Wal Mart de Mexico SAB de CV

BMV:WALMEX

Earnings Call Analysis

Walmart Mexico's Strong Omnidirectional Growth

Walmart Mexico (Walmex) has experienced significant growth with eCommerce net sales up 18.3% and the launch of over 800 new products reflecting high customer confidence. Their 'El Fin Irresistible' sales event saw a 10% increase from the prior year, drawing over 70 million customers. The company opened 101 new stores, primarily in Mexico, emphasizing proximity to customers. Their omnichannel efforts, including a 25% increase in 1-hour Walmart Express deliveries and a 2.7x increase in Marketplace SKUs, are gaining traction. In strategizing for an ecosystem of choice, Walmex's BAIT platform more than doubled active users, and their Health vertical sold three times more memberships year-over-year, indicating expanding consumer engagement across their services.

Strategic Initiatives and Omnichannel Growth

Walmart's efforts to enhance their Walmart Express format are showing promise, with a notable increase in the Omnichannel Net Promoter Score (NPS) of 710 basis points compared to last year, reflecting an improvement in customer perception. Their private brands have been pivotal in driving customer trust and sales, highlighted by the launch and relaunch of over 800 products. Furthermore, the El Fin Irresistible seasonal event marked a 10% sales increase from the previous year, a 6% rise in customer traffic, and a significant surge in eCommerce sales, indicating a solid omnichannel strategy and customer engagement.

Expansion of the Ecosystem of Choice

New verticals are playing a crucial role in Walmart's strategy, evidenced by the exponential growth of BAIT with 11.8 million active users, doubling its user base from the previous year. Walmart Connect's 34% year-over-year growth underlines its increasing significance for suppliers' advertising. The company's financial services have seen robust activity, with over 500,000 credits disbursed and a 32% income growth in their factoring business, marking progress in their ambition to become the ecosystem of choice for customers and suppliers alike.

Community Support and Corporate Responsibility

In response to Hurricane Otis, one of Mexico's most devastating natural disasters, Walmart displayed corporate responsibility by providing MXN 50 million in aid to affected employees, as well as donating over MXN 100 million to support relief and recovery efforts. This community support extends beyond financial assistance, demonstrating the company's values and their impact on brand reputation.

Dividends and Shareholders Returns

The company remains committed to returning value to shareholders, with a proposal for two dividend payments of MXN 0.59 per share and extraordinary dividends in two installments of MXN 0.49 and MXN 0.50 per share. This proposal will be voted on at the upcoming Annual Ordinary Shareholders Meeting, indicating a dedication to consistent shareholder returns and financial stewardship.

Earnings Call Transcript 2023-Q4

[Salvador Villasenor, executive]

Good morning. I'm Salvador Villasenor in charge of Investor Relations at Walmex. Thank you for joining us today to review the results for the fourth quarter 2023. Today with me is Guilherme Loureiro, President and Chief Executive Officer of Walmart de México y Centroamérica; Dolores Fernández Lobbe, our Chief Merchandising Officer of Mexico, and Paulo Garcia, our CFO.

At the end of this earnings webcast, we will be hosting for the first time a live Q&A session with management. The date of this webcast is February 15, 2024. Today's webcast is being recorded and will be available at www.walmex.mx. Before we start, let me remind you that the content of this webcast is property of Walmart de México S.A.B. de C.V. and it is intended for the use of the company's shareholders and the investment community. This webcast may contain certain references concerning Walmart de México S.A.B. de C.V.'s future performance that should be considered as good faith estimates made by the company. These references only reflect management expectations and are based upon currently available data. Actual results are always subject to future events, risks and uncertainties, which could materially impact the company's actual performance. Now it is my pleasure to turn the call over to our CEO, Gui Loureiro.

[Guilherme Loureiro, executive]

Hello, everyone, and welcome to our fourth quarter earnings webcast. We landed another year being true to our purpose of being a people led, tech powered omnichannel retailer, dedicated to helping people save money and live better. We're more committed than ever with our community. I will explain later in the presentation, but I want to really highlight how proud I'm with what our teams did to help other people from Acapulco, Guerrero after Hurricane Otis. Our support was spearheaded by donations, but there was so much more done in the background that I think it is important to take a few minutes later to thank everyone involved. This was yet another good year and it would not have been possible without the commitment and hard work of all our associates, they really make the difference. Our 2023 results underpin our growth strategy as we broaden our reach in terms of products and service at a low cost and a price that our customers can afford and pay. As you may remember, in 2014 we committed to doubling the size of the business in terms of sales while improving returns within 10 years. We have already achieved that goal in 2023, 1 year ahead of our initial target, and we now aim to replicate this objective, this time faster than before. This year, our same store sales grew 7.9% for the full year. We continued outpacing ANTAD Self-Service same store sales in Mexico, for tenth consecutive year, this time reporting 60 bps ahead of each, and we still see space for improvement to continue accelerating our growth trends. We continue getting closer to our customers and expanding our footprint by opening 160 stores in the year, which is the highest number since 2013. In this last quarter, we reached the milestone of our 3,000 store in Mexico. We keep on investing in our capabilities to maintain our leading omnichannel position. We reported over 20% eCommerce GMV growth driven by On Demand, which is now available in more than 1,200 stores, and marketplace acceleration over 40% in 2023. We continue committed to solving our clients' main pain points and helping them get access to product and services they need at fair and affordable prices. BAIT keeps growing exponentially, reaching 11.8 million active users by the end of the year, providing access to the digital economy. Our health initiative, which counters the fact that a significant part of the population is not able to access good quality and low-cost medical services, has increased its membership numbers by 3x compared to the same quarter last year. And finally, concerning the vast unbanked population who does not have access to credit and the benefits of the digital remittance and banking market, we have Cashi, which is just within a few months from going open loop following the integration of the Trafalgar acquisition in April last year. We continue with our Central America strategy, with expansion in all formats and further accelerating Bodega and Discount, powered by Walmex. Leveraging from the learnings in Mexico, we accelerate On Demand and now this service is offered in more than 100 stores in the region. Also, Walmart Connect early results show strong potential going forward. All in all, it was a good year with many achievements, where we delivered upon our growth strategy. Yet we still have some areas of opportunity where we need to further accelerate. Now, let's go through our performance during the fourth quarter of 2023. Please consider that, when we talk about results in Central America, we're referring to figures on a constant currency basis.

