Wal-Mart de México, S.A.B. de C.V. (PNK:WMMVY) Q1 2025 Earnings Call Transcript

Wal-Mart de México, S.A.B. de C.V. (PNK:WMMVY) Q1 2025 Earnings Call Transcript May 5, 2025

Salvador Villaseñor: Good afternoon. I’m Salvador Villasenor in charge of Investor Relations at Walmex. Thank you for joining us to review the results for the first quarter of 2025. Today with me is Ignacio Caride, President and Chief Executive Officer of Walmart de México y Centroamérica; Raúl Quintana, our Chief Omnichannel Operating Officer; and Paulo Garcia, our Chief Financial Officer. The date of this webcast is April 29, 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 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’s 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 over the webcast to our CEO, Ignacio Caride.

Ignacio Caride: Thanks, Salvador, and good afternoon, everyone. I am happy to be here with you again after our Walmex Day. Once again, let me begin by thanking our associates for the amazing job they do. Our purpose of helping people save money and live better is brought to life by their consistent strong performance on a daily basis. As we have mentioned before, Q1 was a tough quarter due to the current macro conditions and a strong comparative base with calendar effects such as the leap year and Easter shifting to quarter 2 in 2025 as well as a significant government stimulus deployed during the first quarter of last year. Having said this, I am happy with the progress we have made so far in the year. We are serving customers regardless of how they want to shop, sometimes at our stores and sometimes through our e-commerce platforms.

We keep innovating and improving our execution to get better at both. Despite political noise and uncertainties, we are focusing on the things we can control. And we know that during these periods of macro headwinds through our purpose, our everyday low prices DNA and our diversified portfolio, we are the best positioned to help our customers save money and live better. We remain optimistic that we will begin to see a gradual ramp-up in consumption for the rest of the year. Looking at the quarter, our same-store sales growth grew 1.4% with a 4.6% ticket growth and a negative 3.2% decline in transactions. However, we saw sequential traffic improvement month after month. Growth was led by Sam’s Club, while Walmart Supercenter, which was the only format reporting growth below ANTAD self-service and club same-store sales, registered a negative performance mainly linked to the slowdown in general merchandise.

Raul will share more information about operations and commercial efforts. Regarding our performance versus the market, we grew ahead of the self-service and club market measured by ANTAD by 110 basis points in the quarter, outpacing ANTAD for the eighth consecutive quarter. In these tough macro conditions, our value proposition is more relevant than ever for our customers. We will keep reinforcing our everyday low-price DNA, strengthening our price gap while giving our customers the value they want at a price point they can afford. During the first quarter, we opened 20 new stores, 67% more than in the same quarter last year. Out of the 20 openings, 17 were in Mexico, 1 in Costa Rica, 1 Guatemala and 1 in Nicaragua, which represented around 21,000 square meters of additional sales floor and contributed 1.6% to total sales growth in the quarter, in line with the guidance we provided at our Walmex Day.

Q&A Session

We are working to gradually spread more evenly the openings throughout the year, although as you have seen from previous years, most openings will happen in the second half of the year. Let me highlight some of other important results of the business before Raul expand on them. Improving and expanding our e-commerce capabilities will remain a key priority for the year. During the quarter, our e-commerce business grew 17%, driven by a 26% growth from on-demand, while our marketplace grew 8%, impacted by a slowdown in key categories. Our brands remained a key focus with penetration increasing 80 basis points during the quarter with growth in both self-service and Sam’s Club. Our new businesses, which enhance and complement our core continues developing.

Bait reached 19.8 million active users and generated MXN 2.3 billion in revenue during the quarter. Regarding Cashi Banking, after the friends and family pilot test in April, we expanded its reach to including a limited number of accounts from customers. Walmart and Bodega Aurrera Beneficios continue growing at a fast pace, reaching 61.8 million contactable customers, which help us identify around 40% of transactions while improving our customer understanding. Walmart Connect, our Retail Media business, grew 25% during the quarter, while Scintilla launched its channel performance model. Raul will share more info in this later. I want to reiterate how proud I am of what we are building to enhance our core with these new businesses and the high potential they hold.

