Fomento Económico Mexicano, S.A.B. de C.V. (NYSE:FMX) Q4 2022 Earnings Call Transcript February 24, 2023
Operator:
Eugenio Garza: Moving on to discuss our operation, beginning with Proximity Americas. We added 559 units during the fourth quarter to reach 1,027 net new stores for the last 12 months. This includes 120 stores from our OK Market acquisition in Chile that we began consolidating during the second quarter. In Mexico, we get up a little bit short of our target of 800 net additions, but the pace keeps improving. The pipeline is looking good for the next 12 months, and the productivity of our new stores continues to materially exceed that of previous new store cohorts. OXXO same-store sales were up 11.4% for the fourth quarter, driven by an increase of 6.8% in average customer ticket and again, a strong 4.3% growth in traffic. This continues to reflect a pickup in the recovery pace of mobility and the gathering consumption location that has continued to perform at a very strong level.
Gross margin was 44.2%, continuing a recent trend where our fast-growing loyalty program and slightly lower contribution from financial services more than offset healthy commercial income dynamics. Despite the margin pressure at the gross level, income from operation increased 17.4%, while operating margin increased 10 basis points compared to the same period of 2021 to reach 12.7%, driven by a structurally leaner expense structure and the resulting operating leverage. At Proximity in Europe, we began consolidating Valora in early October, so we are showing 84 days of results. We closed the year with 2,766 outlets. Revenues came in at MXN 9.8 billion, reflecting a recovery in traffic and ticket driven by improved customer mobility. Gross margin was 46.9% and operating margin was 3.4%, driven by the contribution of foodservice as well as the integration of recent acquisitions.
At OXXO gas, revenues maintained the recent uptrend and increased 25.4% and same-station sales grew 19.7% relative to the fourth quarter of 2021 as vehicle mobility continued to improve. Retail volumes were again supported by a robust pickup in corporate and wholesale activity. During the quarter, gross margin was 13.2%, while operating margin was 4.4%, reflecting tight expense control and improved operating leverage. Moving on to FEMSA’s health operations. During the third quarter, we expanded — sorry, fourth quarter, we expanded our drug store count by 124 net additions to reach a total of 4,095 units across our territories at the end of December and 434 total net new stores for the last 12 months, exceeding our target for the year of over 400 new drug stores.
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Revenues increased 1%, while same-store sales decreased an average of 4.5%. However, as was the case last quarter, it is important to note that on a currency-neutral basis, revenues grew 6.2% and same-store sales increased 8.3%, a solid performance across all of our operations. Gross margin decreased 60 basis points in the quarter, mostly reflecting a negative mix effect that reflects the strong growth of our operations in Colombia partially offset by improved efficiency and more effective collaboration and execution with key supplier partners in Mexico. However, operating margin expanded 40 basis points as tight expense controls across all our territories more than offset the impact from this lower gross margin. Regarding our logistics and distribution business, revenues increased 34.2% relative to the fourth quarter of 2021, reflecting the steady pace of acquisitions made in the past 12 months by Envoy Solutions.
On an organic basis, total revenues increased 8.5%, reflecting the strong performance across Envoy Solutions segment, coupled with good demand dynamics in our operations in Latin America. Operating margin contracted significantly to 2.5%, reflecting onetime provisions related to past due institutional customer accounts and obsolete inventories at Envoy Solutions as well as higher cost of slate of labor and transportation in certain markets. Excluding these one-offs, provisions, operating margin would have been in line with recent trends. Finally, moving on to Coca-Cola FEMSA. They delivered a strong set of results to close an equally strong year. Total volume grew 4.6%, driven by growth in most of their territories. Total revenues increased 14.9% and operating income grew 15.9% as operating margin expanded by 10 basis points to reach 14.7%.
You can listen to the conference call today at 10 a.m. Mexico time. Now I will turn it back to Daniel for some final comments. Daniel?
Daniel RodrÃguez: Thank you, Eugenio. I just want to finalize by saying that I am proud of what our extraordinary team of more than 350,000 colleagues have achieved during 2022, representing the best of FEMSA company-wide commitment to long-term value creation. As we look into 2023, I’m confident that the steps we have started to take to work our FEMSA Forward vision will position our company to maximize value creation as never before, leveraging the sign buses among our 3 core businesses as well as our strong team of professionals that I am sure will again be able to navigate any challenge that we come across in 2023 and beyond. And with that, let us open the line for questions. Operator, please?
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