FEMSA Earnings Call: OXXO Recovery, Health Drag

Fomento Economico Mexicano S.a.b. De C.v. ((FMX)) has held its Q1 earnings call. Read on for the main highlights of the call.

Fomento Económico Mexicano S.A.B. de C.V. (FEMSA) delivered an earnings call marked by a constructive but cautious tone. Management highlighted a clear recovery at OXXO Mexico, solid currency-neutral growth across the group, and improving profitability in several segments, while acknowledging net income pressure from financing costs, weak Health results, and ongoing macro and security headwinds.

OXXO Mexico Revenue and Same-Store Sales Recovery

OXXO Mexico showed tangible signs of recovery, with total revenues up 8.3% year over year on the back of 6.0% same-store sales growth. The chain added 158 net new stores during the quarter, and while average traffic remained slightly negative, it improved materially versus last year, indicating that the demand backdrop is normalizing.

OXXO Mexico Margin and Operating Income Expansion

Profitability at OXXO Mexico improved meaningfully as gross margin expanded to 46.2%, a 140 basis-point gain compared with the prior year. Operating income rose 20.9% and operating margin widened by 80 basis points to 7.6%, helped by stronger supplier cooperation, higher distribution income, and warehouse efficiencies that reinforced cost discipline.

Americas & Mobility Strong Top-Line Growth

The Americas & Mobility segment delivered robust top-line momentum, with revenues reaching 25 billion pesos, up 12.9% year over year or 10.5% on a comparable and currency-neutral basis. OXXO LatAm excluding Brazil posted weighted same-store sales growth of 13.1%, led by Chile, Peru, and Colombia, while Brazil and the U.S. also contributed with local-currency same-store gains of 6.9% and 1.7%, respectively.

Fuel Division and Americas Margin Improvements

In Fuel, margins expanded by 120 basis points to 13.0%, driven by a more profitable sales mix including higher retail volumes at OXXO Gas and the benefit of higher fuel prices. For the broader Americas & Mobility division, operating income reached 281 million pesos and the operating margin rose to 1.1%, more than doubling on a comparable basis despite ongoing integration and start-up costs.

Bara Performance and Private Label Traction

Bara continued to scale as a growth engine within FEMSA’s retail ecosystem, achieving double-digit same-store sales growth supported by both higher traffic and larger tickets. The banner opened 38 net new stores in the quarter, and private-label products now represent roughly 30% of sales, underscoring the strategic push into higher-margin, own-brand offerings.

Europe (Valora) Operating Income Growth

European operations, primarily Valora, delivered resilient profitability even amid softer traffic outside the core Swiss market. Operating income climbed to 356 million pesos, a 7.4% year-over-year increase, while revenues were broadly stable in reported pesos and up 1.5% on a currency-neutral basis, reflecting tight cost control and disciplined execution.

Coca-Cola FEMSA Comparable Growth

Coca-Cola FEMSA contributed steady growth, with comparable revenues up 6.3% and operating income rising 2.1%. Management credited its geographic diversification, portfolio upgrades, expansion of refillable formats, and ongoing digital and revenue-growth-management initiatives for cushioning local market volatility and supporting margins.

Spin Rapid User and Transaction Growth

Spin, FEMSA’s digital financial platform, continued to gain scale with approximately 11 million active users and more than 100 million monthly transactions. Tender share surpassed 50% in the quarter and March delivered the highest monthly user additions to date, while losses were materially reduced as Spin increasingly supports FEMSA’s omnichannel and retail media strategies.

Consolidated Revenue and Operating Income (Comparable Basis)

On a consolidated basis, FEMSA’s total revenues increased 6.1% year over year, or 8.5% on a comparable and currency-neutral basis, reflecting broad-based growth across key businesses. Operating income rose 5.5%, and when adjusted for comparable and currency-neutral effects, expanded 12.1%, aided by the OXXO Mexico recovery, international operations, and early benefits from cost restructuring.

