Alsea SAB de CV
BMV:ALSEA
Alsea SAB de CV
BMV:ALSEA
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Welcome to Alsea's earnings conference call. With us are Renzo Casillo, Chief Executive Officer; Rafael Contreras, Chief Financial Officer; and Salvador Villaseñor of Investor Relations. Our speakers will present the results for the first quarter 2018. At the end of the presentation, we will have a Q&A session. As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in Alsea's most recent annual report.
At this time, I will now turn the conference over to Mr. Renzo Casillo. Please go ahead.
Good afternoon, and welcome to Alsea's conference call. We will be presenting the most significant events of the first quarter of 2018.
Yesterday evening, we post our results where we reported a sales growth of 9.1% for the first quarter driven by positive same-store sales of 6.9%. The addition of 184 corporate units and the positive effect of having the Easter week sales during the first quarter. Excluding the impact of the foreign exchange, mainly the effect of the Argentinian currency versus the Mexican peso, the exchange in reporting calendar from 4, 4, 5 weeks to a natural calendar using on same day this quarter versus same period last year and the effect of a closure of 24 Burger King stores earlier this year, our sales growth would have been 14%.
In early March, we celebrated the opening of the 1,000th Domino's store within the Alsea universe. We also announced our accelerated growth plan in Domino's, which will add another 550 units in the next 5 years in Mexico, Colombia and Spain. We estimate that about 350 of these units will be corporate stores.
In Mexico, we presented a solid same-store sales of 7.1%, continuing with the positive trend we started off having late in 2017. This was mainly driven by mid-single-digit increase in traffic.
Domino's Mexico ended the quarter with a solid high single-digit growth in comparable store sales and online platform share of higher than 25% and 13 openings in the first 3 months of the year.
We also observed a strong performance on transactions in Burger King, reaching a low to mid-double-digit same-store sales figure, mostly driven by traffic. As I shared before, early this quarter, we closed 24 units of Burger King, which is part of our continued efforts to improve profitability.
In Starbucks Mexico, during the quarter, we opened 23 new store, ending the quarter with a total of 668 units. Our Coffee Shop segment reported a mid- to high single-digit increase in same-store sales, recovering from the low single-digit growth observed last year when the brand was impacted by the anti-American sentiment. We also have seen higher visit frequency and better brand perception. We will continue with our growth plans of more than 50 openings during 2018.
Our Casual Dining continues presenting a strong recovery, reporting a higher than mid-single-digit growth figure in comparable same-store sales with all brands in the portfolio increasing in sales and traffic. This was mainly driven by a trading-up effect from cost -- from consumers attending our restaurants willing to spend on a higher ticket and a higher frequency. At quarter-end, we had a total of 274 restaurants operating in Mexico with a net growth of 14 units year-over-year.
Regarding our Family Dining segment, during the first quarter, Vips presented a low to mid-single-digit same-store sales growth, making it the 11th consecutive quarter reporting positive low to mid-single-digit figures. Our management team is developing new customer propositions focusing on service innovation. One example is our promise to deliver meals to the table under 12 minutes or the customer gets a free dessert. This strategy has been rolled out in units with high traffic of office workers who seek swift and quality service. We now have 47 units fully remodeled with the new image, and the results continue to be very positive. At the end of the quarter, we have 268 corporate units with 11 new restaurants compared to the prior year.
In line with our strategically leveraging synergies and critical mass, at the end of the quarter, we completed a transition of our supply logistics and production processes to our new operation center. We expect to start to see, from the second quarter on, the benefits of consolidation and operational efficiencies that this project will bring.
Moving to Spain. Our operations in this country presented a positive trend with a solid 3.7% growth in same-store sales for the first quarter of 2018. This was mainly driven by the strong Domino's Pizza performance, which continue to strengthen a successful Come y Bebe campaign, which now accounts for 22% share of the sales, where now you can add any of our menu entries for EUR 2 additional, generating a better margin mix. And so we had a record additional 33 new corporate units year-over-year, ending the period with 220 corporate stores and 24 sub-franchises in Domino's.
