In its second-quarter 2024 earnings call, Alsea (BMV: ALSEA), a leading operator of restaurant chains, reported a 2.3% year-over-year increase in sales, reaching MXN19 billion. The company saw a robust 9% growth in same-store sales and a 7.6% rise in EBITDA, which amounted to MXN2.7 billion. Digital orders contributed significantly, representing 33.9% of total sales. Alsea's CEO, Armando Torrado, highlighted the company's operational progress and strategic initiatives, including store openings and an emphasis on sustainability. Despite challenges in Europe and South America, Alsea showed positive dynamics in Mexico, with notable performance in the casual dining sector and strong loyalty sales growth.
Key Takeaways
- Alsea's sales increased by 2.3% year-over-year, with a significant 9% rise in same-store sales.
- EBITDA grew by 7.6% to MXN2.7 billion, and digital orders made up a substantial 33.9% of total sales.
- The company opened 65 new stores and remodeled 25, with loyalty sales jumping by 37.6%.
- Net income saw a decline of 66.9%, but earnings per share increased by 53%.
- Alsea is focusing on sustainability, aiming for a 25% female leadership ratio and reduced CO2 emissions.
- The company's cash position stood at MXN4 billion, with a gross debt of MXN29.7 billion pre-IFRS 16.
Company Outlook
- Alsea expects to meet its MXN6 billion CapEx target for 2024 despite a reduction in store openings in Europe.
- The company remains confident in achieving its EBITDA guidance for the year.
- A buyback program is being considered, with an approved amount of approximately MXN500 million.
Bearish Highlights
- Adjusted EBITDA declined in Europe by 14.9% and in South America by 21.3%.
- Net income decreased significantly by 66.9%.
- Economic challenges in South America, particularly in Argentina, and a slowdown in consumption across European regions were noted.
Bullish Highlights
- The casual dining and family business segments reported strong same-store sales growth.
- Promotions and events such as Dia del Padre and Eurocopa boosted sales.
- Domino's Pizza (NYSE:DPZ), which represents a significant part of the business in Mexico, showed impressive growth.
Misses
- There were about 10 to 15 fewer store openings in France, the Netherlands, and Belgium.
- A decrease in delivery to homes in Europe impacted Domino's Pizza business.
Q&A Highlights
- Alsea is strategizing on raw material costs, with stable coffee prices secured through a contract with Starbucks (NASDAQ:SBUX) and a stockpile strategy for mozzarella cheese.
- Despite currency fluctuations, the company is optimistic about revenue growth.
- The possibility of divesting some brands to unlock value for investors was discussed.
Alsea's CEO expressed hope that the Olympics in Paris would bring tourists back to the city and improve business after a quiet period due to traffic restrictions. The company's CFO discussed the stability of raw material costs and the performance of different brands in various regions. While South America faced economic challenges, Mexico showed strong sales growth, and the company is poised to continue its expansion strategy while monitoring market conditions for potential buybacks.
Full transcript - None (ALSSF) Q2 2024:
Gerardo Lozoya: Good morning, everyone, and welcome to Alsea's Second Quarter 2024 Earnings Video Conference. My name is Gerardo Lozoya, Head of Investor Relations and Corporate Affairs. And today our Chief Executive Officer, Armando Torrado; and our Chief Financial Officer, Federico Rodríguez will be presenting the results. Before we continue, a friendly reminder that some of our comments today will contain forward-looking statements based on our current view of our business, and that future results may differ materially from these statements. Today's call should be considered in conjunction with disclaimers contained in our earnings release and in our most recent Bolsa Mexicana de Valores report. The company does not have any obligation to update or revise any such forward-looking statements. Please note that unless specified otherwise the earnings numbers referred to are based on pre-IFRS 16 standards. I would now like to hand it over to Armando for his initial remarks. Please go ahead, Armando.
