FOMENTO ECONOMICO MEXICANO, S.A.B. DE C.V. 2026 Q3 Earnings Call

Hello, and welcome to the FEMSA third quarter 2026 conference call. My name is Caroline, and I will be your moderator for today’s event. Please note that this conference is being recorded. For the duration of the call, all participants will be in listen-only mode. You will have the opportunity to ask questions at the end of the presentation. To do so, please use the raise hand feature in Zoom and we will open your line. If you experience any technical issues during the call, please use the chat function to request assistance. I would now like to hand the call over to Mr. Juan Fonseca, Investor Relations Director at FEMSA. Please go ahead. Good morning, everyone.

Welcome to FEMSA’s third quarter 2026 results conference call. Today, we are joined by José Antonio Fernández Garza, FEMSA’s CEO, Martín Arias, our CFO, and Pamela Ortiz, who heads the Investor Relations team at Coca-Cola FEMSA. The plan is for José Antonio to open the conversation with some high-level comments on the quarter’s performance and trends, zooming in on OXXO México’s results, followed by Martín, who will provide more granular details on the results across our business units. Finally, we will open the call for your questions. José Antonio, please go ahead.

Thank you, Juan. Good morning, everyone. The third quarter was a strong one, during which our two main engines, OXXO México and Coca-Cola FEMSA, delivered strong results, showing an improvement in many of the variables we are trying to impact, and thus reinforcing our confidence in our strategy and its effectiveness. At OXXO México, our year-long effort to drive customer traffic while protecting our profitability produced solid results. While Coca-Cola FEMSA continued to improve results in Mexico and had a very strong set of numbers in South America. Beyond the two big engines, exciting things are happening across our other business units. In particular, during the quarter, we saw Bara sustaining its pace of store-based expansion and improving its maturation curve, while OXXO Latam continued to deliver promising results across South America, with Colombia leading the charge.

However, this morning I would like to focus my remarks on OXXO México by covering two topics. First, the continued recovery in sales and traffic, which gained further traction during the third quarter. Second, OXXO’s profitability, including how we are balancing the different levels of our value proposition and the strategic framework and operating discipline that are helping us to address the challenges we face. After that, Martín will elaborate on the developments at other business units in his remarks. Let me begin with sales and traffic. On our last call, and in many of our conversations with you since then, a recurring question was how much of our performance was structural and how much was driven by the World Cup. The third quarter gives us a good read on that issue.

With very little benefit from the tournament, with only one Mexico match in early July, same store sales grew 9.2% in the quarter, driven by an increase of 5.5% in the average ticket and 3.5% in average traffic. Given that ticket growth is nominal and includes the impact from excise tax increases on soft drinks and cigarettes, the highlight of the quarter is traffic, coming in 150 basis points above the level reported in the second quarter, despite having only a small benefit from the World Cup. While warmer weather provided some support, our data suggests it explains only part of the results.

More importantly, the performance reflects a solid response from our customers to the strategy we described on our last call, putting the customer at the center of everything we do at OXXO and executing against our four strategic pillars of impulse, food service, daily and replenishment, and beyond trade services. Furthermore, this positive customer response is also translating into market share gains. According to the market data available through August, OXXO continues to gain share against all relevant trade channels in the categories in which we compete. Year to date, our market share in the categories in which we compete is now above 2024 levels, with most of the gains concentrated in our core impulse categories, precisely where these adjustments have advanced the most. So far, this is a promising performance.

Beyond the impulse occasions, food service is another area where we have seen progress, with traffic growing at a low double-digit rate, driven mainly by coffee. This has been the result of improved execution across our stores and tactical pricing, which helps us drive incremental cups per day. For its part, daily and replenishment is at a very early stage of testing, but its initial results are already modestly accretive to traffic. Together with services, which is also growing in traffic terms, we see meaningful opportunities as we continue to develop all these categories. We are still fine-tuning our approach, and there is room to further refine our value proposition across the different strategic pillars.

