Wal Mart de Mexico SAB de CV

BMV:WALMEX

Q2-2025 Earnings Call

[Salvador Villasenor Barragan, executive]

Good afternoon. I'm Salvador Villasenor in charge of Investor Relations at Walmex. Thank you for joining us to review the results for the second quarter 2025. Today with me is Ignacio Caride, President and Chief Executive Officer of Walmart de México y Centroamérica Central America; Raúl Quintana, our Chief Omnichannel Operating Officer; and Paulo Garcia, our Chief Financial Officer. The date of this webcast is July 16, 2025. 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 is intended for the use of the company's shareholders and the investment community. It should not be reproduced in any way. 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 webcast over to our CEO, Ignacio Caride, Please, Ignacio.

[Ignacio Caride, executive]

Thanks, Salvador. Hello, everyone. As always, I am happy to share with you our results for the second quarter of the year. As usual, I want to thank all our associates for their great work. We just went through Hot Sale, one of our biggest seasonal events of the year, and they never stopped surprising me with their commitment they show. We just finished the quarter where we are starting to see a gradual pickup in sales. However, the recovery has been slower than expected, with consumer confidence having mixed results in the quarter and with uncertainty still present.

I am happy about the progress of our strategy, even though I'm not happy with the current results. We are focusing on the things we can control and some of the proof points of our strategy progress include market share gains, increasing price gap, private brands expansion, acceleration of e-commerce and consolidation of our new businesses. This quarter, we made important price investments, which help us increase our price gap versus competition to help our customers save money and live better through these challenging times while also capturing additional market share. All the above mentioned proof points will set ourselves for a stronger second half of the year and a stronger 2026.

Now looking at the quarter figures, our same-store sales grew 4.4% with a 6% ticket growth and a 1.4% decline in transactions. The latter impacted by beverages and improving versus the previous quarter. Bodega and Sam's Club led growth. Bodega's value proposition remain very relevant to our customers during these complicated times. Also, as expected, Health and Wellness and general merchandise registered solid growth, the latter mainly thanks to Hot Sale. Raúl will share more information about operational and commercial efforts.

At the moment of this recording, the untapped figures for June haven't been reported yet. Therefore, we will compare data from April and May, where we grew 80 basis points ahead of the self-service and clubs same-store sales and top figures for the ninth consecutive period. we are winning the preference of the customers, although there is still work to be done and opportunities to capture to continue reinforcing our value proposition by offering the best value, best assortment, convenience, best experience and ultimately continue building our customers' trust.

During the second quarter, we opened 25 new stores, taking the total number in the first half of the year to 45 new stores. Mexico opened 20 new stores, while in Central America, we opened 5 new stores, 4 in Costa Rica and 1 in Guatemala. These 25 new stores represent 27,000 square meters of additional sales floors while contribution to total sales growth in the quarter was 1.8%, ahead of the guidance provided at our Walmart's Day. As previously said, openings will accelerate in the second half of the year.

We continue growing across all dimensions of our omni portfolio and ecosystem, providing proof points of the progress of our strategy. Let me highlight the main results before Raúl expands later. During the quarter, as I said before, we increased our price gap in the self-service by 40 basis points as we made important strategic price investments during the quarter to help our customers in challenging times. E-commerce, a key priority for the year grew 20%, accelerating from previous quarters. E-commerce is one of the top drivers of value creation in our strategic plan. There is significant potential to capture by implementing our One Hallway initiative planned for October, increasing assortment through marketplace and developing quick commerce. This will increase e-commerce conversion and penetration while improving its unit economics, reinforcing our leading position as the most relevant omnichannel player in the country.

Regarding our new businesses, Bait reached 21.5 million active users and generated MXN 2.7 billion in revenue during the quarter. Bait has a specific role within the Walmart ecosystem, which is to provide access to connectivity at a price customers can afford. Paulo will give more details on how we calculate our active users figures.

Walmart and Bodega Aurrera Beneficios reported 74.2 million contactable customers with important improvements in NPS and benefit redemption. I cannot emphasize enough the importance of the data and the value this program is generating and will continue to generate for our core business in the near future. When I see the potential of what we are building across all dimensions of our ecosystem to enhance our core and increased stickiness, it makes me very proud. I'm very excited about the future of what we are building.