And Foster's Hollywood reported a close to mid-single-digit same-store sales growth, driven by our product innovation strategy with the launch of truffle and smoked burgers. Our delivery for Foster's has been successful and now represent 12% of the sales. During the quarter, we opened 49 units in Spain versus last year, reaching a total of 555 stores in the country.
As it relates to our South American operation, in Argentina, we had a difficult start of the year. We saw a slowdown in concessions as a result of a heightened expected inflation and important increases on some utilities, mainly electricity. These were downwards, as it relate to a delay in significant product innovation launch in Burger King, which now will take place during the second part of the year. During the quarter, we opened 6 units, reaching 241 stores in the country.
In Chile, same-store sales for the country reached a low to mid-single-digit growth, mainly driven by higher than mid-single-digit same-store sales in Burger King.
In general, we observed an impact due to a Easter week shift, which is negative given that many people travel out of the main cities and decreasing shopping mall traffic versus the first quarter of last year. We ended the quarter with 5 additional units, including our second Chili's store, a brand that has had results above our initial expectations and a great acceptance in this country.
In Colombia, we reported a higher than mid-single-digit same-store sales figure as a result of strong traffic rise, especially in Burger King and Domino's Pizza. Regarding the latter, we're excited about the positive performance of about 20% same-store sales growth, mainly due to successful promotions, marketing campaigns and product innovation in Domino's.
We continue repositioning Archie’s with a new image and menu, which is helping us get a mid-single-digit increase in traffic. We have already remodeled 13 stores out of 33.
As it relates to Starbucks, we recently entered Cali, opening the first 2 units, which are performing even ahead of our expectations. At the end of the quarter, we have 155 units of our different brands operating in Colombia.
In addition, regarding our digital strategy, as we have previously commented, we have moved forward just as planned with the construction of a consolidated data lake that will help us get to know the preferences of our customers, their consumption habits and establish a better way to communicate with each of them in a more direct and efficient way.
Also we're developing new revenue streams with our multi-brand loyalty programs, Wow Rewards. Perks, such as a pre-charged cards with Wow points that you can redeem in our units. So far, we have had this alternative as a B2B strategy, working alongside other companies, providing an alternative for them to give an extra benefit to their employee base. We estimate there is -- base in higher potentials with these products, so we're developing a program to offer these cards directly to customers.
Finally, we continue with our sustainability agenda through the 10 dining centers of our It's on me, Va por mi cuenta movement, where we were able to provide more than one -- more than 155,000 meals to children within first quarter of the year.
We also are making solid progress with our environmental agenda, having now 60% of the units in Mexico being supplied with clean energy, which should not only helping our environment, but also reducing expenses.
Now I will give you a more detailed insight of our financing. Please, Rafael.
Thank you. Thank you, Renzo. Good afternoon, and thanks for participating in our conference call.
On the top line, during the quarter, we achieved a MXN 919 million increase, mainly explained by the already mentioned same-store sales figure, coupled with the openings of the first quarter and the run rate effect. We have been able to achieve a reduction of 70 basis points in our cost of sales as a result of improvements in cost control, commercial agreement with certain suppliers, a positive effect on the exchange rate related to inputs in dollars, shrinkage reduction and a stock storages of certain products, such as mozzarella cheese, versus the first quarter 2017.
We also -- I will also like to highlight that even with the pressure on operational expenses, mainly because of the increase in energy in Argentina, coupled with higher-than-expected inflation, the increase of around 10% on the minimum wage in Mexico, the write-off from the 24 stores of Burger King that we closed in the beginning of the year and the investment of the strategy implemented to reduce turnaround our store levers, the we achieved an EBITDA growth of 10.8% during the first quarter of the year, reaching MXN 1.4 billion. The holding cost of financing at the quarter end presented an approximate MXN 8 million increase, mainly due to an increase of -- in interest paid net of around MXN 33 million as a result of the rise in the Mexican interest rate, coupled with the less positive impact from the effect of the revaluation of the call and put option of Grupo Zena. This was partially offset by a lower exchange rate loss compared to that reported in the first quarter of the previous year.
Moving to the bottom line. During the quarter, our net income increased 16%, amounting to MXN 154 million. This rise is mainly attributable to the increase of 9.6% that represents MXN 59 million in operating income, which was partially offset by the increase of 3% in the holding cost of finance.