During the quarter, consolidated total revenue grew 6.7%, driven by 8.1% growth in Mexico and 5.6% in Central America, the latter impacted by deflation in Costa Rica. For the full year 2023, consolidated revenue grew 8.2%, reaching 9.3% in constant currency, 9.3% in Mexico and 9.4% in Central America. Paulo will go in detail on the financials later in the presentation. Let's go through our sales performance in Mexico. During the quarter, same-store sales grew 6.6%, out of which approximately 2.8% came from increase in Ticket and 3.8% from Traffic. Dolores will go through the operational highlights of the quarter in a couple of minutes, but I would like to highlight 2 things here. First, as in the previous quarter, we have all our formats and divisions in a positive growth path again. And second, as I comment on our previous webcast, we observed a similar effect with Fin Irresistible in November as what we reported back in June at the Hot Sale event, where the cautious consumers waited for the right moment at relevant sales events to purchase high-ticket products. While Bodega and Sam's continue to deliver quarter-over-quarter, for our Walmart formats, we continue working on our key initiatives mentioned last quarter regarding our upgraded fresh offering, enhanced assortment and improved look and feel at stores, which has already helped us gain share in certain categories such as fruits and vegetables. Concerning our performance compared to the market. During the quarter, our same store sales grew ahead of the self-service and clubs market measured by ANTAD by 60 bps. For the full year, thanks to our strategy, price investments, and listening to our customers we were able to overperform the formal market measured by ANTAD by 60 bps, making the tenth consecutive year achieving a positive gap versus ANTAD figures. This speaks of the consistency and discipline of our execution this past decade, coupled with the work and effort our associates put every day. We will continue to listen to our customers' needs, move fast, and innovate to constantly improve our value proposition and transform the shopping experience to keep our clients trust in us. Now I'll pass the word to Dolores for her to go through some operational highlights and afterwards, I will return to comment on Central America, store openings and ESG.

[Dolores Lobbe, executive]

Thank you, Gui, and hello, everyone. As Gui shared with you before, Sam's Club delivered the highest same-store sales growth among our formats. The team is focusing on offering great products and working in a more digital way to further improve the members' experience. During the quarter, we hosted our Plus Fest event, where we offered unique items and Great Value for our Plus members. We had a 16% sales growth versus last year's event and an increase in acquisition of all our different memberships. Ecommerce continues to show momentum. On Sam's, online sales grew more than 20% versus the same quarter last year, becoming a key driver in the results. Aligned with our strategic priority, Win in Discount, the combination of the lowest prices and efficient assortment has helped us maintain the trust of our customers. This reflects in a 120 basis points improvement during the year in self-service price perception and in our omnichannel NPS of Bodega, which in 2023, increased 110 basis points versus last year. We're always looking for new ways to better serve our customers. For example, due to the positive results we have seen in Bodega, we enabled the first self-checkout within a Bodega Aurrera Express, which has been very well received. Understanding how important proximity is for Bodega's customers, we're continually aiming to get closer and reach more of them. Bodega Aurrera Express is our vehicle to achieve this. In this quarter, we opened more than 50 Bodega Aurrera Express, making it our main expansion driver. Also, during the quarter, we achieved a milestone of opening in Morelos the 2,400 store of our Bodega formats, helping us achieve our expansion goals for the year. This quarter, we were also pleased with how General Merchandise performed. In Supercenter, for example, our Electronics, Video and Cellphones category reached double-digit sales growth. Also, as Gui mentioned, we were seeing encouraging results with the key initiatives we have been implementing in our Walmart formats regarding assortment, improved fresh offering and look and feel at some stores. For Walmart Express, for example, the 2023 Omnichannel NPS increased 710 basis points versus last year, which shows how well our customers are perceiving these efforts. This said, we recognize this format can grow faster and additional actions are being put in place to do so. To finalize, our brands continue to be a key driver in our efforts to winning discounts, growing year-over-year, reflecting the confidence our customers have in their quality and value. This year, we launched and relaunched more than 800 products, and we continue to strengthen the quality through our suppliers to provide the best products to our customers and members. Now I would like to talk about one of our biggest seasonal events, El Fin Irresistible, which took place from November 9 to the 21. We were pleased to see the results and how customers responded, since sales grew 10% versus last year's event. We had more than 70 million customers and members with a 6% traffic increase. It proved to be a fully omnichannel event. Ecommerce sales represented over 15% of total sales, 210 basis points more than in last year's event. Sales through our app increased 94%, while our Marketplace had 55% growth versus last year's Fin Irresistible. Despensa a tu Casa with an 80% growth versus last year, continued to demonstrate the omnichannel evolution of our top performer format during the event, Bodega Aurrera. For our customers to receive Walmart-standard service levels, we delivered 70% of the orders through our omnichannel dedicated fleet. This led to an Omnichannel NPS increase of 480 basis points versus last year. Our ecosystem had a key role on these results. Walmart Connect had a 31% increase versus last year's event, which included once again virtual concerts for our customers. BAIT's new users grew 166%, while in our Health initiative, more customers are finding value in our memberships with over 100,000 sold during the event. Finally, Cashi was the #1 financial app downloaded during the event as we offered appealing offers for our customers, which typically are only available for credit card holders. Moving to another of our strategic priorities, Lead in Omnichannel, let's take a look at our eCommerce performance for the fourth quarter. eCommerce GMV grew 23.1%, while online sales grew 19.5% reaching a penetration of 6.2% of total sales and contributing 1.1% to total sales growth. On Demand continues to be a key driver. We now have this service in more than 1,200 stores and around half of them from Bodega formats. They celebrated the third anniversary of Despensa a tu Casa. We're tailoring the omnichannel experience to the different customers we serve. Our 1-hour delivery offer is becoming more and more relevant for Walmart Express customers, representing 25% of total crowdsourcing orders in fourth quarter 2023. Regarding Extended Assortment, our Marketplace SKUs increased 2.7x versus last year, while our sellers increased 50%. We continue to evolve in providing the level of service our customers expect. As you know, Walmart Fulfillment Services is key to deliver faster to our customers and it continues to grow. In the fourth quarter, for example, WFS represented 33% of Marketplace, a 1,700 basis points increase versus 4Q 2022, helping customers receive their orders under our Walmart-standard. During the whole year, our GMV grew 21.7%, and our eCommerce net sales increased 18.3% compared to 2022. We're further consolidating our position as leader in Omnichannel. We have seen customers post-pandemic, going back to physical stores more than we originally thought, but we continue to see strong digital traffic and ticket size which is why we remain positive with our eCommerce growth plan acceleration. Our on-demand customers average ticket is 2.5x to 3x higher than traditional brick-and-mortar customers and in the case of extended assortment in Bodega, it can go up to 10x. Our focus remains on accelerating extended assortment, mainly driven by Marketplace. We're making it easier for sellers to work with us, developing our cross-border capabilities and investing in technology, powered by Walmart, to further improve customer experience. This without leaving aside to continue to lead in On-Demand and be the primary destination for grocery home-delivery shopping. Regarding our new verticals and our strategic priority to become the ecosystem of choice, BAIT reached 11.8 million active users at the end of the year, more than doubling the 2022 number and adding 3.8 million new active users in the last quarter of the year. The growth rate at this vertical has turned exponential, and thanks to this strategy, every quarter more customers are having low-cost access to the digital economy. BAIT is becoming an important traffic driver and a 24/7 digital customer reach for Walmex.

Walmart Connect grew 34% versus last year. This growth is in line with what has been the constant of a solid year where Connect has continually become a relevant alternative for advertising among many of our suppliers. Our financial services are becoming more relevant for our unbanked customers, so they can afford the merchandise they need. This year, we disbursed more than 500,000 credits, and we will continue working to strengthen our credit offerings for customers. Also, by offering our suppliers the possibility of anticipating payments, we reached a 32% income growth in our factoring business during 2023. As I mentioned before, Cashi was a very important sales driver through the seasonal period. During the quarter, the total processed value increased close to 3x versus the same period last year. On our coming Walmex Day in March, we will be able to share with you exciting news on the launch of new capabilities for this platform coming soon.

And finally, our Health vertical had a strong quarter with over 450,000 health memberships sold. This is 3x higher than what we sold in the same period last year. These memberships offer our customers easy and low-cost health services, discounts in our pharmacies, free consultations, assistance services, among other things. As with other verticals, it is an important traffic driver to our pharmacies, where customers with a health membership have a pharmacy ticket 4x higher than a regular customer. Now I will leave you again with Gui, so he can comment about Central America, store openings and ESG before going through the financial results. It was a pleasure being here with you and I will be glad to answer any questions in the live Q&A following this webcast.

[Guilherme Loureiro, executive]

Thank you, Dolores. Moving to our Central America operation. Again, please consider that we're referring to figures on a constant currency basis. Central America same store sales grew 4.6% during the quarter compared to the same period of 2022. During the fourth quarter, our focus in serving customers, through price and assortment, contributed to a same store sales growth above the region's inflation. Growth rates were affected by political demonstrations during October in Guatemala and deflation pressure in Costa Rica, partially offset by volume growth in all markets. Total sales, excluding FX effects reported a 5.6% growth in the fourth quarter. Reinforcing our strategy, we focused on proximity to customers, investing in 8 new stores in the region and reinforcing our Every Day Low Prices philosophy with close to 20% private brand penetration. Omnichannel momentum continues, gradually launching in Bodegas in Costa Rica while advancing with the implementation in Guatemala, which started during third quarter '23. Total eCommerce sales closed with a positive double-digit growth and increasing sales penetration by 70 bps. Additionally, Walmart Connect grew 31% with more than 120 advertising campaigns versus fourth quarter 2022. We're gradually working towards building up an ecosystem, which should bring more opportunity in the future. Regarding new stores growth, during the quarter, we opened 101 new stores, out of which 93 were in Mexico, and 8 in Central America. New stores contribution to consolidated sales growth was 1.5% for the full year ahead of the guidance given on Walmex Day back in March 2023.

