: Hola, Armando, Christian, Federico, Gerardo, thank you for the space for questions. First of all, thank you, Armando, for always being very close to the market and always providing very detailed and helpful insight. And welcome, I have two quick questions, if I may. My first one would be on the guidance you provided for 2025. I think that the macro reality today has shifted a little bit right in Mexico.

So profitability is coming somewhat softer too. So how should we think about confidence level of meeting the guidance for 2025? That will be the first one. And the second one, more strategical about Chipotle, the announcement, right? Wanted to see if maybe you can provide a little more detail about how the MFA with Chipotle is, maybe royalties to pay, the timeframe, openings and so on and how much of the market in Mexico you think how many stores is good for?

So that will be the two ones. Regarding

Federico Rodriguez, Chief Financial Officer, Alsea: the guidance, Alejandro, we are still committed. In fact, I would say that the contraction of margin regarding EBITDA, it was considered into our guidance. As you remember, we have a top line guidance with our low teens. We are there. And regarding EBITDA, a growth of mid single digit.

Obviously, that represents a margin contraction. We have two negative effect regarding calendar in the first quarter this year. It was considered, obviously, we will do the catch up in the next three years and the Easter going from March to April. So we’re having that catch up in the same store sales figures that we are having in April. In fact, we’re having a high single digit regarding same store sales, really good figure.

But the only part that it was not into the guidance was the disruption on labor, the labor disruption in Chile, which accounts for around MXN 60,000,000. I am truly not worried. I think that we can offset this in the remaining part of the year. And being repeated, we are committed with the guidance.

Armando Torrado, Chief Executive Officer, Alsea: Gracias Alejandro. And I mean, Chipotle, we’ve been having a lot of calls in the last two weeks. I mean, this is about introducing really a a modern and very successful fast casual restaurant concept that really is more emphasis in high quality proteins, fresh ingredients, class and culinary techniques, and of course, digital and a lot of transparency. This is a unique value proposition that there is not in Mexico. This is always relies in real fresh food, nutrition, ingredients.

And this also responds for the process of how we do all the kitchen process and the customer, the food that is being prepared. Despite all the concerns about pricing and where we’re gonna put the pricing. I think Chipotle will offer a very competitive price point that we are going to adjust to the local market conditions without any way compromising the brand experience and targeting these kind of customers who are value nutrition. They like their origin, these young people and we have speed here too. So I think the menu that this concert has, it has, of course, familiar ingredients for the Mexicans like carnitas, barbacoa, avocado, among others, designs, things that they do.

We are not competing with the tacos or corridas. A lot of people just said in some papers last week about it. This is a healthy and convenient option. We will launch this with LCI, like I said, probably the first quarter of twenty twenty six. We like, of course, I mean, to build a robust, scalable and sustainable business.

We will see in the first stores that we opened, how capable we will be in market holding capacity. But I have no doubt with the mergers with them and us that after operational efficiency, the digital convenience that we have and the brand promises, it will be great. As you know, this concept is already in Alshaya that we have a big relation with Alshaya. And the numbers that we’ve been seeing in those market are really incredible. So I think this also, this measure, this is a strategy of the pillars that we’ve set.

We found and we go with pillars that have really scale, size. And I think that that we will be seeing that in the in the first quarter. Of course, regarding MFAs and all details, this is a a confident information that I cannot give you. But I mean, I’m very delightful to have this great concept and brand in our same portfolio.

Alejandro Fuchs, Analyst, Itau BBA: Very clear. Thank you, Armando and Federico. Thank

Conference Operator: you very much for your question. Our next question is from Thiago Harduin from Citi. Please go ahead.

Gerardo Lozoya, Head of Investor Relations and Corporate Affairs, Alsea: Fantastic. Good morning, Armando, Christian, Federico, Gerardo. Thank you very much for taking my questions. I would like to first continue discussing Chipotle. This is a very interesting subject, and I think we have a lot we have very ground a lot of ground here to cover.

But if we look at the spot fleet business, right, and what’s coming in for Alcea, I was wondering if we would have any synergies with the other business Alcea’s Alcea operates, right, either in supply chain or maybe commodity cost overlap. Understand maybe we could get some synergies with, like, retailer purchasing, whatever whatever additional information could be very interesting for us. And the second question, looking into same store sales for Mexico. In the initial remarks, we got a breakdown for the main brands. Right?

Just wondering if we can maybe discuss a little bit the breakdown between traffic and ticket for this same store sales for the brands. And also if we can maybe discuss a little bit of what’s going on in April. Right? Whatever additional information we could see we could get from you would be very interesting, especially because we have the shift in Easter rights to the second quarter. So maybe whatever we could get of additional information here would be fantastic.

Thank you very much.

Armando Torrado, Chief Executive Officer, Alsea: Gracias, Thiago. Thank you. I mean, of course, synergies I mean, a lot of synergies. I mean, since we’ve been talking with the Chipotle team since probably some years some years, I would say years that we’ve been talking to them. And but the last year, really year and year that we sit in the table, especially, of course, supply chain.

We know supply chain. We are we almost sold that the food cost, the materials, raw materials, quality raw materials that they have. Because we produce some and we have some, we commercialize some. So there’s a big, big opportunity there. A lot of products that they buy, they buy here in Mexico, avocado and other things.

So for us, that is a DNA. So that’s a big one. The other one, of course, is in digital. They are that concept in The U. S.

Is strengths of the digital evolution is impressive. And we already have, as you said, we’ve been since I am here four, three years ago, I’ve been really dedicating a lot of the digital transformation. So we will kept that capability. And I think we will learn a lot from like them to introduce it to Alsea. There’s also things in real estate for sure.

There’s some real estate that we can evolve. Of course, regarding people, we have an amazing team in operational leadership that they already raised their hands to be part of this journey. So I think it’s a three sixty whatever we can give to this brand. And then it’s a well DNA match with operator that we like to talk with operation. This I think is a fantastic, fantastic team all over or in California that manage these great concepts.

Regarding April, I’m very thrilled to tell you that things are doing for us very well in April. I mean, comparison with that. We are I mean, in Domino’s Pizza, we have double low single digit It’s very, very well done in Spain. Mexico is also growing. I will let you know that from Starbucks also the same.

We are single mid digits, high single midgets. For first time, France the positive in all April. Now The Netherlands is positive in all April. And then the Casualty Business division, like I said, the Casualty and The Full Service Restaurant division, it’s also with suppressive numbers. And this week is going to be one of the greatest week in Mexico too.

A lot of things are going on May 1, Trintellia Villa de Aligno, everything is going well. So I’m very positive about April. I think, I mean, we already know what’s I mean, we had that increase of the coffee. We already have it in February. We already took some decisions for the next quarter I mean, for this quarter.

So I think our margin will be in the guidance like Federico said. And this calendar in this business for the first quarter, it was really a big effect that we suffered. But the guidance that was still there, April is very good going right now. So that’s a little bit of the comment.

Federico Rodriguez, Chief Financial Officer, Alsea: And regarding the split for the same store sales in the month of April, obviously, we have only four weeks out of the thirteen weeks of the second quarter, Thiago. Let’s be really cautious around this. As you know, we do not disclose both. We have positive figures in transactions around 30% to 40% of the total same store sales. In Mexico, the only exception is we’re working, unfortunately, and it was the same pace and rhythm in the first quarter.

As we have mentioned more than once, we want to preserve traffic. We are much interested in the long term. We can save one quarter trying to do a whole pass through of the price to the final ticket. But we are more interested in taking care of the long term because maybe one year we will have positive figures in all the different business units. Thank you very much.

Gerardo Lozoya, Head of Investor Relations and Corporate Affairs, Alsea: This is fantastic. No, thank you.

Conference Operator: Thank you very much for your questions. Our next question is from Mr. Bob Ford from Bank of America. Please go ahead.

Bob Ford, Analyst, Bank of America: Good morning, everybody, thanks for taking my question. Siddiqui, would you mind outlining the larger contributors to your integral cost of financing lines outside the interest on debt? There appears to be some derivatives other contributors, which are not entirely intuitive and difficult to forecast. And then my other question was

Federico Rodriguez, Chief Financial Officer, Alsea: Sorry, can you speak a little bit louder? Can you repeat the question regarding

Bob Ford, Analyst, Bank of America: I apologize for the delay. It was is whether or not is is if you could just outline the larger contributors to the integral cost of financing outside interest on debt. There appear to be some derivatives there that that aren’t entirely intuitive and difficult to forecast? And the the other question I had was with respect to Burger King Mexico, and, you know, we’re hearing that you may be considering a a larger relationship. And I was just curious, you know, what what terms would you need to reconsider an MFA relationship with RBI?

Regarding

Federico Rodriguez, Chief Financial Officer, Alsea: the cost of financing, sorry, Bob. I still did not hear you. If you can repeat it, Regarding MFA for Burger King, I don’t know if you want

Armando Torrado, Chief Executive Officer, Alsea: No, mean, there is we don’t have any right now any conversations regarding an MFA in Mexico. Estela Corporation was here with us in March as CEO for RBI. And actually, I think we strengthened our relation with them in a very good terms. But that doesn’t mean that we are looking or they are looking to do an MFA deal here in Mexico. No, that’s not in the table right now.

Federico Rodriguez, Chief Financial Officer, Alsea: And regarding cost of financing, Bob, sorry, if I didn’t hear you, if I didn’t understand, we only have the current trading regarding financing. Interest increase that we are figuring out in this quarter is because we took more debt to pay the postponed payments with the minority shareholders of EUR 90,000,000. We paid EUR 50,000,000 in the last quarter of twenty twenty four and EUR 40,000,000 in this third quarter. So we took that debt, and that’s provoking the increase in the cost of financing. We can do a follow-up if you want later, so we can understand the whole question.

Sorry.

Armando Torrado, Chief Executive Officer, Alsea: That would be very helpful. Thank you, Federico.

Federico Rodriguez, Chief Financial Officer, Alsea: Thank you, Bob.

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

Federico Rodriguez, Chief Financial Officer, Alsea: No.

Armando Torrado, Chief Executive Officer, Alsea: Internet. Okay.

Alvaro Garcia, Analyst, BTG Pactual: Can you hear me there?

Armando Torrado, Chief Executive Officer, Alsea: Okay. Yes.

Alvaro Garcia, Analyst, BTG Pactual: There you go. Couple of questions. First of all,

Analyst, Barclays: the best to Armando going forward. So welcome, Christian. First question on Chipotle,

Alvaro Garcia, Analyst, BTG Pactual: I was wondering if you can maybe break out in terms of geographies, what you’re thinking of what geographies make most sense in Mexico within Mexico. And you mentioned pricing, how you’re thinking about pricing. I know fast casual is nascent in Mexico, but how you’re thinking about pricing in Mexico and the opportunity to, let’s say, move lower there would be interesting. And then my second question is

Analyst, Barclays: for Christian on Starbucks in France.

Alvaro Garcia, Analyst, BTG Pactual: You guys were pretty clear about really not seeing a full fledged recovery until 2026, but you’ve mentioned better results in April. Was wondering how much is sort of how much of what we’ve seen is under your control and how much is still an impact from the boycott and how you’re feeling about that into the second half of twenty twenty five? And one last question for Fedico, sorry for all the

Analyst, Barclays: questions on

Alvaro Garcia, Analyst, BTG Pactual: D and A, on depreciation and amortization. Last quarter, fourth quarter, we saw sort of this negative D and A in Europe. And I was wondering if you could maybe expand on that and how you’re if you can maybe help us maybe full IFRS 16 or not, how you’re thinking about D and A into 2025? Thank you. You.

Armando Torrado, Chief Executive Officer, Alsea: Alvaro, we are regarding the region, of course, we are already have some three or four parts of Mexico that we would want to develop this brand consistently in the information that we have regarding how the brand is known in some regions. Of course, in the North part of the country, that we are more aligned with Texas and other parts or probably California, that brand studies make sense or signs that they are more awareness of the brand. And there’s also more awareness or in some parts of the North of the country regarding this type of QSR, fast casual food. There’s more penetration. So with the information that Alsace has in the last twenty five to thirty years, we are taking that decision with them regarding where is gonna be the best place to settle down first and start this journey.

I think regarding price, Chipotle offers a very solid value proposition. Like I said, with these highly standards, we are just we are already adjusting the model to local conditions, really how can we gonna price without compromising any brand experience. And of course, how we value that nutrition or region and speed and how are doing. The numbers that we have now regarding the pricing are very competitive, very competitive to launch this brand. So we are very positive that we can capture and we can steal some customers or stomach share for other competitors.

This, as you know, and you’ve seen probably numbers of CMH, the delivery of this kind of food is just amazing. He travels very, very well. So that’s a big competitive advantage also because if you’ve seen the whole three years that we’ve been here, the incremental of delivery for us in the digital platforms is amazing among the category with aggregators is not growing. So we’ve been growing ahead, not also in Europe and Spain and South America regarding the delivery. So we have a big potential on this over there.

Federico Rodriguez, Chief Financial Officer, Alsea: Yes. And complementing Armando’s answer regarding pricing Alvaro and related with Thiago’s question, we’ll take advantage of the shared service platform and the scale of Mexico to deliver the most competitive pricing. We are not really worried around that. And Christian, do you want to answer?

Christian Gurria, Incoming Chief Executive Officer, Alsea: Thank you, Frederico. Good morning, Alvaro, thank you for your question. Yes, as Armando shared a few minutes ago, we are seeing positive signs of recovery in France due to two effects. The first one is, of course, there is a lower comparable base to last year ’twenty four. Nevertheless, in October 2024, we launched a very specific plan based on four pillars around young people, coffee, partners and environmental and social initiatives, which we are seeing already how this plan is

Federico Rodriguez, Chief Financial Officer, Alsea: paying back.

Christian Gurria, Incoming Chief Executive Officer, Alsea: It’s true that also we have we expect a strong April, May until August for sure. We have a smaller comparable base also due to the effect of the Olympic Games. So and our recovery of tourism in France versus previous year. So we are optimistic on this side. And but also it’s important to mention that this recovery is going to continue being steady, but slow toward the end of the year.

But we are optimistic that we are seeing these signs of recovery.

Federico Rodriguez, Chief Financial Officer, Alsea: And finally, Alvaro, what is the kind of increase in D and A in Europe? We have standardized a criteria in the last quarter of twenty twenty four of all the leasing contracts across the different geographies to have a single one company wide. We have different criteria. You have to understand that we have more than 5,000 different lease contracts. The IFRS 16 accounting rule, it was not pretty clear in 2018 when we implemented this accounting rule and we changed it.

So this does not imply an increase in the rental expense. The rental expense pre IFRS 16, the cash on cash is pretty much the same. We have obviously around 40% of variable rental contracts and the remaining 60% is totally fixed. This is an effect that we will have this year and you will see this quarter over quarter. But by the end of the day, the cash on cash is pretty much the same.

Obviously, we have inflation index contracts, etcetera, and variable to the revenue of each one of the stores.

Alvaro Garcia, Analyst, BTG Pactual: Great. Thank you very much.

Federico Rodriguez, Chief Financial Officer, Alsea: Thank

Conference Operator: you very much for your question. Our next question is from Ms. Rahi Parekh from Barclays. Please go ahead.

Analyst, Barclays: For Ben as well from Barclays. But maybe are

Christian Gurria, Incoming Chief Executive Officer, Alsea: you able to

Analyst, Barclays: on performance in

Federico Rodriguez, Chief Financial Officer, Alsea: We cannot hear you, sorry. No.

Analyst, Barclays: you hear me now? Perfect. Okay. Again, sorry, I’m on for Ben at Barclays. So hopping on the last question, are you able to add some more color on the sequential support performance in Starbucks in France and Benelux, maybe same store sales per month, just to see the progression, if you guys are able to share that?