Now moving to Central America. Please consider that we are referring to figures on a constant currency basis. During the second quarter, we reported a 4% same-store sales growth, and I am happy to say once again, we continue growing ahead of the market. In addition to the store openings mentioned before, we expanded our supply chain network with a new perishable distribution center in Costa Rica, which is the biggest of its kind in the region. Again, we reported all-time high NPS in all our countries, which reflects our customers' value proposition, reinforcement through price and focusing on offering the best experience in our stores. These efforts have also resulted in improvements in our price perception. During the quarter, we posted an e-comm growth of 49% in the region, increasing its sales penetration by 40 basis points driven by successful commercial activities and the rollout of the e-comm app.

Finally, our new business in the region continued to develop. Walmart Connect increased its revenue by 67%, which continues to generate income to reinvest in our growth agenda. Furthermore, this quarter, we finished the rollout in all countries for remittances as a form of payment and important milestones towards improving remittance experience for our customers.

To finalize and before leaving you with Raúl, let me close by saying that I am happy on how we continue progressing on our strategy supported by various proof points previously mentioned. We'll continue with investments behind growth, including price investments when we see the opportunity to help our customers when they need us the most, helping them save money and live better and therefore, keep on gaining our customers and members' preference while expanding our market share gain. We expect a second half of the year where growth will continue to increase sequentially.

Our guidance for the year-end growth, gross margin and expenses remains unchanged. I am confident in what we are building for the future. Challenges and opportunities lies ahead. But by remaining true to our purpose and everyday low prices DNA, we are well positioned for what's to come. Now Raúl will step in to go through some of our operational highlights for the quarter, and then Paulo will share more details on our financial highlights. Thanks a lot for your interest in our company and see you tomorrow on our live Q&A.

[Raul Quintana, executive]

Thank you, Ignacio, and good afternoon, everyone. It's a pleasure to be here again with you. Let's look at our operational and commercial highlights for the quarter, providing proof points of the progress in our strategy. Regarding offering our customers the value they want at a price point they can afford. As Ignacio mentioned, during this quarter, we had a significant price gap expansion versus competitors or 40 basis points in self-service as a result of price investments aligned with our everyday low prices DNA. Price perception improved quarter-over-quarter, also benefiting from the price of gap expansion. Further benefits are expected in the future.

Our brands is one of the key levers to increase price perception. This quarter, sales penetration increased more than 100 basis points versus second quarter of 2024 with Sam's Club and Bodego Aurrera Express leading more than 200 and 150 basis points increase, respectively, while reporting significant growth across all formats. We're also seeing penetration increases across all categories, but the ones controlling the most were home and fresh once again. New customers are perceiving the great value offered by our brands. The percentage of customers buying one product of our brands keeps increasing quarter-over-quarter with more than 120 basis points growth versus second quarter of 2024.

Regarding our efforts to consistently improve assortment and experience, this quarter, I would like to highlight a couple of things. First, the Lilo and Stitch license that we had across all our different formats during the quarter had a double-digit growth versus similar campaigns launched last year, showing great acceptance from our customers. Also, we have made an important effort to continue improving our fresh offering, understanding the relevance it has on increasing traffic to stores. In Sam's Club, for example, during the quarter, we had 350 basis points increase in quality perception from members versus last year, which helped grow its category sales by double digit in the quarter. Additionally, last May, we engaged in a new sponsorship deal with Sultanes de Monterrey baseball team, whose stadium is now called Walmart Park. This initiative represents a genuine commitment to the Monterrey community reinforcing our mission to always be close to the Mexican families while increasing brand awareness in the northern region of the country.

Before moving on to e-commerce and our new businesses, I would like to speak briefly about our Hot Sale results. We had more than 63 million transactions during the event with general merchandise and health and wellness reporting the biggest hike in sales. It was a truly omnichannel event where we had a 28% growth in digital channels, and we broke the record in the day of omnichannel sales, with e-commerce penetration doubling. We are very happy with the results of the event, which generates positive expectations for Fin Resistencia which we're already preparing for.