Our Bodega formats led in terms of openings, and we also have resumed our store growth plan in Guatemala. As I mentioned before, in 2023, we opened 162 stores, representing a record figure since 2013. We plan to accelerate this further in coming years. We continue to see room to open new stores and we're pleased with the performance of the new openings. Now let me tell you about some news on ESG matters. For the fourth consecutive year, we were included in the Dow Jones Sustainability Index for our ongoing efforts to environment, social and governance issues. Also, we won the award in the Inclusive Employment category in Mexico at the first edition of the DEI Awards, for our strong commitment to the labor inclusion of people with disabilities. Providing support to our communities remain a key priority for us, I want to take a moment to thank everyone involved in the efforts made towards helping our customers and associates in Acapulco, Guerrero. I'm proud to see that our reaction was very fast and always following our safety protocols, so we were able to get the affected stores back in operation as soon as possible for our customers to be able to get the products they need in these tough circumstances. We faced one of the most devastating natural disaster in the history of Mexico, Hurricane Otis. Our immediate priority was the well-being of our associates and the affected families. We provided more than MXN 50 million in financial support to more than 1,800 affected associates. Besides the financial impact that this strategic event implied for the company, we donated, together with our parent company, more than MXN 100 million for first response and recovery efforts. Also, we donated food, personal hygiene items, and cleaning products. Additionally, we set up collection centers in our stores and clubs in 9 states. We opened community dining rooms and we provided free mobile phone and Internet connection for BAIT customers in the area. We were completely devoted to helping associates and communities, which included having all our affected stores working as soon as possible and making sure that people had enough products to meet their needs. All the above was possible, thanks to great partnerships with the Mexican Red Cross, federal and local authorities, various allied business partners, and of course, many different teams inside the organization. I'm proud of how we responded to the crisis, and I want to thank everyone for their work and support. Regarding the COFECE investigation, on December 14, 2023, Walmex timely submitted its defense argument and offered its evidence to COFECE. A resolution in this administrative stage is expected during the second half of 2024. This was the first opportunity for Walmex to defend itself against investigative authority allegations. Walmex is confident that its actions have adhered to the applicable legislation and that its participation in the Mexican market has resulted in lower price for consumers, particularly benefiting Mexican families with the lowest incomes, and in remote areas of the country that have not been attended by other, which will demonstrate in the corresponding instances and in the appropriate forums, in which we will exercise our rights. To close, we're focused on fulfilling our purpose of being a people-led, tech powered omnichannel retailer, dedicated to helping people save money and live better. I'm really excited about what's to come. We will continue to face new challenges, but I'm certain that we have great talent to sort them out. We will share with you our detailed plans for 2024 on our Walmex Day, which will take place on March 12 in Mexico City. I hope to see you all there. I will leave you with Paulo for the financial results of the quarter, and we'll meet afterwards for our new quarterly live Q&A. Thanks for joining us today.

[Paulo Garcia, executive]

Thanks, Gui, and good afternoon, everyone. Thank you for joining us today to review the results for the fourth quarter of 2023. I'll start by covering Mexico results and then I will comment on Central America. Important to mention that the fourth quarter and full year 2023 results were impacted by 2 one-offs related with Hurricane Otis and a positive accounting reversal of an intercompany transaction that I will detail later on. Let's look at Mexico's results first. As Gui previously mentioned, total revenue for the fourth quarter of the year increased 8.1%, driven by same-store sales growth of 6.6% and eCommerce, which contributed 1.1% to total sales growth. Gross margin expanded by 80 basis points, helped by new business performance and improved commercial margins. SG&A grew 12.2%, representing 14.5% of revenues. I will go through the gross margin and the SG&A breakdown in a moment. Operating income grew 5.7%, while reported EBITDA margin impacted by Otis stood at best-in-class levels of 10.9%. As I mentioned before, we had 2 relevant one-offs during the quarter, the first one linked to Hurricane Otis in Guerrero, which had a negative impact of close to MXN 1.5 billion on EBITDA. The second one related to the before-mentioned reversal of an intercompany transaction with a positive impact of approximately MXN 1 billion. Excluding these 2 one-offs, our Op-Inc would have increased 8.3% and EBITDA margin would have remained flat versus the fourth quarter of 2022. In the webcast presentation published on our website, you'll be able to find the reported Mexico fourth quarter results figures compared against the proforma excluding the effect of these 2 one-offs.