We closed the year with a total debt of MXN 15.3 billion and a net debt of MXN 13.3 billion, which had a decrease of MXN 80 million in comparison with the same period of last year, considering that the CapEx for the first quarter of the year amounted around MXN 970 million.
The debt structure at the end of the period was 88 long-term with 81% denominated in Mexican pesos and 15% in euros and the remaining 4% in Argentinian and Chilean pesos.
With a total debt to EBITDA ratio at 2.3x, net debt to EBITDA at 2x and interest coverage fared at 4.9x at the end of the quarter, the company has complied with all the covenants established in our loan contracts.
Regarding our profitability metrics, at the end of -- at the year-end, our return on investment capital, considering operating income after taxes, increased 160 points from 10.9% to 12.5% year-over-year. And our return on equity reached 12.6% in comparison with the 13.3% in the first quarter of the previous year.
Finally, we're keeping line with our guidance for 2018, remaining confident in spite of the current political and economic uncertainty environment in Mexico. We will continue with the growth strategy in our different brands and countries, focusing on the higher return on investment capital performance, aiming to achieve a low to mid-double-digit growth in consolidated sales, supported by an expansion in same-store sales of our mid- to high single digit as well as to an organic growth plan of more than 240 openings.
On EBITDA, we remain with our estimate of a low to mid- to double-digit growth with a margin slightly above 14%, contemplating a capital investment between MXN 4 billion and MXN 4.5 billion for an organic growth and a target net debt to EBITDA ratio between 2.2 to 2.4x.
Regarding our hedging strategy for 2018. Due to expected market volatility, we will continue following our internal FX hedging policy, whereas of today, we are covering up to 52% of our U.S. dollars needs for the following 12 months at an average exchange rate of MXN 18.4 per dollar.
Now we would like to open the call to Q&A.
[Operator Instructions] The first question is from Mr. Ben Theurer from Barclays.
Just a quick one, what you've mentioned, to better understand, so clearly, you closed some of the Burger King stores. You said 24. There was also a change with the master franchise agreement, the one you gave back. So for the quarter, I mean, clearly, the top line number was, let's say, relatively weak, and thanks for the bridge. But could you explain a little bit in more detail what the impact was as a percentage of sales just related to Burger King with the store closure and the fact that you gave back the franchise agreement? And is that having also some continuous effect on sales growth in the coming quarters for the rest of 2018? That would be the first question. Then I have a quick follow-up.
Yes. Ben, this is Renzo. Make sure -- let me start by saying that we closed the stores the first of the year. So actually, it's reflected in the whole quarter. And yes, they would have an effect, obviously, on the rest of the year. We will be opening some additional store, but they would be marketed through a sub-franchising. So it wouldn't -- they will not be corporate stores. But they will have -- they're having a positive effect on the EBITDA of the brand. We closed the 24 stores. The effect is 0.7% on the sales for the quarter, the effect of those stores. But it had a positive effect on EBITDA for the mix of the brand. Is that answer your question?
Yes. That's exactly what I was looking for. And then last but not least, so thank you very much for the hedging update on FX. Could you also give an update on what you're doing in terms of purchases of cheese? I remember that used to be one of the big ones where you go through swings in terms of prepurchases in order to have all the needs you might need to require to cover the needs here. Now looking at that, I mean, just a pure inventory number went up by about 20% on a year-over-year basis. So if you could elaborate a little bit of what drove that number. I assume it's cheese, but just to clarify.
Yes. Cheese is one of the main things that we have less amount of money in terms of cheese than we have last year because last year, we bought for around 15 months in advance. And right now, we have only 8 months in advance in terms of our cheese. We are going to end the purchase of cheese in June. And we are going to have a 12 months in advance just for cheese in this year.
Okay. And the increase in inventory, what drove that then?
Cheese is around MXN 200 million right now, the amount of cheese that we have in the inventory. We have a little bit of increase in inventories because also the change that we have in the [indiscernible]. So in some other products, we have to over inventory that some kind of product just to be sure that we are not going to run out of products in the restaurants.
Yes, we weren't partly operational, Ben, on the new facility as well as the old. So that during the first quarter, we saw a bit of duplication of inventory and operations in the manufacturing site, especially, as we will transition to a new facility.
Being likely to disappear into 2Q, correct?
Yes, yes. That's the expectation.
Our next question is from Mr. Alex Robarts from Citigroup.
I wanted to actually first start in Mexico. And we, clearly, in terms of the country same-store sales growth rate, see that there was a couple effects, including a relatively easy comp. And as we think about the next couple of quarters, there's probably going to be more of a normalization. At least, we are forecasting that. Do you think it's fair to look out for the rest of the year in Mexico and think about a mid-single-digit range of same-store sales growth? And really, the core of this question is really trying to understand the impact of now that you're on 1 million-plus Wow users versus a year ago, the kind of ticket uptake that's taking place right now in -- so are we -- is it able to -- are you able to give us the number of just pure Wow users, excluding the Domino and Starbucks members? And is June still a target date to roll out Wow in Domino's? That the first question and I have one more on Argentina.
Yes. Thank you, Alex. Clearly, as we have mentioned earlier on previous calls, we have seen through the previous year when we had elections in the first half of the year tend to be stronger than the second half. And we expect the second quarter to also carry that similar levels to the first quarter. The second half of the year, clearly, is one that we are watching closely. There's a lot of...
Uncertainty?
Uncertainty and to the extent the scenarios that we're building. We are planning towards a cautious second half of the year from the standpoint of sales. So lots of discipline on expenses and very close attention to the promotional plan, so that we continue to gain share the second half and keep a solid sales performance also during the second half. So again, first half, because of the election, we see a positive second half. We are planning with more aggressive plans to keep a good sales trend in the second half independently of the results of election. But yes, being much more disciplined on the expenses. The databases continue to be very strong. We -- with a 1 million-plus members of Wow continue to evidence that it's a healthier transaction. And the key is to continue, obviously, to grow the base, but also get movement of customers from one brand to the other when we see the highest and fastest growth on the tickets and the interaction with Alsea. But also, we are consolidating the lake, which is aggregating the Domino database with the Starbucks database in what we call the data lake that will allow us to give a visibility of those interactions in the same base to interrelate with the customer better and create customized programs that we expect to accelerate traffic on either the Wow Starbucks or Domino's customers. So as we see through the year and we increase those capabilities, all of the CRM or Wow competencies should start to add more benefit, obviously, on the transactions and traffic to our units. And also, in addition to that, the strengthening on the teams that we have been building that have competencies on CRM and analytics are now beginning to build programs that are helping on all brands.
Right. But just to understand, the -- on the Wow, just the specific Wow program, excluding the trend in the multi-brand usage, in -- you're kind of comping -- you're starting to comp now a tougher base, right? And I know you kind of came into late last year and early this year still with kind of just 30% to 40% clip on membership growth. Is it fair to say that, perhaps, now, as we've gotten through our -- the comps become easier? Has that -- specific just to the Wow, has that membership growth rate perhaps slowed more or less than perhaps you thought? Are we still in this kind of plus-25% rate? And please, just comment on June if that really is a Domino's goal for the Wow.
I think, Alex, we're still early on seeing the potential of the databases and the Wow. The number that you called is still valid, the 25% increase in ticket on average, continues to be there. The base continue to grow. And so we expect a solid contribution on Wow on same-store sales and traffic to the stores. And as we build the databases bigger with alliances that we're building with other company that have strong databases, in addition to the organic growth of the databases, we see Wow continuing to be a bigger part of the contribution to the sales growth on same-store sales for the rest of the year and more so for the years to come. We consider this a strategic capability of Alsea that will be one that will help us sustain solid same-store sales 2018, but also for the upcoming years. I apologize. I didn't answer your question on Domino's. Domino's, it is time for midyear. June is the time that still continues a steady means, so we expect that and to include Domino's in that -- towards the end of the second quarter.
Very helpful. And just to finalize on Argentina. Appreciate the slowdown in consumption that you're talking about for -- from higher inflation as one of the concepts behind the deceleration of that region's same-store sales growth. How do you look at kind of the rest of the year in Argentina? Should we be seeing kind of similar rates of same-store sales growth that we see in the first quarter? Or is it too early to tell? Could there be further acceleration or deceleration? Any color would be great.
Thank you, Alex. What we have heard from the team in the reviews that we have done so is that they would expect the second quarter to be an improvement against the first quarter, in part, because of what we mentioned of one of the events that they have launched. A plan for the first quarter got delayed to the second quarter. So we will see and expect Argentina to show an improvement on the trend. The second quarter. Knowing the team, the expectation is that they will keep the momentum through the rest of the year. The inflation is one that surprised the group because they were expecting low inflation. But they have already built plans to offset that part on the balance of the year, especially in second quarter.
Our next question is from Mr. Antonio Gonzalez from Crédit Suisse.
I wanted to come back to Burger King Mexico and I wanted to ask if the stores that you closed were all nonprofitable. And more importantly, the one -- could there be any one store that you did keep? And do you now have a base of stores that is all fully profitable? Do you think you need to shut down a little bit more? Or is it the bulk of the effort behind shutting down stores? And longer term, I wanted to hear your strategic thoughts on the Burger King brand. I think I can get where you're coming from when you decided to terminate the master franchise agreement with BK and that's, I guess, self-explanatory. But when you look at the brand going forward, how do you assess then the value proposition, the atmosphere, the menu that you are offering at the moment, particularly, vis-à-vis, your main competitor, who has been in the segment -- in the QSR segment has been making very aggressive comments on store refurbishing, digital efforts, inside the store, offering a lot of technology? So how do you -- the footprint that you kept, how do you think it is fit to compete in this environment in the coming years? I mean, any big pictures thoughts you could share on that would be super helpful.
Thank you, Antonio. First, on the stores that we closed, yes, they all were -- there was a loss of most money and especially where stores that based on the ship on trade areas, quality of trade areas, we have concluded that they were not really going to recover, so they were losing money. And also the outlook didn't look like a store that could be recovered, all 24 of them. There were also the stores that we kept, the team is in a journey of improving. We have some stores, very nice, profitable that are still part of the mix. And there are some more that are still below the profit levels that we want. But the confidence of the teams that they will continue to improve, especially because the brand is doing very well. The brand is strong in Mexico, especially in same-store sales. It's one of the fastest growing brands for Alsea. The brand proposition is solid. The product -- the team has done a really good job of starting to promote and drive consumption of the better product, the Whopper, which is our best burger and all of the different forms of the Whopper. And the customer is having a better experience, both in their customer, the service ramp but also in the product qualification range. So all of the metrics -- operational metrics are going the right direction. And that's why the confidence that the balance of the store that we start will continue to trend positively. The decision that we've made at the moment of the master franchisees to focus the Alsea energy on the stores that we own, the stores that we have more direct ability to influence the outcomes, the execution and invest our efforts and money on those to do a faster turnaround that we have done so in the past. We believe in the brand. We -- it is a very strong brand in the portfolio of Alsea globally. As you know, we have a very strong presence with Burger King in Argentina, in Chile, in Spain, also in Colombia. So it is a brand that is very positive portfolio of Alsea. But clearly, as well, we are committed to ensure that we make the decisions on the portfolio mix and the profit mix on stores that we don't believe can be turned around, and we'd rather close them, not only in Domino's, but also in other brands that are not getting to the profit levels and don't expect to get to the profit levels for the next future. We make the choices, in some cases, to close them, in some cases, to change actually the brand of that location, close one brand and open another Alsea brand in the location to improve the profit mix of the store portfolio. Is that answer your question?
Okay. You did. If I may, can -- would you be able to share -- and I understand if you prefer not to comment, but would you be able to share on the competitive environment? I mean, do you see what some competitors are doing in the segment or something that would perhaps require you to step up the efforts of refurbishing the units that you kept? Or do you think that after the refurbishing effort you've executed already in the last couple of years, the remaining 181 stores are properly fit to compete in the coming years?
Antonio, all of the units of Burger King that we have, have also gone through the remodel process. So the 181 units that we operate under the corporate, they were remodeled through the last 3 or 5 years. So they are fresh executions. And in fact, we believe, not only because of the product execution, the quality of the execution of the operators, but also the experience that the customers are getting that what we're seeing a solid performance on sales, close to double-digit consistently. And traffic performance is also positive consistently. So that's why the confidence, Antonio, a level that the strength will continue. We'll continue to see a good product proposition. The experience in the store is already refreshed. through remodels that have been done the last few years. And the 181 units that we see, we have the expectation that will become profitable. Many of them are profitable, but the few that are not, still, we believe we can turn them around.
Our next question is from Mr. Ulises Argote from JPMorgan.
One quick question on Spain. We saw same-store sales having a healthy growth in the quarter. How are you thinking about the dynamics there going forward? Any one-offs benefiting the number? Or the initiatives that you deployed there in the Spanish market leading to a new level of same-store sales for the coming quarters?
Thank you, Ulises. No, we see a consistent performance in Spain. We are really pleased that the all brands actually are performing. All the man brands forces is doing well with the innovation platform that they have had. Domino's is really a shining star. It's doing very well with all the programs, the Come y Bebe program, they continue to be creative in adding more value to the customer and with that transaction going up and margin mix improving. We felt a little bit soft on Burger King Catalunya. That's the only kind of place that we felt the more in Burger King. But the team was able to offset that across the country. So we expect Catalunya to get back to normal levels. But other than that, we are pleased that the country has had solid-growth quarter. And there is no really one-offs, only special event that could have had [indiscernible] sales.
[Operator Instructions] The next question is from Mr. Rodrigo Echagaray.
I just wanted to hear your thoughts on the sub-franchising strategy. If I recall, last quarter, we discussed that there was an issue that it was important for the company going forward, given the higher margins and returns and valuations being paid for that type of operation. Have you guys made any progress on that front? Or has anything changed in that sense? That's my question.
Thank you, Rodrigo. Yes, let me share some short-term and especially mid- and longer-term comments on that -- on your question. The short terms, we -- yes, we are accelerating, particularly in Domino's Pizza, the number of sub-franchisee stores that we are opening. We have a very good structure with the Domino's brand in the way we have commit master franchise and have been very good for Alsea as well as for Domino's. So we will see, this year, good growth on the franchisor, sub-franchisor's area. On the rest of the brands, there will be not as much. We'll have Foster's continues to have a good platform for sub-franchising, as well in Spain. But the midterm is where is the most significant change, which is continuing to, obviously, drive the brands that I already mentioned, Foster's and Domino's. But then, simplify the execution of brands, like Vips, that we believe have high potential for sub-franchising within and outside of Mexico. We have done a lot of work on simplifying the operational side. I think we've mentioned in the past that a store manager now have 50% less administrative work than they used to. The same thing is happening at the kitchen level, where there is a lot of simplification -- menu simplification and optimization that allows to have a platform in which sub-franchises can take the brand and operationally make it more manageable than the complexity that we have been carrying through the last few years. We are being closer and we expect, over the next couple of years, to have faster growth on, yes, on Domino's, yes, on Foster's. But also, I don't add brands like Italianni's, Vips into the faster growth of platform to franchises -- to sub-franchising. Today, our split is about 78% corporate, 22% sub-franchises. We want to move more towards 65-35, 60-40 on the mix, which is we consider that a healthier balance.
That's good news and great color. And so I guess, is there any way for you to share, because, obviously, about 80% of the stores you operate yourself, but the other 20% is a lot of those restaurants -- are brands that are not fully -- that are not yours and where you get a small spread on the royalties that you collect and then you pay to the owner of the brand. So I guess, when we look at your EBITDA, my guess is that your EBITDA coming from sub-franchising is much lower. And if so, do you have any sense of how -- is that low single digits of your total EBITDA? Or how can we think about that?
Yes, yes. When -- first of all, in the models that we have, including like, for instance, Domino's today, the EBITDA in percentage basis is higher than -- actually than when we operate because there is no capital there. There is no labor. So the EBITDA in percentage basis is higher. But the main benefit comes from, obviously, is a wisest business or the sense capital. When we focus obviously, a sense capital on store that obviously that had high profit performance on EBITDA, we operate those, in particular, cities, areas where Alsea is so strong and can have the better execution and find partners that, actually, are good partners that have strong presence leveraged in regions and countries that are actually better than Alsea, but they invest the capital. We share the benefits of that. And as we look at the models of franchising, keeping money is not just the royalty because Alsea provides additional services from the supply chain standpoint, from the -- for instance, the Wow, the transactional, the technology that complement the royalty as a source of income and makes actually that interaction quite profitable on EBITDA and on returns for the participation of Alsea. And this is -- again, this is optimizing capital investment that allow us to continue with a strong agenda of growth, of making more cash available for M&A and opening of new stores to continue this fast goal of doubling the size of the Alsea over a 5-year period. So again, we don't see as a dilution of EBITDA, actually, on a percentage basis is better, but it's actually using the capital better in a way that allow us to grow faster and more profitable.
Great. Very clear. And if I understand correctly, this -- the current guidance does not include any significant benefits coming from a material acceleration of the sub-franchise in the strategy. Is that correct?
No, no. That is not included. We actually -- the guidance that you have for [ U.S. ] is still balanced with the similar split of corporate and franchise that we have today.
Sorry, 50 to 60 new.
Yes.
Our next question is from Mr. Antonio Gonzalez from Crédit Suisse.
I just wanted to follow up quickly in Argentina and see if you can give us some color on whether labor cost, specifically, is that becoming an issue? And is that increasing beyond your ability to increase prices in the market giving the acceleration in inflation that you referred to earlier? Or is that not a concern?
So far, we have not seen significant movement on the labor side. We made some choices on some of the brands that -- to increase the package -- the compensation packages for, especially, store managers. But this is not really a dramatic thing that we can project through the year that could have a significant effect in Argentina. We are making a similar choice in Chile, in Starbucks, in particular. In Chile, the issue of turnover, yes, it is higher, so that we made a conscious effort to invest on better compensation in the Starbucks brand in Chile because we were having higher turnover than we like and that the branch will have. So Argentina, we will foresee fairly stable, that's what we have today. In Chile, we make choices on investment on compensation, especially in Starbucks. The team states that the [ investment ] we make it obviously on compensation in Chile will result also on better sales performance on the Starbucks as we improve service and continuity of talent in Starbucks in Chile.
So in revenue has come back in Argentina in line with your earlier comments, Renzo, margins should also improve in South America. Is that the correct reading?
Margins didn't approve this quarter mainly because this investment in the human resources, this is the main thing. And the other thing is that sales were down in Argentina, lower than inflation, no? And that was one of the hit that we had in terms of margins. But we expect that the -- in Burger King, the innovation of the products that we launched late in the first quarter is going to give us the amount of sales that we need to have the margins that we projected for this year.
The answer -- Antonio, the answer is, yes, based on the conversation with [ Paulo ] and the team in Argentina. The expectation is they'll get back to the trend and the forecast that we have started for the year in Argentina.
Our next question is from Mr. Rodrigo Alcantara from UBS.
So on -- in Latin America, what's your view of potential entering to Argentina with Domino's Pizza?
Thank you, Rodrigo. We continually have conversation with the different brands about new location where we can work together. Clearly, our goal always is to have the main brands in early -- in the Alsea countries. So part of our agenda for growth -- nonorganic growth includes adding brands that we have in the largest country, Mexico, and other countries. So yes, not only Domino's, but other brands would always be in the portfolio of brands that we roll out in the countries where we have strong management teams. In the case of Argentina, Domino's, clearly, we will be one of them that -- where that the right moment, we'll have the conversations and plans with the Domino's team. But also as the market dynamics in Argentina get better, we'll open up opportunities potentially on other brands. For instance, we are testing -- we are launching in Chile, Chili's. If the -- all the conditions are right, we'll have to consider doing mostly that in Argentina as well. So Domino's is in the radar for Argentina and also some of the other brands that we have in Mexico, potentially, when the conditions are right.
[Operator Instructions] That was the last question. I will now hand over to Mr. Casillo for final comments.
Well, we thank you all for taking the time to participate in our call and for all the questions. And if you have additional questions, please feel free to reach out to Salvador, to Rafa or to me. We'll be happy to answer any additional questions you may have. Thank you, and good day to all of you.
All conference hosts have hung up. This conference is over. Thank you.