We continue to test and learn from many initiatives, including structured price experiments across categories in selected regions, revamping our store's coffee area and value proposition, and testing the Canasta OXXO, our offer of everyday essentials at accessible price points, among others. These experiments are focused on gaining a better understanding of the right mix of assortment, price, and promotions to accelerate traffic and sales. In those cases where we have adjusted the price packaging architecture, we monitor very carefully whether the resulting increase in volume is enough to offset the margin impact from the price reduction, or switch from higher price points to lower price point SKUs. We know that not every test will work, but this process will allow us to scale only those that prove their overall positive value contribution. Now, let me turn to profitability. We manage our value proposition from an integral perspective.

This includes price, gross margin, assortment, and in-store execution, including promotions and commercial income, all of which play an important role in enhancing value for our customers. Behind these levers are changes in our price and packaging architecture and in our overall mix, as well as in the commercial income we generate working with our supplier partners, which is quite dynamic. What we were able to achieve this quarter is a better balance across all these levers to drive traffic while protecting our profitability. While the reported gross margin contracted by 120 basis points, this contraction reflects in part a demanding comparison base as the third quarter of 2025 included a particularly high concentration of commercial income. Normalizing for this effect, OXXO México's gross margin would have declined in line with the 70 basis point contraction of the second quarter of 2026.

In addition to this timing of commercial income issue, the gross margin result reflects the mixed effects coming from affordability initiatives being offset by higher commercial income and by solid growth in higher margin services. This is an important point, as it shows that we are managing our affordability strategy in a rational and disciplined way, always leveraging OXXO's relevance as a commercial channel for our supplier partners rather than trading gross margin for market share. In absolute terms, gross profit grew 7.4%. Operating income grew 5.8% during the quarter, and operating margin contracted by 40 basis points. This includes an impact of approximately 20 basis points from the closing of 140 older, underperforming stores. Excluding these closures, operating income would have grown 8%.

The closures are part of a broader pruning exercise involving approximately 250 stores, and we expect a similar impact in the fourth quarter as we complete the process. While this measure affects near-term results, we believe it is healthy to periodically review our store base and prioritize the long-term profitability of the business. The quarter's results also reflect the team's focus on operating discipline, which has been just as relevant as the commercial strategy. In the context of increasing wages well above inflation and the upcoming labor reform relating to the reduced workweek, expense efficiency continues to be a central part of how we run OXXO, and we are in a permanent effort to find new ways to optimize spending. Summing up, I believe the third quarter is a good example of how our strategy is meant to work.

We balance the different levels of our value proposition to bring incremental traffic to our stores, and we translated that volume into growth in gross profit and ultimately in operating income in absolute terms. That is, in essence, the algorithm behind our strategy, and it is how we manage the business, with a focus on growing the absolute profit pool over time. Having said that, we are not complacent. The consumer environment in Mexico remains soft, and our comparison base will gradually become more demanding as we move forward. We are confident that we have the right strategy, the right team, and a clear view of the levers at our disposal to keep executing and delivering on the strategy. With that, let me turn it over to Martín to go over the numbers in more detail. Thank you. Thank you, José Antonio.

Good morning, everyone, and thank you for joining us today. Let me begin with FEMSA's consolidated financial results for the third quarter of 2026. Total revenues increased 9.8% year-over-year, while operating income grew 9.9%, reflecting a solid performance at OXXO México and Coca-Cola FEMSA, and also reflecting the benefits of our cost containment and restructuring initiatives, partially offset by the bad debt provisioning in Colombia, the effect of the above-trend store closures at OXXO México that José Antonio just described, and the consolidation of losses at OXXO Brasil. On a comparable currency neutral basis, total revenues and operating income grew 9.4% and 13.4% respectively. Net consolidated income amounted to MXN 10.6 billion, representing an increase of 81%.

This was mainly explained by the operating income performance I just described, as well as by, one, an undemanding comparison base, which included a MXN 3.1 billion loss from discontinued operations last year, reflecting the divestiture of FEMSA's logistics operations. And two, a non-cash foreign exchange gain of MXN 1.1 billion compared to a MXN 1.2 billion loss in the comparable quarter, mainly reflecting a non-cash gain from the valuation of our investment in Imperial Dade and the net effect of foreign exchange rate movements on FEMSA's US dollar-denominated cash and debt positions. These were partially offset by three items. One, a decrease in interest income, mainly driven by lower cash balances and interest rates. Two, a MXN 312 million loss from other financial income, mainly reflecting a loss on financial instruments at Coca-Cola FEMSA, Brazil.