Expanding on gross margin, during the quarter, we had a benefit of 35 basis points on commercial margin from both our brick and ecommerce businesses. Our new businesses such as Walmart Connect, BAIT and financial services, which are contributing more and more to our P&L, provided 30 basis points improvement on gross margin. Finally, the net effect of 2 one-offs mentioned before, increased our gross margin by 10 basis points to reach the 23.7% reported. Now let's review our SG&A. During the quarter, we were able to partially offset labor cost increase through operational efficiencies, nevertheless, our Run increased 10 basis points. Strategic growth investments impacted fourth quarter expenses by 30 basis points. We continue to invest behind our growth strategy to accelerate store expansion, strengthen our associate value proposition, enhance our eCommerce and develop our new verticals. Hurricane Otis had a 15 basis points impact, which took our expenses to 14.5% of revenues. Some of the one-off Otis costs include equipment write-off, expenses to support associates and communities, stores, rehabilitation, among others. Now let's review Central America results. Please consider that on this slide, I will refer to figures on a constant currency basis. Total revenues grew 5.6%, driven by a 4.6% same-store sales growth. As Gui previously mentioned, volume growth helped offset deflation pressure in Costa Rica and demonstrations during October in Guatemala, closing same-store growth above the region inflation. This quarter gross margin improved 30 basis points to 23.8%, behind logistics benefits on imports and improved commercial margins in certain categories, helping offset customer value proposition investments and higher manufacturing perishable costs. SG&A represented 17.3% of revenues, 10 basis points improvement driven by operational efficiencies and sales leverage. Finally, operating income grew almost in line with sales growth, while EBITDA growth was 3.6% with an 8.5% margin. At a consolidated level, total revenue increased 6.7% with new stores contributing 1.5% to total growth in the quarter, ahead of the guidance provided in our last year's Walmex Day. Gross profit increased 9.8% compared to the fourth quarter of 2022, representing 23.7% of sales, while SG&A grew 9.7%. As a result, EBITDA margin was 10.5%, reporting a 20 basis points contraction compared to the fourth quarter of 2022. Excluding the 2 one-offs previously mentioned, both our Op-Inc and EBITDA would have grown at a healthy high single-digit level and would have remained flat versus the fourth quarter of the previous year. Once again, achieving best-in-class profit returns. And now moving to the balance sheet. Cash decreased 14.2% compared to the fourth quarter 2022, mainly due to the installments of the dividend paid, and CapEx investments in our return projects. Inventories grew 6.3%, below sales, driven by improved performance in groceries, fresh and health categories. And finally, accounts payable grew 15.6%, above sales, due to the Christmas season and Fin Irresistible purchases, and the natural growth of the business regarding the opening of new stores. In the last 12 months, we generated MXN 83.8 billion in cash and MXN 9.9 billion through working capital, the latter helping us to improve capital efficiency. We returned MXN 46.3 billion to our shareholders as dividends, 57% more compared to last year due to the special one-off dividend paid in April. In 2023, we stepped up significantly our CapEx execution, investing MXN 28.9 billion in high-return projects, above our guidance, due to opportunities to accelerate our organic expansion, reflecting our commitment to accelerate our growth story. We paid almost MXN 20 billion in taxes and our associate share plan required over MXN 4 billion. As we announced on the previous quarter, we started operating our share buyback program, repurchasing shares worth close to MXN 1 billion during the quarter. With all this, we ended the year with a cash position of MXN 40.7 billion. Our strategy translates into value creation for shareholders with improved returns on investment. We will propose in the next shareholder meeting a dividend per share of MXN 2.17 for 2024, MXN 1.18 per share as ordinary dividend and MXN 0.99 per share as extraordinary dividend. As you know, last year, we distributed an additional extraordinary dividend in April, mainly as a result of lower 2022 CapEx deployment. For 2024, and after improved CapEx execution in 2023, we will go back to our normalized payout ratio. Ordinary dividends will be paid in 2 installments of MXN 0.59 per share each, one in November and the second one in December. Extraordinary dividends will be paid in 2 installments of MXN 0.49 and MXN 0.50 per share each, also one in November and the second one in December. The proposal will be put to vote at our Annual Ordinary Shareholders Meeting, which will be held on April 10, 2024. To sum up, I'd like you to leave you with 3 key messages. Number one, continued growth momentum, growing same-store sales ahead of the self-service market measured by ANTAD for the tenth consecutive year. Number two, strong store expansion, reinforcing our commitment to our growth strategy. And number three, increased CapEx execution in high return projects, extending upward ROI trend. All in all, it was a year, full in line with our 2 key message to our stakeholders: accelerated growth with improved ROI returns. To close, and as Gui already mentioned, we will host our Walmex Day 2024 event on March 12. We're very excited to see you all, hopefully, in person, and we hope you can join us. To register for the event, please contact the Investor Relations team. Now Gui, Dolores, Salvador and myself will meet you for our new quarterly live Q&A session to answer the questions you may have. Thanks again for your interest in our company.

[Salvador Villasenor, executive]

Good morning, everyone. Thank you again for joining us in our live session Q&A following our fourth quarter 2023 results. Today, we have Gui Loureiro, our CEO, Dolores Fernandez Lobbe, our Chief Merchandising Officer; and Paulo Garcia, our CFO. Now we will start with the first question, please.

[Operator]

The first question is from Mr. Felipe Cassimiro from Bradesco BBI.

[Felipe Cassimiro de Freitas, analyst]

So first, Bodegas Aurrera openings reached the highest number, probably over the last 10 years, right, 83 new units. But now you have a new competitor with an improved capital structure, opening nearly 400 stores per year, right? Obviously, a much smaller company, but how are you seeing the evolution of the competitive landscape for store openings in the Bodega Aurrera format? That will be my first question. And just quickly my second one, if I can make it. So on gross margin. So the core food retail business gross margin evolved in 2023 and in the meantime, Walmart Supercenter sales have underperformed Sam's and Bodega, which is likely to have lower gross margins, right? So I just -- I would appreciate some color and how healthy core food retail margins are compared to the historical? And how we should think about the magnitude of difference between the food retail and the new businesses? I'll stop here.

