Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BBB Foods Inc (TBBB, Financial) opened 121 net new stores and one new distribution center in the second quarter, bringing the total store count to 2,503.
- Same-store sales grew by 10.7%, and total revenues increased by 27.5% year on year, reaching MXN13.6 billion.
- EBITDA grew by 43.2% year on year, reflecting strong sales growth and gross margin expansion.
- Net cash flows from operating activities rose by 25% year on year, reaching MXN1.256 billion.
- The company maintains a strong net cash position of approximately MXN1.2 billion, with an additional MXN2.8 billion in short-term bank deposits.
Negative Points
- Administrative expenses rose by 45.8%, driven by higher personnel expenses and investments in IT, purchasing, HR, and finance.
- Same-store sales growth showed a slowdown compared to the second quarter of the previous year due to factors like Easter timing and election-related impacts.
- The company faces challenges in maintaining consistent gross margins due to dynamic pricing strategies and market conditions.
- The expansion into new regions and increased store openings may lead to higher operational costs and potential inefficiencies.
- The peso depreciation could impact cost of goods sold if it persists, potentially affecting profitability.
Q & A Highlights
Q: Can you elaborate on the dynamics of gross margin improvements and whether this is a new normal?
A: Kamal Anthony Hatoum, CEO, explained that scaling has led to cost benefits in purchasing, which may not stop. The decision to pass these benefits to customers or retain them as gross margin is dynamic and product-specific. The gross margin is likely to fluctuate over time, and continuous elasticity testing helps optimize pricing.
Q: How are fresh and meat categories performing, and what is their impact on long-term gross margins?
A: Kamal Anthony Hatoum, CEO, stated that meat and fresh produce are not part of current projections. Tests are encouraging, but official launches depend on attractive ROI. The impact on long-term gross margins will depend on the rotation and logistics needs of these products.
Q: Can you provide more details on the dilution in selling expenses and increased investment in talent and IT?
A: Kamal Anthony Hatoum, CEO, noted that investments in people and IT are necessary for growth and have high ROI. Dilution of expenses is expected as store numbers and sales grow faster than expenses. The pace of store openings is robust, but real estate is lumpy, affecting quarterly numbers.
Q: What is the impact of peso depreciation on cost of goods sold?
A: Eduardo Pizzuto, CFO, explained that peso depreciation typically results in a pass-through effect on costs over 12 to 18 months. In the short term, there is no immediate impact on cost of goods sold.
Q: How do you view the return on investment for new stores, and can it be maintained?
A: Kamal Anthony Hatoum, CEO, emphasized that returns are improving as new store vintages perform better due to brand recognition and improved value propositions. Unless CapEx costs change significantly, the return on invested capital should continue to improve.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