Armando Torrado: Gracias, Gerardo. Good morning everyone, and thank you for joining our second quarter 2024 earnings video conference. I am pleased to share with you our financial results regional highlights and other notable milestones from the quarter. I will also reveal in progress, we have - what we have made and our digital ESG strategies. Before I begin, I would like to thank our team members for their hard work, and our stakeholders for the continued support to Alsea. In the second quarter sales increased by 2.3% year-over-year reaching MXN19 billion or a 9.6% increase when excluding foreign exchange effects. Same-store sales grew by a solid 9% year-over-year. Despite a challenging macroeconomics environments, and strength of the Mexican peso impacting currency translations across regions EBITDA grew a 7.6% reaching MXN2.7 billion for the quarter with a 14.5% margin. This increase is due to the benefits of operating in leverage, lower cost of food and other raw materials. In the quarter we serve over 32.9 million digital orders totaling a MXN6.4 billion, which contributed for 33.9% to our total sales. Regarding our brands Starbucks Alsea same-store sales increased by a 7.2%, across our regions Starbucks Mexico same-store sales grew up 8.7%, driving by over-the-counter promotions, improving store service, innovative food options and attractive merchandise. For Europe same-store sales declined 9.9% mainly affected by more challenging consumption environment and a boycott of American brands in France and the Netherlands. Finally in South America same-store sales grew 27.4%, but declined by 5% excluding Argentina. Regarding Domino's Pizza Alsea, we posted at 1.8% increasing same-store sales. In Mexico Domino same-store sales increased by 4.7% largely driven by successful commercial strategies such as Domino's Mania. Additionally popular over-the-counter promotions like my Domino's and Pan Pizza offerings and at MXN119 and MXN149 provided very highly effective brand results. In Spain, same-store sales decreased by 2% affected by ongoing challenge in the delivery channel. And finally in Colombia, same-store sales were up 2.6%. Regarding our Burger King business Alsea same-store sales excluding Argentina increased by 2.5%. In Mexico, Burger King reported same-store sales grew by 1.7%. In our Full Service Restaurant segment, we trended positively same-store sales up 5.5%. Vips Mexico posted a very robust 8.4% year-over-year increasing same-store sales, driving by a compelling value promotions, service improvements and in an - innovations regarding product offerings. Chili's and Italianni's in Mexico reported a double-digit growth in same-store sales helped by increased traffic after introducing new food and beverage offerings. In Spain, Ginos also reported a high single-digital growth in same-store sales. Let me turn now with Alsea Global as a brand operator, we focus on providing a top-notch experience for all our customers. For example, Starbucks Alsea leveraged its geographic reach by sharing best practice between stores, while also tailoring food offerings to local preference. We seek to provide a welcoming third place environment where customers feel at home among friendly staff. During the second quarter, we opened 48 corporate units and 17 franchises, or that it's a total of 65 stores. We focus on the most profitable opportunities across all the regions. During the first half of the year, the rate at which new stores were opened were similar to last year and expected to increase in the upcoming months. A core element of our expansion strategy, is remaining unit to align with customer trends. For example, remodeling Vips stores in Mexico, has lead a 15% sales increase and help attract new customers. Globally, we remodeled 25 units during the second quarter. Regarding loyalty programs, our digital transformation strategy continues to drive growth. By the end of the quarter, loyalty sales increased by 37.6%, reaching MXN4.4 billion, which accounted for 23.9 million orders, and contributed for 33.2% total of our sales. By the year end of the second quarter, Club By, launching in Spain during the fourth quarter, reached more than 2 million members while Starbucks Rewards reached also more than 2 million active users across all Alsea regions. Now, I would like to take a moment to discuss our team, and the progress we are making in our key initiatives. At the end of the second quarter, we had more than 76,000 team members, 49% of whom are women. We have seen our global turnover rate to improve to 60%, a 1% point decrease from the first quarter. During the quarter, we completed the engagement survey, with participation from 96% of our total team members across all countries where we operate, achieving an engagement index of 4.2 points and a Net Promoter Score of 56%. Our ESG strategy is progressing well. 25% of our leadership roles are now filled by a woman. 95% of our employees earn living wage or above, and we support more than 2,000 employees from the priority group, including the elderly, people with disabilities, refugees, migrants, and vulnerable youth. In June, as a part of our efforts to reduce CO2 emissions, we acquired International Renewable Energy Certificates for 508 stores in Argentina and Chile, including Burger King, Starbucks, Chilis, and P.F. Chang's, equivalent to cutting over 19,000 tons of CO2. In Spain, we installed 354 solar panels in Q2, reducing CO2 emissions by 209 tons, and cutting energy consumption by 20% to 25% in stores, factories and the support center. In Mexico, Fundación Alsea donated MXN12 million and two mobile kitchens to Red de Bancos de Alimentos de Mexico to the Comer en Familia program. And finally, during the quarter, we certificate 10 Starbucks stores as greener stores, reaching 141 in Latin America. Now I would like to hand it over to Federico Rodríguez. Thank you.