[Guilherme Loureiro, executive]

Thank you for the questions. So first of all, the opportunity in Mexico for growing new stores is still very much present. I remember the days when I arrived here in Mexico, everybody, including some of you guys who are questioning whether retail store -- physical stores would survive, and we continued to invest, we continued to grow stores and we continued to grow the BAIT. So in our plan, as we have said in previous years, and we will reinforce in our conference next month, BAIT is a priority. We think that we now found the way to build BAIT more efficiently and very, very competitive. So BAIT is a very competitive format. Our stores are a little bit bigger than 3B and others. 3B has been present in this country since 2005. So -- and I know them because when they came, I was a supplier, I was CEO of Unilever here. So I was one of their main important suppliers. So I know them pretty well. They have done a very good job. And we've been competing with them since 2005, not since they did the IPO. They're good as others are very good. And competition is good because it makes us better. It makes us better when we have a very good competition. We're big in this country, but our competitors are very, very good. And we have other competitors that are a very good ones that we learn from them a lot. So we see an increase on the growth of smaller stores like 3B and like the others. And we're also adding to this trend. We're going to build more BAIT. We do think we're very competitive. If you compare our SG&A, if you compare our prices, we're very competitive. And we need to pay more attention to certain things like price perception. We do have a better price than 3B, but that is not what customers are noting. So it's the worst possible situation when you have good prices, but the customer doesn't believe you're cheaper than your competitor . So we have to do a better work on these chains. We have improved dramatically our private brands, and this is very, very important to compete in that factor. But Mexico is big enough for all of us to grow. There is a huge space for all of us to grow. They will continue to grow as other competitors will continue to grow, but we think we have strong plans to do better than our competitors. But that's not going to stop them to grow.

The second question was about....

[Paulo Garcia, executive]

Maybe, I'll take the gross margin -- maybe just on the first one, you want to talk a little bit on the private brands because I think it's something that we're accelerating as well. It's good in the context of 3B, Dolores.

[Dolores Lobbe, executive]

Yes. When we think about the hard discounters competition, what we see is that with our By Format, it is the best format we have to compete in that sector, right? And a huge part of the offering we have in that format is not only a larger assortment in order for those customers to be able to get their whole basket, but also the private brands. In this format it's where you have a higher percentage of private brands. And what we've seen, we've told you a couple of years ago that we plan to double our private brands. What we see today is we're based in innovation and quality. We're leveraging global sourcing and Walmart in order to have that innovation. And what we have seen, we have really good examples, for example, in categories like snacks, we have been growing 4.5x what the category is growing with our private brands, and we have reached with Great Value to be the #1 brand in some of these categories, not only Walmart, but in the market. So we know the power of our brands, and we're confident that continue investing in that, we're going to have a better proposition to be able to compete in the hard discounters area.

[Paulo Garcia, executive]

Okay. So Felipe, I'll answer your second question and Gui if you want to complement me. But let's make sure that going forward, we give only one to everyone. Otherwise, we don't give any one -- many people the option to ask questions. So to your questions on gross margins and also the relation also with the new businesses. I think what -- as we indicated, Felipe, and we also saw that already in previous quarters, our new business are doing more and more to our business, and they've contributed to our gross margin. So while we've indicated to some extent, our P&L shape is changing, and that stems as well from the new business contribution.

And that's positive. I think, of course, you see our gross margin improving, but also what we need to make sure that at all times, we do that, that we remain price competitiveness. And that stays the case because this contribution that comes from the new business, Walmart Connect, BAIT or financial services, is just helping adding dollars to our P&L. And then, of course, on the other side, on commercial margins, of course, you can play with mix. You can play with private brand acceleration like Dolores was just talking now, did you know the margins are higher. So I think that's what you can expect from us going forward and remaining because that's the core of this business, EDLP, price competitiveness at all times, so that we don't leave space to the -- to others continue penetrating.

[Guilherme Loureiro, executive]

Let me add to that. So first of all, the gross margin is most directly related to the price, our pricing capacity. And our price is set based on the price gap we want to have with the market. And we're at the price gap we want to address the market, and we need to do a better job on price perception. So that's why we start to talk about more about price perception. We need to make better use of the money that is already invested to create the price gap we have today. So last year, if I'm not wrong, we increased our price per sale by 130 basis points, not necessarily investing more in price gap, but just using the price gap, we already have and make sure that the customer recognizes that price gap. When you look at the future, and we see the developments in the market and the way categories are going to grow and you mentioned Walmart Supercenter, the way categories and formats are going to grow for us to continue to be able to deliver the price advantage we want to deliver, we need to monetize our customers better with different things. And that's when the new [Technical Difficulty]

[Operator]

We're reestablishing our Internet connection. Please stand by.

[Guilherme Loureiro, executive]

Can you hear me?

[Felipe Cassimiro de Freitas, analyst]

Yes.

[Guilherme Loureiro, executive]

Okay. So I will continue to answer the question. So I was spoken, I may miss something that because of the cut. But so we have to plan our growth margin based on the price we can charge our customers to maintain our price leadership. And when we look at the future and the combination of the growth of the categories, the growth of the formats, the investments we need to make, we have built it in a way that further monetizing our customers with new business, we'll deliver the margin that we need to deliver what we promised the market that we'll grow, double the business faster than we did in the past, and we will increase our ROI. So in order to do that, we do need those new businesses, and they're growing -- some of them are growing faster. Some of them are growing lower, but on average, we're building them according to what we need to do to monetize our customers. They're going to help both in terms of growth, but also in terms of giving us weapons that our competitors are not yet building. So in the future, we will have Connect as a great contributor to our margins, Connect continues to grow and the other verticals that the vast majority of our competitors are not building, and that shall give us further advantage on that.