And also on the second question, what how do you see the raw material impact from FX and potential tariff risks? Any color on that would be super helpful.

Federico Rodriguez, Chief Financial Officer, Alsea: Well, regarding same store sales for the Starbucks in France, we are having a sequential improvement. Obviously, we have not reached the transaction that we had in October 2023 when the boycott started and obviously all the reputational damage we suffer from there. But as Christian have just mentioned and Armando too, we have positive figures during this second quarter, not only because of the seasonality and the Easter going from March to April, but because of the promotional campaigns, the bundles that we have launched, honestly, the situation should be equal in terms of transactions for mid-twenty twenty six. That’s the target that we are saying. We are delaying the pace of openings, but we are still opening instead of having 30 or 35 stores.

That was the target one year ago. We’re having 10 to 15 stores for 2021.

Armando Torrado, Chief Executive Officer, Alsea: And regarding the price increase and whatever, we’ve been not having any impacts regarding related to this problem of the tariffs around the globe. I mean, the tariffs for us are not really, really doing any incremental. Of course, regarding the coffee prices, coffee is in high time highs. So yes, regarding coffee that but regarding inflation in our countries, we are really okay with that. It’s just exchange rate of coffee, for example, and cheese, for example, that we buy in Mexico from other countries.

Right? But what I think we already we, as you saw that Mexican peso now, it’s because the exchange rate now, it’s getting forward, I mean, oncoming things. So we are not seeing any problems regarding that issue of raw materials for the next periods.

Federico Rodriguez, Chief Financial Officer, Alsea: Yes. And Rafi is complementing. It is important to mention that the strategy really to focus on preserving profit. Even while we have some FX problems during the first quarter, as Armando had just mentioned, the dollar is weaker right now. Remember that we had MXN 20.8 per dollar for the as an average for the year.

Right now, we are below 20. That is helping us with all the raw materials coming from The States like the cheese and the coffee to talking around the two more relevant SKUs.

Analyst, Barclays: Okay, awesome. Thank you so much.

Gerardo Lozoya, Head of Investor Relations and Corporate Affairs, Alsea: Thank you, Joaquin.

Conference Operator: Thank you very much for your question. Our next question is from Mr. Thiago Bertolucci from Goldman Sachs. Please go ahead.

Thiago Bertolucci, Analyst, Goldman Sachs: Hey, gentlemen. Good morning, everyone. Thanks for the opportunity of asking questions. Always a pleasure to talk to you guys. Armando, in your previous answer, you alluded to coffee prices, right?

Given all the remarks and this ongoing strategy of trying to protect traffic, right, I would just like to understand a bit better from you how those raw material prices could flow into profitability? And what is your strategy to try to mitigate it going forward and achieve your full year guidance? This is the first one. Then the second one, I think, strategically speaking, right, since the pandemic, we saw sales being very tactical in simplifying the portfolio of stores, right? And still this year, we saw a few other operations.

Now with Chipotle, is it fair to say that eventually, I’ll say is now back into growth growth, I’m saying, not store expansion, but brands growth eventually considering adding new segments and new banners into your portfolio? Thank you very much. Those are the questions.

Armando Torrado, Chief Executive Officer, Alsea: Okay. Firstly, the first one is, I mean, it’s important, I mean, to mention that our strategy is really focused like Federico said, we always wanna see this in the company and this is our language. Traffic is the is the name of the game. And we wanna preserve that. Yes.

There there’s been increase in the in the coffee about 90%. We are not having a 9% 90%, sorry, 90% increase in our SKUs, in our numbers. As you know, Starbucks is who is a provider for the coffee for us around the world. But regarding them, they have a very quite good model or buying coffee in advance with so they are very quite specialized in how to do this buying around the world. So for us, the 90% is not there.

It’s a lot lower. I mean, we’ve been carefully analyzing where and how different strategies can go to marketing and improving communications and product innovation and giving more items or order to our consumers to maintain that traffic. You’ve always been seeing me that the last thing we don’t want to do is touching, touching, touching price. That is not something that Alsace strategy believes in. So we are there.

And I mean, we are benefit, of course, having hedges, like I said, for the local sourcing with Starbucks. And then before, they already know what our concerns regarding this and we are in a good manner talking to them regarding some other good alternatives for the long run regarding coffee. As you know, we don’t toast. We don’t do that toasting coffee in Mexico. So there’s also opportunities there to low end cost in transportation, logistics.

And another thing that I think I’ll say and already in Mexico has already the volume to do so. The other question is very interesting regarding, of course, portfolio. I said, so why you bring another brand? But I will tell you first, I’m sure that I want to, of course, next quarter to give you some news about other brands that are aligned to going out of our portfolio. As we already mentioned, we’ve been trying to do this really getting out of that and we have some rationalized portfolio.

And we already have some transactions or some communication with some other third parties to do so. No? This part of our there there is there is two or three brands around the world that are top niche. This is one. She bought this probably one.

This is a long run that is very capable with our pillar strategy. And this, of course, is going to start in Mexico. But I’m sure that if we do the things right and we have a good momentum and the brand is successful, this brand can, for sure, runs and goes to another geographies that I’ll say are managed. And it will be a great brand for our portfolio in the regions that we operate. So this is a long, long decision.

I’m not a sure one regarding the portfolio. We are still very commitment to our retaining our portfolio and divesting in brands that we don’t have any potential to grow or are not the brands of today and they were the brands of twenty years ago, right? We have heard of the investor community, Thiago, and we want to simplify and rationalize the portfolio. Having said each, what is our Tier one brand, it is one of the top three brands regarding restaurants all over the world. So we want to play with them.

And additionally, it is not going to

Federico Rodriguez, Chief Financial Officer, Alsea: be CapEx intensive. It is going to be want to replicate the story of Starbucks Domino’s Pizza starting with five stores in one year. As you know, we will open the first store in early twenty six. So let’s be cautious around that. And regarding cost of food, additionally to what Armando said, we have more than 80% of the U.

S. Dollar needs for all the commodities hedge right now. You know that we cannot hedge on the commodities, the coffee or the cheese, but we can hedge on the dollar need. So by the end of the day, you will not see that efficiency into the EBITDA margins. Well, for sure, we are not having using more or burning more cash because of the dollar impact.

Thiago Bertolucci, Analyst, Goldman Sachs: That’s great. It makes sense. By the way, Armando, thank you very much. It was a pleasure to work together with you. Congrats on the mandate and best of luck

Bob Ford, Analyst, Bank of America: going forward on your initiatives. Thank you very much, gentlemen.

Armando Torrado, Chief Executive Officer, Alsea: Thank you, Thiago.

Federico Rodriguez, Chief Financial Officer, Alsea: Thank

Conference Operator: you very much for your question. That was the last question. I will now hand over to Mr. Christian Guria for final comments.

Christian Gurria, Incoming Chief Executive Officer, Alsea: Good morning again, everyone, and thank you very much for joining this call today. Before we conclude, I would like to share with you that I am in the process of wrapping up my onboarding and in transition with Armando. So I will be prepared to share and happy to share with you in our call in July the vision and the priorities looking forward for ASEA. Thank you very much. And I’ll just hand over to Armando.

Thank you, Armando, again for this extraordinary journey. And thank you very much.

Armando Torrado, Chief Executive Officer, Alsea: Okay. So thank you. Thank you all of you. And this remarks my last earning report as the CEO. So thank you very much, Thiago, and onto you guys for always being, of course, still open and here you always gonna have, like like like, always the the the doors open of this company.

So thank you again for the quarterly review. I’m confident. I’m believing that this is gonna be a great journey. Of course, leaving this great company in great hands with Christian, who will continue to live and drive success forward for the years coming. So thank you, and we’ll see you now.

Thank you.

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

Conference Operator: Alsera would like to thank you for participating in today’s video conference. You may now disconnect.

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