Federico Rodríguez: Thank you, Armando. Good morning, everyone. Moving on to Alsea's second quarter '24 performance, despite the challenging microeconomic environment, quarterly sales increased by 2.3%, driven by effective commercial strategies. Excluding FX effects, sales would have increased by 9.6% for the quarter. In Mexico, sales were up 8.8% to MXN10.7 billion, sales in Europe decreased by 2.7% to MXN5.5 billion, but in euro terms, sales increased by 0.8%. Finally, South America sales declined by 9% for the quarter to MXN2.8 billion, mainly due to the devaluation of the Argentinian peso and reduced consumer demand in the region. In Mexico, adjusted EBITDA grew by 12.1% to MXN2.6 billion for the quarter. This improvement was driven by increased sales, successful commercial strategy, a better portfolio mix, and the benefits of our cost reduction strategy. Also, the 7.3% growth in same-store sales continued to enhance operating leverage. For Europe, the adjusted EBITDA decreased by 14.9% to MXN737 million for the quarter, and by 12.2% in euros, due to a decline in same-store sales arising from macroeconomic pressures and the boycott of American brands. In South America, adjusted EBITDA decreased by 21.3% to MXN414 million, driven by the devaluation of the Argentinian peso and a reduction in operating leverage. The net income for the second quarter decreased year-over-year by 66.9% to MXN157 million. This was mainly due to a non-cash negative effect from currency exchange translation, leading to an increase in our U.S. dollar's debt in Mexican pesos terms by the end of the quarter. For the second quarter, the earnings per share were MXN3.06 post-IFRS 16, EPS rose to MXN3.63, an increase of 53% year-over-year. The CapEx for the second quarter, amounted to MXN2.4 billion. Can we go to the next slide, please? The CapEx for the second quarter, amounted to MXN2.4 billion. We allocated 25% to maintenance, 56% to store openings and remodeling, and the remaining 19% to other strategic projects. Throughout the quarter, we prioritized prudent and responsible investment, focusing on profitability. Our pre-IFRS 16 gross debt increased by MXN4.6 billion year-over-year, reaching MXN29.7 billion by the end of the quarter. This rise was primarily due, to the impact of a weaker Mexican pesos on our foreign currency debt at quarter end. And finally, moving on to financial ratios, total debt to EBITDA ratio closed the quarter at 2.6 times, while our net debt to EBITDA ratio stood at 2.3 times. At the end of the quarter, 88% of the debt was long-term, with 65% denominated in Mexican pesos and 35% in euros. We are committed to maintain a healthy balance sheet going forward, and are confident in meeting all our debt obligations, thanks to the healthy cash generation. At the end of the quarter, we posted a cash position of MXN4 billion pesos. Now, finally, I will pass you over to the operator for the Q&A session. Thank you very much.
Operator: [Operator Instructions] The first question is from Tiago Harduim from Citi. Please go ahead.
Tiago Harduim: Yes, hello. Good morning, Armando, Federico, Gerardo. Thank you for taking my question. There are two points that I wanted to discuss with you guys. The first one is a little bit more on Europe, right? So recent dynamics, and we have the Olympics coming up now, right? So just hear a bit more from you guys, what you're seeing, what are like the outlooks for this region. And the second is regarding the costs. So very, very good news, right? Regarding the lower food costs and raw materials. So just trying to understand what's behind this and the outlook again, going forward here? Thank you.