Let's now review our e-commerce quarterly performance. During the second quarter, e-commerce GMV grew 20% and represented 8.8% of total GMV in Mexico, driven by a 24% on-demand growth. Bodega Aurrera Despensa a tu Casa reported the highest growth once again. We are making efforts to continue improving the experience of our on-demand business. In Walmart Supercenter and Walmart Express, for example, during the quarter, we had an all-time high levels of in full in orders delivered to our customers, increasing 1,200 basis points versus last year. Across all formats, in quarter 2, we delivered 60% of our on-demand orders in the same day, a number that has doubled in the last 18 months. That's a result of an amazing job from our last mile and e-commerce teams. This significant progress in last mile delivery, together with our planned initiative in quick commerce will reinforce our unique and differentiated omnichannel offering whilst further accelerating e-commerce sales.

Regarding extended assortment, Marketplace had a 14% growth, mainly from softline categories like beauty, pets, babies and home. During the quarter, we had a seller growth of 32% versus the same period last year. Walmart Fulfillment Services remains instrumental in driving marketplace growth and maintaining its service levels, achieving a 30% increase compared to the same quarter last year and capturing a 43% share of marketplace orders during our Hot Sale event.

Now let's move to our new businesses, which are strengthening our core. Bait reached 21.5 million active users. And this quarter, it's reported MXN 2.7 billion in sales to a total of around MXN 5 billion in the first half of the year while increasing profitability every quarter that passes, but most importantly, it is successfully solving a pain point for our customers by giving access to the digital economy at low prices, while building trust and stickiness and increasing traffic to our core business.

Moving to Walmart Connect. This quarter, its revenues increased by 27% versus quarter 2 of last year. We are generating new initiatives to attract new advertisers such as sponsored ads, opportunities for marketplace sellers in the first campaign and also enabling additional capabilities for the current advertisers such as offering them the capability to self-manage their campaigns, not only on our digital channels and platforms, but now also on our digital spaces inside the stores.

Finally, in Walmart and Bodega Aurrera Beneficos, as Ignacio mentioned before, the program reached 74.2 million contactable customers. You heard correct. 74.2 million contactable customers which helped us identify around 45% of total transactions. Not only are we focusing on growing the contactable customers, but also on improving the experience of the program and the benefit redemption. As we identify and know better our customers, we are starting to communicate better with them while agreeing with suppliers the best commercial plans that suit the needs of each customer, thereby increasing sales.

Now I will pass over the mic over to Paulo to comment on our financial results. Thanks for joining us today, and see you all tomorrow at our quarterly live Q&A.

[Paulo Garcia, executive]

Thanks, Raúl, and good afternoon, everyone. I'll start by talking about consolidated results, then covering Mexico results and then move to Central America. Regarding revenue growth during the quarter, consolidated total revenue grew 8.3%. Reported results were benefited by Mexican peso depreciation. Excluding these consolidated revenue growth would have been 6%. For the first half of the year, we reported a consolidated revenue growth of 7.4% and 4.5% in constant currency.

So let's talk about Mexico results. Total revenues grew 6%, driven by 4.4% same-store sales growth. Gross margin contracted 10 basis points versus last year to 24%, while SG&A at a 75 basis points expansion representing 17.1% of total sales. I'll go through the gross margin and SG&A breakdown in just a moment. All this led to an operating income margin of 7.1%, while EBITDA decreased 3.7% versus the same quarter of last year, registering an EBITDA margin of 9.6%.

Let me now expand on gross margin. During the quarter, we had a benefit of 20 basis points from the contribution of new businesses such as Walmart Connect, Bait and Financial Services, almost offsetting price investments made in the quarter as we saw the opportunity to help our customers and expand our price gap and the higher costs on our supply chain impacted by lower volume. This resulted in a gross profit margin of 24%, contracting 10 basis points versus last year. As we've mentioned before, there will be quarters like this one, where we'll invest more aggressively in pricing as we see opportunities to help our customers further through difficult times gain additional market share and strengthen our position for the future. For the full year, we continue to expect margin expansion versus the prior year.

Now let's review our SG&A. We increased 35 basis point run expenses, mainly due to increases in labor costs and utilities. This time, gross investments added 40 basis points to our SG&A behind investments in tech, in e-commerce, new stores, remodels and our associate value proposition. This took SG&A to a 75 basis points expansion and represented a 10.9% growth. We continue with our growth investments and the benefits that we'll get from these investments may not yet be entirely reflected on our current financials, but I want to reassure you that these efforts will pay off in the future.

Now let's review Central America results for the quarter 2. Please consider that on this slide, I will refer to figures on a constant currency basis. Total revenues increased 6% versus last year, with same-store sales growth increasing 4%, leading to market share gains in Q2 and H1 2025. Gross margin improved 20 basis points compared to last year to 24.5% of revenues benefit from supply chain efficiencies and Walmart Connect acceleration, offsetting price investments. SG&A represented 18% of revenues, decreasing 30 basis points versus last year. Gross investments in footprint expansion, e-comm and new business acceleration were more than offset by operational efficiencies. The above mentioned resulted in operating income growth of 7.6% and an EBITDA margin of 9.2%, both growing ahead of revenues.

At total consolidated level, total revenue increased 8.3%, benefiting from a lower peso with new stores contributing 1.8% to total growth ahead of our guidance provided at the last Walmex Investor Day. Excluding FX effect, revenue growth was 6%, in line with the guidance given for the year of 6% to 7% consolidated growth in constant currency. Gross margin remained flat at 24.1%, while SG&A expenses grew 12.2% to represent 17.2% of revenues. In constant currency, SG&A grew 9.7%, in line with our full year guidance of high single-digit growth. Whilst we may see variations per quarter, we will reaffirm our guidance regarding gross margin expansion in SG&A, high single-digit growth for the full year 2025. Operating income decreased 4% year-over-year to a 7% margin, while EBITDA margin contracted 90 basis points to 9.5%. Whilst we are not happy with this quarter's profit results, the decisions of today are thinking in the long run and will be reflected in the future, reaffirming our position as the only true omnichannel retailer in the market. Additional price investments to help our customers and capture additional market share and continued growth investments in SG&A set ourselves for a stronger future.

Let me now speak about the balance sheet. Cash decreased 33.1% versus June 2024. We'll see the sources and uses of cash in the next slide. Inventories grew 6% below sales growth. As we've been saying, inventory has been and will continue to be a priority for us. We are starting to see improvements on our days on hand further and more noticeable improvements are expected in Q3. And finally, accounts payable decreased 2.5% and impacting our days payable.

Moving to the cash flow. In the last 12 months, we generated MXN 89.2 billion in cash. We invested MXN 35.3 billion of CapEx in high-return projects in line with plan. We returned MXN 40.5 billion to our shareholders through dividends and share repurchases. Our working capital for the period required MXN 9.8 billion. And finally, we paid MXN 20.5 billion in taxes. All in all, our cash position finished the quarter at MXN 32.4 billion, below the same period a year ago, impacted by lower profitability and negative working capital. This will be improved in H2.

Before sharing my usual 3 key messages for the quarter, I wanted to address a question that we anticipate you might have related to how we account for active users in our Bait business. Our methodology has been consistent. As we disclosed in our earnings releases, Bait active users are referred to as users with at least one transaction in the last 180 days, considering voice, internet traffic as well as SMS while also including sales to distributors. This figure is audited by 1 of the big 4 audit companies and reported each quarter, referencing the same user base but extracting only the last 90 days and excluding data traffic and SMS will result in a different active user figure. Regardless of the time frame you select, we are pleased with the growth in active users and revenue. And more importantly, our Bait is a clear driver of digital adoption in omnichannel shopping, enhancing our core business.

To finalize, as I always do, I would like to leave you with 3 key messages of the quarter. One, we continue growing ahead of ANTAD as customers reward our efforts to improve customer value proposition with their trust and loyalty. Two, we are seeing a slower-than-expected consumption recovery, but we don't see any fundamental change in what we forecasted for the full year. Therefore, we are reaffirming our sales guidance of 6% to 7% consolidated revenue growth for the year as well as the gross margin and SG&A guidance shared with you during our Walmex Day. And three, we will continue investing in prices when we see the opportunity to help our customers in challenging times and capture additional share has happened during this quarter, and we continue with our growth investments today, building for tomorrow, and I want to reassure you that the benefits from these investments will come stabilizing margins in the near term.

Thank you for your interest in our company. I hope to see you tomorrow at 3:00 p.m. Mexico City time on our quarterly live Q&A to answer any questions you may have. You can contact our IR team if you have any questions.