Now moving to Central America. Please consider that we are referring to figures on a constant currency basis. In Q1, our business in Central America reported a 1.9% same-store sales growth versus last year, driven by volume growth. We continue reinforcing our customers’ value proposition through price investment and focusing on offering the best experience in our stores, again, with an all-time high NPS in almost all countries. Regarding e-commerce, we posted growth of 54%, increasing 40 basis points of e-com sales penetration helped by mobile app consolidation. Our new businesses continue to grow in the region. Walmart Connect increased revenue 69%, while we also enable remittances as a form of payment in Guatemala and El Salvador, which we will continue to roll out during Q2, improving experience for our customers.

Regarding revenue growth during the quarter, consolidated total revenue grew 6.5%, driven by a 2.9% growth in Mexico and 3.5% in Central America in constant currency. Reported results were benefited by Mexican peso depreciation. Before asking Raul to step in, I would like to close my remarks by reinforcing what I said at the beginning. I am confident of what we are building for the future. It was a tough quarter. Despite short-term macro headwinds and political noise, we remain committed with our long-term growth strategy. As you saw on our Walmex Day, we are accelerating openings and investments, always with discipline, and we believe there is still a lot of value to be created for everyone involved. We continue outpacing the market, which reflects the preference of our customers and members and the value assortment, experience and trust we are offering to them.

We are aware of the challenges ahead, but we are confident that with the top-level execution of our associates, we will be able to navigate through them as we have done in the past. Personally, I am optimistic of the future of our business. As always, I would like to thank you for your interest in our company, and I hope to see you tomorrow on a live Q&A. Now Raul will go through some of our operational highlights for the quarter, and then Paulo will share more details on our financial highlights.

Raúl Quintana: Thank you, Ignacio. Hello, everyone. I’m happy to be here with you again. As usual, I will go through the operational highlights of the quarter. First, as Ignacio mentioned, we are reinforcing our value proposition through price leadership and affordability to give our customers the value they want at a price point they can afford. During the quarter, price perception decreased 100 basis points versus previous year, mainly in self-service. We will keep working on this, and it remains a key lever for us. In Bodega, we had great results with our Morralla campaign with prices ranging from MXN 5 to MXN 35, growing double digit in quarter 1, offering the lowest prices that customers can afford. In terms of assortment and experience, we are constantly looking for new ways to serve our customers.

An example is what we’re doing in Walmart Express with different fairs. In the first quarter of the year, we had the Oriental Fair with products from Asia and the Cheese, Wine & Bread Fair. Also, in Walmart Express and in our stores from the premium cluster of Walmart Supercenters, we started offering Sourdough Bread, listening to what our customers want and understanding trend changes. This helped increase bakery sales more than 900 basis points versus the previous year in these stores. Regarding Sam’s Club, new member acquisitions grew double digit versus last year as a result of the value we offer our members through exclusive, innovative and created assortment at disruptive prices with positive results in customer satisfaction. We continue building and strengthening our customer trust across all formats, which is reflected in the 80 basis points increase in NPS versus the first quarter of 2024.

We always aim to be ahead of potential changes that may affect our operations and mitigate any potential impacts. We are anticipating and preparing for a potential change in labor reform. During the quarter, we conducted a test in 100 of our stores from our different formats. This will help us evaluate operational optimization, economic viability, as well as legal and social adaptation. Increasing penetration of our brands remains one of the key priorities. During the first quarter of the year, penetration increased 80 basis points versus last year with Bodega Aurrera Express and Sam’s increasing most among formats, while Fresh and Home categories posted the strongest gains versus last year. We will keep expanding into new categories such as with our new beer brand called Cezka, which was launched this quarter.