Armando Torrado: Yes, well, I will, Tiago, how are you? Thanks for connecting. I was exactly, last eight days, I was in France for two days just touring the market. And it was amazing how to see very less people in the street of Paris two weeks ago. Hopefully this Olympics is going to start in two days, but it was a ghost town just two weeks ago regarding all the traffic that we are implementing now. We are losing traffic streets are closed. They are protection all of the center of Paris where we have around 80 stores. So people are getting stealing these houses. Parisian are not getting to the downtown of the city, because everything is blocked, everything is problem to get there. I mean as you go there as a tourist you cannot surpass, everything is very complicated. Hopefully and so the Parisians wasn't there and that tourist didn't arrive yet. So that's a dual problem? Hopefully tomorrow that we start that - we've been seeing how is the traffic and some index of the pedestrian traffic getting better now. But anyway, we are not it with our arms across, we are doing some other things and to anchor and to get better traffic to our stores. Hopefully in the next quarter in October, we can tell you that this and that we really got good things about the Olympics and the Parisians or the French people already are completely out of this emotion of the three weeks that we will have and the traffic will get down and we'll get back again to our to our business. But this was not only us. I went to another companies one other - talking to the people, hotels, restaurants and we are really affected not only us. I mean, it's the whole environment in downtown. Raw materials why don't we talk a little bit.
Federico Rodríguez: Yes. Thank you, Tiago. On a consolidated basis, raw materials and food costs are showing price stability, or even a decrease in some of the prices of protein, vegetable oils, et cetera. The cost of the coffee is stable that we have a contract with Starbucks that give us a stability when the prices are more volatile, and we are keeping up with the stockpile strategy with the mozzarella cheese, as we have mentioned in the past, to reach better prices with our suppliers. As you know, we did a stockpile in Mexico back in October 23 till March 24. Now we have a new stockpile till the end of September. So we are not worried. Obviously, we are always trying to improve the food mix that, we use for the different promotions for the different menus. But we're still having good news in terms of the of the food cost.
Tiago Harduim: Fantastic. Thank you very much.
Operator: Thank you very much for your question. Our next question is from Mr. Ben Theurer from Barclays (LON:BARC). Please go ahead.
Ben Theurer: Yes. Good morning. And thank you very much for taking my question. Just wanted to squeeze in two questions. So number one, as you look into the performance in Mexico, which clearly was amongst the better ones with same-store sales still coming in at 7%. But can you help us maybe understand a little bit the quarterly dynamics as to the performance, just given the shift in the Holy Week from April into March, like kind of like a monthly cadence maybe between April, May and June? And what you've been seeing so far in July? That would be my first question. And my second question really comes down to South America. I know it's not too large of a contributor anymore. But clearly, are you looking into any initiatives to potentially turn the business around? Is it waiting for the consumer to come back. What are like the options that you're seeing, from the South American business be it investing, or maybe divesting? Thank you very much.
Federico Rodríguez: Okay, Ben. For the second quarter, the beginning of the second quarter was tough in April with calendar effects affecting April as the Holy Week happened during March, we had an extra day and an additional weekend in the first quarter. We saw a rebound during May above what I'm touching. So sales number reported, which was 8%. And then June was a bit more volatile, but we closed the quarter at high single-digit growth. Throughout the year, we could expect more normalized trends in a range of mid-single to high single-digit growth on a consolidated basis. This is in line with the 2024 guidance of 7% to 9% for the full year. In Mexico, going by region in Mexico, we had a continuation of the strong momentum for consumption in the country. The increase in minimum wage and the level of remittances at this point, are helping to drive sales in the region. Vips is still recovering traffic with such good results and other brands like Chili's like Starbucks with similar performance, compared to the first quarter with a normalization, obviously, of the effects of the Holy Week that I just mentioned. In Europe, as Armando just mentioned, we are facing some pressures in the quick service concepts in Spain, and particularly with Starbucks in France and the Netherlands due to the boycotts against American brands and a consumption slowdown in all the regions. The full service restaurant, not just in Europe, but in Mexico too, still with a high solid performance of mid-single-digit to high-single-digit on average. And in South America, we have a tough economic scenario during the whole year, and we expect the same for the second half of the '24 in most of the geographies, due to political uncertainty and volatility while economic slowdown remain across regions. Chile is still improving, compared to the first quarter, Argentina with a double-digit decline in traffic and Colombia remains pressure, but we are still seeing some changes, mainly in Domino's Pizza in Colombia. I don't know, Armando, if you want to complement?
Armando Torrado: I just want to say that the problem that we have in South America, most of it is coming from Argentina, where we have a 16.3% orders down from last year and that's exactly, because we are maintaining our margins. We are really protecting the business regarding margins, where we are profitable there. So I'm sure this 16.3% is lower than the first quarter. So I'm sure that probably in the next quarter, we will see less - a better number in same-store sales. But I mean, we've been 15 years there, we know how to address a problem like that. And this is going to be, hopefully, momentaneous in order to get better results by the end of the year. But I will see that's more affecting Argentina, because we are looking with good momentum in Colombia as Federico says and Chile is rebounding in a very good way. So this is the effect because it's quite big enough Argentina in the whole in the total basket. That's what is affecting us.
Federico Rodríguez: Yes. And regarding the divest your question of divesting in South America, and not just for South America, we're still analyzing the divestment of some brands to unlock value for the investors on Alsea. None of these brands could be considered - core for Alsea in some specific markets, but we have not taken any kind of call.
Ben Theurer: Perfect. Thank you very much. Thank you.
Armando Torrado: Thank you.
Operator: Thank you very much for your question. Our next question is from Mr. Rodrigo Alcantara from UBS. Please go ahead.
Rodrigo Alcantara: Hi. Good morning. Thanks for taking my question. Hello, Armando, Federico. Yes, I mean, most of the questions we have received from clients after just results were related to the weakness in Europe, right? We know in France, the situation, right? But just still not clear to me in Spain. I mean you mentioned, right, that the delivery segment is struggling, right. But the casual dining is performing better, right. But when we look at the consolidated number for Europe, it looks like it's not strong enough to offset the weakness in the delivery, right? So my question would be regarding on your outlook for the second half in Spain, for getting a bit about the situation in France, and what are you thinking that would be possibly done in order to stabilize same-store sales there? Thank you.
Federico Rodríguez: Okay. Thank you, Rodrigo. Regarding the question of the delivery in Spain, this is not something new. This has been related since 2023 as long as the aggregators entered into the market and were game changers. However, since the end of the COVID constraints, customers have changed their behavior, favoring the cash aligning brands. We expect the same trend for the second quarter of '24 in terms of delivery. But obviously, for the first quarter we expect to have a more relevant channel, in terms of the weight and in terms of the same-store sales increase. And for France, as Armando mentioned, obviously, we would like to have better news, but and the boycott to American brands, to Starbucks and some other brands has been more deep than we expected in October of last year. We are not expecting to have a big change, due to the Olympics. We are obviously going to improve the trends of same-store sales in around 15 points, but I don't have a better outlook for the rest of the year. Maybe we will take a delay in the business plan of one year. That means around 20 to 25 stores, but we are still are ambitious around the market holding capacity in France. That is not changing the market holding capacity we delivered in the Alsea a couple of months ago. So that's it.
Rodrigo Alcantara: Okay. So I think as a follow-up. So we may see a revision, right, in store openings in Europe, therefore, CapEx. Any idea of the magnitude of those revisions perhaps?
Federico Rodríguez: Well, regarding the guidance, this is not only for the openings. Obviously, if FX continues to pressure on the macroeconomic environment, evolves in a more challenging scenario. We might need to make some adjustments, particularly to the revenue growth. We still think to accomplish with the EBITDA guidance we delivered in the Alsea. We have cut some of the openings around 10 to 15 openings not just in France, port in Netherlands and Belgium too. But we are offsetting that reduction of openings with Mexico and Starbucks and some other brands of the casual dining portfolio like Vips, Chili's, et cetera. So, we are still expecting to accomplish with the MXN6 billion of CapEx for '24.
Rodrigo Alcantara: I see. Okay. Thank you very much.
Federico Rodríguez: You're welcome
Operator: Thank you very much for your question. Our next question is from Ms. Sara Maldonado from Santander (BME:SAN). Please go ahead.
Sara Maldonado: Hi. Thank you for taking my question. Maybe just a follow-up it's not very clear for me, as Rodrigo asked about Europe, maybe understand how is Spain and - quick delivery environment, maybe the macro and understand how it's affecting all the growth maybe versus first quarter?
Armando Torrado: I mean I will say, we do have information in Europe from the aggregators, there's two - one that is really dominates the market with 85% of the category there. So - what information that we have since last year, since Federico said, is delivery to houses is dropping down. It's dropping down, and that's affected strictly to our Domino's Pizza business. Either way, that is a little bit a trend that we've seen. Of course, we've seen in the other way, in casual dining division, we are seeing a leverage and upside in delivery. So that's a little bit what we're seeing. It's just that the Spaniards are ordering less by delivery to their homes, and that customer is a little bit more - doing a transaction in the store, or dining in the store. That's a little bit the effect that Federico was saying.