Capital Allocation and Shareholder Returns

Capital allocation remained shareholder-friendly yet disciplined, with 6.2 billion pesos in CapEx during the quarter, equivalent to about 3% of revenues and down nearly 30% versus last year as spending is back-end loaded. FEMSA approved ordinary dividends of 15.2 billion pesos and an extraordinary dividend of 25.8 billion pesos, totaling roughly 41 billion pesos in distributions, and is on track to complete a 300 million share repurchase program in the second quarter.

Health Division Underperformance

The Health division remained a clear weak spot, posting revenues of 22.2 billion pesos, up only 0.9% year over year, or 6.5% on a currency-neutral basis. Gross profit declined 10% and gross margin slipped to 26.2%, partly due to a 666 million peso cost reclassification, while operating income fell 14.9% as Chile margins softened, Mexico stayed in loss territory, and institutional challenges weighed on Colombia.

Net Income Distorted by One-Time Gain; Underlying Net Income Decline

Reported net consolidated income nearly doubled to 17.6 billion pesos, but this figure was inflated by a sizeable non-cash accounting gain linked to a transaction involving BradyPLUS and Imperial Dade. Excluding that one-time item, underlying net income would have been about 5.7 billion pesos, representing a 36.4% decline driven by higher net financing expenses and weaker interest income.

Colombian Institutional Health Exposure and Receivables Risk

Within Health, FEMSA flagged growing risk in its Colombian institutional business, where funding gaps and rising receivables are straining the model. The company plans to reduce exposure by not renewing its agreement with EPS Sanitas when it expires in September, reflecting concerns over potential insolvency and a push to de-risk its balance sheet in that market.

OXXO Brazil Consolidation and Profitability Drag

OXXO Brazil, consolidated for two months during the quarter, currently represents a drag on profitability as the banner operates at a loss and weighs on Americas & Mobility margins. Management noted that Brazil’s gross margins still trail those of other Latin American markets and emphasized that additional work is needed to improve the economics as the format scales.

Traffic and Security Disruptions

Despite progress, OXXO Mexico’s average traffic remained slightly negative, showing that consumer visits have not fully recovered to pre-disruption levels. Security incidents in February, particularly in Jalisco and neighboring regions, forced multiple store closures, some of which remain shut, and these safety-related disruptions continue to impact local performance.

Financing and FX Headwinds

Net financing results were a notable headwind, as FEMSA swung from a foreign-exchange gain last year to a loss of 883 million pesos this quarter. Additional pressure came from unfavorable valuation movements, which shifted from a 1.1 billion peso gain to a 189 million peso expense, alongside lower interest income, all of which compressed bottom-line performance despite operational gains.

Reclassification Impacts and One-Offs Masking Trends

Management reminded investors that changes in accounting classifications are complicating margin comparisons across periods, particularly in Europe and Health, where some distribution expenses were moved from SG&A into cost of sales. These reclassifications mechanically lowered reported gross margins without affecting operating income, and together with one-off items, partially obscure underlying operational trends.

Forward-Looking Guidance and Management Outlook

Looking ahead, FEMSA plans to accelerate CapEx through the rest of the year, with investments expected to return to a more typical 5% to 6% of sales as store growth and infrastructure projects ramp up. Management expects leverage to end the year slightly below a 2.0x net debt to EBITDA target absent major acquisitions, sees cost-reduction benefits flowing through over the next three quarters, anticipates further loss reductions at Spin starting next quarter, and maintains a cautious stance on the second half given macro uncertainty.

FEMSA’s latest earnings call painted a picture of a retailer regaining operational momentum while grappling with pockets of weakness and financial noise. OXXO Mexico’s margin expansion, Spin’s rapid scale-up, and solid international performance stand against Health division challenges, FX and financing pressure, and Brazil ramp-up losses, leaving investors with a balanced mix of opportunity and execution risk.