Let’s now review our e-commerce quarterly performance. During the first quarter, e-commerce GMV grew 17% and represented 7.4% of total GMV in Mexico. Once again, driven by on-demand. Among our formats, the ones with the highest e-commerce penetration are Walmart Supercenters and Walmart Express, which together reported an e-commerce GMV penetration of 11.4% during the first quarter of the year. The on-demand business continued with strong results, driven mainly by Fresh, Food and Consumable categories. Regarding formats, Bodega Aurrera Despensa a tu Casa continues to report the highest growth. For extended assortment, we increased the participation of our dedicated fleet, which has helped us to increase the delivery KPIs such as on time. Marketplace had an 8% growth with Walmart Fulfillment Services and cross-border trade growing at a higher rate.

We saw an industry-wide slowdown in some core categories for us, such as video games, TVs, video, home automation, among others. We have just shared at our Walmart’s Day, our priorities for the year in e-commerce. We will improve our experience through implementing our One Hallway initiative, which we expect to be functional by the end of the year. We will also improve assortment by enhancing our marketplace, which has been a focus during the last few years. Regarding this, during the quarter, we increased by more than 30% our seller base versus last year, but we also did an important quality check of our marketplace SKUs, removing some low-quality products and leaving the total SKU number almost flat versus last year. And the third priority is Quick Commerce, where we will be able to deliver orders in as fast as 30 minutes after they are placed, which we expect to deploy soon.

Our new businesses reinforce and enhance our core. Bait, our telecom business, reached 19.8 million active users. In this quarter, it reported MXN 2.3 billion in sales. As you can remember from our recent Walmex Day, this is a business that we expect will generate more than MXN 10 billion in revenue in 2025. Although its main reason to exist is to offer connectivity to our customers, bring additional digital traffic to our ecosystem while improving customer preference. Moving to Walmart Connect. This quarter, its revenues increased by 25%. We continue expanding our advertising space in stores with more than 250 additional digital headers with computer vision technology in Supercenters, which allows us to receive information about traffic, engagement and customer interaction with the advertisement.

Regarding Scintilla, our insights tool for suppliers, this quarter, we launched a new modular called Channel Performance, which will let suppliers track performance throughout the whole supply chain since placing the order until it is available in the sales floor. Also, suppliers will have access to see inventory levels at stores in real time. What I like the most about Scintilla is that it’s a win-win-win for our customers, suppliers and us. Finally, Walmart and Bodega Aurrera Beneficios continues accelerating, as Ignacio told you before. The program reached 61.8 million contactable customers and having around 40% penetration in total transactions. As we continue increasing the proportion of total transactions identified, we improved our customer understanding.

Now I will hand it over to Paulo to comment on our financial results. Thanks again for your interest in our company. This time, I won’t be able to see you at our quarterly live Q&A, where Ignacio, Paulo and Dolores will be answering your questions.

Paulo Garcia: Thanks, Raul, and good afternoon, everyone. Let me start by saying this was a tough quarter, but in line with our expectations and with what we said at our last Walmex Day. I will start by covering Mexico results and then move to Central America. So let’s begin with Mexico results. Total revenues grew 2.8%, driven by 1.4% same-store sales growth. We had negative calendar impacts of approximately 200 basis points due to the advanced payments of government stimulus into the first quarter of 2024, Easter shift to second quarter this year and the leap year effect. Gross margin expanded 10 basis points versus last year to 24% while SG&A had a 70 basis points expansion, representing 16.1% of total sales. I will go through the gross margin and SG&A breakdown in just a moment.

All this led to an operating income margin of 8.1%, while EBITDA decreased 1% versus the same quarter of last year, registering an EBITDA margin of 10.7%, which contracted 40 basis points versus prior year. 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, which more than offset the higher costs on our supply chain that impacted our gross margin by 10 basis points. This resulted in a gross profit margin of 24%, expanding 10 basis points versus last year. As we mentioned in Q4 and during Walmex Day, we should see expansion in gross margin for the full year 2025 versus prior year, though there may be variations between quarters depending on the opportunities we see to help our customers save money and live better.