Sara Maldonado: Okay. Thank you very much.
Operator: Thank you very much for your question. Our next question is from Mr. Alvaro Garcia from BTG Pactual.
Alvaro Garcia: Hi, guys. Thanks for the space. Just to clarify Federico, on the guidance. It seemed you said that you - maybe some potential downside to the revenue growth guidance, because of the FX situation, but that the EBITDA guidance is sort of fine for the year. Is that sort of the message?
Federico Rodríguez: Yes, we had a strong Mexican pesos, which is during the first five months of the year. So obviously, that was not included into the guidance. But as said before, we are still believing that we will accomplish with the EBITDA and CapEx guidance for the '24. So, we see some kind of impact for the third quarter, we will announce it.
Alvaro Garcia: Great. And then…
Armando Torrado: I would say Alvaro, just to complement what Federico was mentioning. If you exclude foreign exchange effects on the revenue side, we're basically in line with the guidance of 2024.
Alvaro Garcia: Yes. Great. And then just one more on same-store sales in Mexico. The full service number was sort of low to mid-single digits, but you mentioned Vips did really well, which is obviously the biggest chunk of that. What about the others, sort of, was that an Easter calendar shift that impact maybe, or what's going on with some of the other brands, casual dining brands in Mexico?
Armando Torrado: I mean I will say that we have a terrific - we have a very -- one of the best quarters for the whole causal dining category. And not only casual, I would say also the family business that is Vips the completely segment of the five brands that we operate. They just had an amazing same-store sales, mid-single digits, all of the brands. So I mean, this [introduces to Dia del Padre that was there, Dia de Mayo, Dia de las Madres]. And then other promotions like Copa America, of course, the football, there were soccer again with Eurocopa. So that - those events of the last month really came into our restaurants and that it's going to be the same for the Olympics. Now I will say the Olympics for now as - we have 500 restaurants that are really a place to sit down and to enjoy seeing this. I mean, probably the time doesn't - work, because it's very late. But anyway, we do have that. So - and then the Domino's Pizza business that is 20% to 30% of our business here in Mexico, it also grew an impressive 4.7%. So that is what it helped to anchor not only Starbucks, I will say Starbucks really performed very well, but the rest of the category, before really saw prices with a better number than the rest.
Alvaro Garcia: Great and very helpful. Thank you very much.
Federico Rodríguez: I would say Alvaro also to complement what Armando mentioned and what he mentioned in the opening remarks, Chili's and Italianis, for example, had a double-digit growth. So I would say average was kind of mid to high single-digit, but there were a couple of brands that were performing even better than the rest.
Alvaro Garcia: Great.
Operator: Thank you very much for your question. Our next question is from Mr. Ulises Argote from Santander. Please go ahead.
Ulises Argote: Hi, guys. How are you? Nice to see you. And thanks for the space for questions here. I think most have them have been already answered, and it was more on like the guidance, and I wanted to double click on that part. But maybe now the other question that I had was more around capital allocation. So Federico, you kind of mentioned that the CapEx guidance was kind of unchanged. Given the recent moves and probably where the stock price is right now, would it make sense for you guys to reignite the buyback program, with the current scenario? Just maybe if you could share some thoughts on that. Thanks.
Federico Rodríguez: Thank you, Ulises. Buenos Dias. Definitely. We'll follow closely the market. And if the stock price makes sense, we could be looking for some repurchases to be canceled at the end of the year.
Ulises Argote: And, in fact, can you remind us what the amount that you have approved for buybacks is? It's quite significant, right, what you had approved for?
Federico Rodríguez: Yes. It's around MXN500 million, but obviously, we are not thinking to spend this. That will depend. Okay.
Ulises Argote: All right. Perfect. Thanks so much.
Federico Rodríguez: You're welcome.
Operator: Thank you very much for your question. [Operator Instructions] That was the last question. I will now hand over to Mr. Armando Torrado for final comments.
Armando Torrado: Thank you very much for joining us our quarterly video conference. If you don't have any further questions, please, any ones that you have, you can contact Gerardo, our Investor Relations team. So thank you very much for connecting today, and have a great day. Thank you.
Operator: Alsea would like to thank you for participating in today's video conference. You may now disconnect.
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