[Paulo Garcia, executive]

Sorry, guys, it's typically Murphy's Law. So we lost the network at our building. So when we do our first live Q&A. So maybe to...

[Guilherme Loureiro, executive]

We should move the network to BAIT. It's not yet BAIT, so we need to get it into BAIT, so the failure does not happen.

[Paulo Garcia, executive]

So let's go to the next one. And please, just one question so that we ask -- we offer at least a few additional people the chance to ask a question.

[Operator]

Our next question is from Mr. Ben Theurer from Barclays.

[Benjamin Theurer, analyst]

I'll keep it brief. Just wanted to follow up on the performance at Walmart and Walmart Express, Gui. Can you elaborate a little bit more in detail as to the initiatives you've been implementing in order to drive same-store sales growth back to what we used to saw in these formats in the past now that it's been basically 2 years of underperformance, particularly versus Sam's Club and Bodega? So just to understand what's missing and what are the initiatives you're taking?

[Guilherme Loureiro, executive]

Thank you. Thank you for the question. So the 2 very different situations, Walmart and Walmart Express. I will give an answer for each. Walmart has suffered after growing a lot, Walmart has suffered from 2 things. One was that there's slowdown on general merchandise, so which is basically 1/3 of our sales, 2/3 are food. And what we saw last year was that the performance of general merchandise was not good either. And 2 reasons. One is that customers are spending less. Second, it's moving faster to ecommerce. And we think ecommerce is moving a lot concentrated on the big events that we have during the year. So we saw some recovery on that. And we think that this year, things are going to stabilize better for Walmart. The rest of the business of Walmart Supercenter is doing well. When you look at the food, you look at consumables, we're well positioned in price, stores are good and the performance is being good. That doesn't mean there is nothing to be done there. So we continue to grow private brands as Dolores has mentioned. We continue to invest in pricing and we continue to invest in fresh. We have also detected and that is common thing. The next thing I'm going to say is a common thing between Supercenter and Express that in some of the -- about 130 stores that they're more premium, we had to do a better job because our competitors have elevated the premium stores. And in those premium locations just -- well, 130 is a lot compared to our fleet of stores, it's not that much, but they're important. So we have invested a lot last year to improve those stores. And I think -- I feel confident that we're in a good position with investments we have made, both in terms of infrastructure and in terms of quality in fresh and other important things, I think we're doing well. And you see that, for example, the second half of last year, we gained market share in fruits and vegetables. We need now to replicate it in meat and other stuff. So I think this year is going to be a much better year for Supercenter. I'm very confident that with the investments we did and the way -- and the whole market situation about GM, it's going to be the best year.

Walmart Express, I think we can write a book about everything you can do wrong to a format. And including the fact that it took longer for us to see it and to start to correct. The format was -- first of all, let's put it, it's about $1 billion sales out of a $50 billion business. So -- but it is -- we have done a sequence of bad decisions and bad implementation. But it's always started with a fundamental problem. We were in a situation that the market was opened much more premium stores to compete with our store. We don't know how to do the superpremium stores, and we're not interested to do then. And we were in the middle. So we were seen in those premium places as inferior to our competitors. In less premium areas, we were seen as too premium for those areas. So we were suffering a decline already when we took decisions and I think that we decided to offer more -- a simpler way to buy, a faster way to buy, including the ecommerce to offer and parity prices with Supercenter. What we got most wrong was assortment. We reduced the assortment and people complained, and it took long for us to react. The 130 stores that are more in premium locations that I mentioned to include Express stores. We have made investments. We're seeing them a good reaction from those places. In less premium areas, we're doing better than in premium areas. And I also think that this year, you're going to start to see a bigger recovery. So last year, we saw improvement, but not yet there and not yet that encourage me to talk to you about it. But this year, I do think that the actions we take are going to result. So the way I see now is that we now have an opportunity because it went so much down that with the actions we take, it should be accretive to our results this year. But again, we made -- we do lots of good things. In this case, we did a sequence of mistakes.

[Benjamin Theurer, analyst]

Thanks for the honesty. Congrats Gui on the results.

[Guilherme Loureiro, executive]

Thank you.

[Operator]

Our next question is from Mr. Alan Alanis from Santander.

[Alan Alanis, analyst]

Congratulations on the results and congratulations for making this call. And before I ask my question, and congratulations for the answer you just gave on Walmart Express. I don't think I've seen -- I've heard the CEO speak with so much transparency and honesty about the things that are to be leaned from that experience. My question has to do with the role of private label as a driver of same-store sales. And let me contextualize the question a little bit, and that's my only question. Basically, I mean, you have private brand sales of around $8 billion or approaching $8 billion. Competitors as the industry where -- I mean it should be 1/5 of that -- of the level of sales. You should be 5x larger, if my numbers are correct. Could you just validate that your private labels are indeed more attractive, cheaper to the consumer than your competition, and it's a matter of perception? And could you expand what you were going to do in terms of the perception issue? And how can this drive same-store sales? You've already guided that you want to double private label or private brands. But we want to understand a little bit more what's the role of this and how can this help accelerate same-store sales? That will be my one and only question.

[Guilherme Loureiro, executive]

Let me take the perception. So I'm going to start by the end, and then Dolores is going to do. Our founder has told us how to get to the best perception from the customers. You implement seriously Everyday Low Price. You don't fluctuate the prices that much. You don't become a high-low company and people start to trust you. And they start to trust you. We always talk about trust, and I look at for -- what's the definition of trust. And we all know what trust is, but in order to build plans -- the best definition that comes is that you need to be honest, reliable and caring. And I think that defines Everyday Low Price. Because Every Day Low Price, you charge less, you don't mislead customers by reducing part of your brands, the prices and then charging more in others. So it's honest, it's reliable, and you care about your customers because you want to save them money, so they can live better.

We have to be very, very firm on our Everyday Low Price. So we've been -- and those -- there are ways people become -- you confront the competitors that do a lot of high lows and somebody decides a value a bit more high low. So last year, we invested in training. We've not only trained our people, but we trained our suppliers on what is Everyday Low Price. So I think we're being better at stores on Everyday Low Price. And we're being better on our market. So we need to reinforce pricing on our markets in both at stores or in radios or in TVs on everything that we do. That's the way you get price perception. Private brands play a very big role on that price perception. And we've been doing a better job of that, and Dolores will explain. So they will play the role because not only they help you a lot on price perception, but because they can only find that price on private brand in our stores, you create stickiness with the customers that they come because of the private brands. So having said that, I'll pass the baton to Dolores, so she can explain better what we're doing in private brands.

[Paulo Garcia, executive]

Dolores, allow me just to give quickly the numbers to contextualize what you said, Alan. So because you mentioned the penetration, we talked about 15% penetration private brands to the total company. So you know it. So Sam's is above the 20s, the Bodegas is the high teens and then you have lower penetrations in the other segments in [ 22 ]. To your question as well because you were talking about your discounters, if you think about By, so the small format of Bodega. So the penetration of private brands is already above the 20%. So I just want to give that context because it gives you a slightly different view, but I'll pass the baton to Dolores.

[Dolores Lobbe, executive]

I'm able to connect with how can you give us confidence that your brands are good and that you're growing that brand, as Paulo mentioned. We do independent studies with [ Brand Track ], for example. And what we have found is that within the private brands market, Aurrera, for example, is recognized as the #1 brand that helps the family to save. So Aurrera is already with an independent study recognized as that. And Great Value is recognized as the #1 private brand recognized within the private brand market.

So we're very careful about having these studies. We're going to keep on going through that on quality. We do quality internally, but we can also -- we're going to start also to compare our quality to our competitors' private brands quality in order to ensure and let the customers know and continue building that trust on our private brands. And when we look at Nielsen, another independent source, and we see which are the brands that are helping us gain market share, its private brands, one of the top of those. So we believe in that model, and we'll keep on investing in quality and independent studies to make sure we have the right products and value for our customers.

[Paulo Garcia, executive]

So unfortunately, we only have -- because we need to close before the stock exchange opens, only time for one more question. But please go ahead, next one.

[Operator]

Our next question is from Mr. Alvaro Garcia from BTG.

[Alvaro Garcia, analyst]

My question is on CapEx. You mentioned it was above guidance for 2023. And I was curious if you can give more color as to why that was the case, if it's new stores into next year, new DC capacity? Any more color there would be greatly appreciated.

[Paulo Garcia, executive]

Yes, Alvaro. Yes, basically, the capacity execution was pretty much mostly from execution more on the -- an expansion on the stores. That's actually more versus our initial guidance. We actually aid up spending a bit more, which is what you've always been telling all of you to us. So if you have to put your money to work first, put it in terms of growth, accelerated growth, Gui already talked about that. With the ROI, the returns that you have, put your CapEx to work. That's what we've done. We'll keep with our strategy, and we hope that we'll continue accelerating and investing further in the years to come.

[Guilherme Loureiro, executive]

May I take the opportunity to raise awareness because we're building new business like BAITs, like Health that we're starting to accelerate. We're piloting education and others, 0 CapEx on those businesses, a completely different model. So we're using -- we're becoming the platform -- I'm sorry, the new business is a different model. We have the platform that connects our customers, negotiate on behalf of them prices they can afford and somebody else is investing. And we're also helping those people that have invested in business because their main costs after the CapEx becomes the acquisition cost and acquisition cost at our stores is close to 0. But we need to maintain our stores in very good shape because that's the place people come to buy their basic needs, and that's the place where we recruit them to the new business. So it's very important to not only continue to expand. There are opportunities not to actually expand, but also to maintain our fleet in good shape. We'll need to cut, apologies because you know Murphy's Law. That's the first time in my 8 years that Internet is cutting in this building. I promise you, it was not because of the question that Felipe asked it was difficult. We're trying this new conference to give the opportunity to have a debate with you, to listen to you, to give you more data. Sorry that we couldn't answer more questions this morning. And we very much welcome your feedback. One of the big doubt is what I would prefer to do it the day before, but then our colleagues in Europe and on the other side of the world would have more difficulty. But it may well be that we receive the questions from those colleagues and we record it, so we don't run the risk like this morning. Please help us to do it better. You've been asking us to provide more clarity, more information, more data. We're trying to do so, but we need your feedback. So please, provide it to us, and we will make the best to do better. Thank you very much. Thank you for your interest in our company, and I hope to see most of you next month doing our Walmex Day. Thanks a lot. Have a good day.

[Paulo Garcia, executive]

Bye.

[Operator]

Walmex would like to thank you for participating in today's video conference. You may now disconnect.