Now let’s review our SG&A. We increased 25 basis points to run expenses, mainly behind increases in labor costs and deleverage. The main SG&A driver continued to be our gross investments such as new stores, clubs and DCs, new businesses, tech and our associate value proposition, which altogether impacted expenses by 45 basis points, leaving SG&A at 16.1% of total revenues. This representing an 8.3% growth aligned with the guidance given at Walmex Day of SG&A increasing at the high single digit in 2025. It is important to make clear that the guidance given for 2025 at our Investor Day regarding revenue growth, gross margin expansion and SG&A increases refers to our consolidated results and excluding FX effects. Now moving to Central America results for the quarter.

Please consider that I will refer to figures on a constant currency basis. Total revenues increased 3.5% versus last year, driven by a 1.9% same-store sales growth and 1.6% new stores contribution. Gross margin improved 10 basis points compared to last year at 24.5% of revenues, driven by the contribution of new businesses, partly offset by investments to reinforce our value proposition and to expand price gap. SG&A represented 17.9% of revenues, increasing 50 basis points versus last year, with gross investments to accelerate e-commerce, new stores and ecosystem development behind this increase. The above-mentioned result in operating income decreasing 4.2% and an EBITDA margin of 9.4%. At consolidated level, total revenue increased 6.5%, benefiting from a lower peso with new stores contributing 1.6% to total growth.

Excluding currency effects, revenue growth was 3.0%. The consolidated negative calendar effect on revenues was about 200 basis points. Gross margin expanded 20 basis points to 24.1%, while SG&A expenses grew 12% to represent 16.5% of revenues. Operating income decreased 1.5% year-over-year to a 7.8% margin, while EBITDA margin contracted 50 basis points to 10.4%. As we mentioned before, for the following quarters, we should see a ramp-up in revenues that will also help to leverage expenses and improve our bottom line. Let me now briefly speak about the balance sheet. Cash decreased 45% versus March 2024. We’ll see the sources and uses of cash in the next slide. Inventories grew 15% above sales growth. Inventory reduction is a priority for us.

We are being more diligent to ensure we have the right assortment and take faster actions to prevent and liquidate obsolete and stagnant items. And finally, accounts payable decreased 0.9%. Moving to the cash flow. In the last 12 months, we generated MXN 92.2 billion in cash. We invested MXN 35 billion of CapEx in high-return projects. In line with our Walmex Day 2024 guidance. We will be accelerating to reach our CapEx target for 2025 of MXN 41.8 billion. We returned MXN 37.4 billion to our shareholders as dividends. Our working capital for the period required MXN 18 billion, increasing due to inventories growth and reduction of accounts payable impacted by product mix and lower purchases. Finally, we paid MXN 20.5 billion in taxes. All in all, our cash position finished the quarter at MXN 23.9 billion.

To finalize, I would like to leave you the 3 key messages of the quarter. One, we continue growing ahead of ANTAD. We expect to begin seeing a gradual ramp-up in the following quarters and a stronger consumption environment in 2026. Two, we will continue investing to drive growth and strong capital returns. We will focus on improving our working capital and remain with strict expense control. And three, our value proposition is more relevant than ever. Our new business continue enhancing our core by generating new sources of revenue, additional traffic to our ecosystem and increasing our customer understanding, translating into increased share of wallet. As Ignacio said, it was a tough quarter with a difficult comparative base, but we expect sequential growth improvement through the year.

Therefore, we are keeping our sales guidance of 6% to 7% growth for the year. As always, thanks for your interest in our company. We’ll be happy to answer any questions you may have tomorrow at 3:00 p.m. Mexico City Time on our quarterly live Q&A. You can always reach our IR team if you have any question.

End of Q&A: