Grupo Comercial Chedraui Aktie

Good morning to all participants, and welcome to the Grupo Comercial Chedraui First Quarter 2026 Conference Call. Participating in the conference call today will be Mr. Jose Antonio Chedraui, CEO of Grupo Comercial Chedraui; Mr. Carlos Smith, CEO of Chedraui USA; Humberto Tafolla, CFO; and Arturo Velazquez, IRO for the company. We will begin the call with initial comments on Grupo Comercial Chedraui's first quarter financial results by the company's CEO, Mr. Jose Antonio; and Chedraui USA CEO, Carlos Smith. Thank you. You may begin.

Good morning to all, and welcome to our presentation of Grupo Comercial Chedraui's First Quarter 2026 results. I want to thank all of our employees for their hard work and dedication to our mission, improving the lives of people by bringing the products they prefer at the best price to as many places as possible, thereby inspiring them to grow and develop within Chedraui. Their commitment has been key to maintaining strong margins even as soft consumer trends continue to be present in Mexico and the United States. In Mexico, consumer spending has been weaker than initially expected, especially in the Southeast. This affected our same-store sales growth this quarter. Despite soft consumer spending, we outperformed ANTAD's self-service segment by 73 basis points, making this our 23rd straight quarter of outperformance.

Our margins at Chedraui Mexico remained strong at 9.5%, even with higher labor costs, thanks to our expense control and expansion in our gross margin. At Chedraui USA, sales continue to be impacted by stricter immigration enforcement. Despite the loss of operating leverage, EBITDA margin improved by 21 basis points to 7.7% as a result of rigorous expense management and efficiencies from our Rancho Cucamonga distribution center. Finally, I am pleased to inform you that despite the challenging environment we are facing, we remain confident in our long-term outlook. As such, we will continue to invest in the countries where we operate. CapEx in the quarter totaled MXN 2,196 million, representing 3.1% for our consolidated sales and a 63.8% increase compared to the first quarter of 2025.

We focused our investment on new store openings with 1 Tiendas Chedraui and 18 Supercitos as well as store maintenance and remodelings. Please to start our presentation, turn to Slide 4, where I will highlight key achievements of the quarter. Chedraui Mexico's same-store sales grew 2.1% in the first quarter of 2026 surpassing ANTAD's 1.4% growth for the 23rd consecutive quarter. Chedraui Mexico's total sales increased 6.3% due to higher same-store sales and a 4.6% sales floor expansion. Consolidated EBITDA increased 22 basis points to 8.6%. Chedraui Mexico's EBITDA margin stood at 9.5%, in line with first quarter of '25. Chedraui USA's EBITDA margin increased by 21 basis points to 7.7%. Net cash to EBITDA improved to minus 0.10x in first quarter of '26 compared to net debt-to-EBITDA of 0.03x in the first quarter of '25.

Our organic growth for the quarter consisted of opening 1 Tiendas Chedraui and 18 Supercitos in Mexico. In the following slides, I will comment in more detail about our 2026 first quarter results. Please turn to Slide 5. During the first quarter, consolidated sales declined 6.2% compared to the same quarter of last year, primarily reflecting the currency translation effect for Chedraui USA sales from a 14.3% appreciation of the Mexican peso against the U.S. dollar. Consolidated EBITDA declined by 3.8% and EBITDA margin stood at 8.6%, a 22 basis point improvement compared to first quarter of '25. Despite the loss of operating leverage, we were able to compensate with cost efficiencies from the RCDC, better promotion management in Mexico and strict expense control programs in Chedraui Mexico and Chedraui USA.

On Slide 6, our strategic M&A investments and organic growth strategy have continued to support the positive long-term trend in consolidated net income. Over the past 5 years, net income has achieved a compounded annual growth rate of 16.5%, highlighting the effectiveness of our growth strategy and disciplined financial management. Our return on equity has been affected by the RCDC transition costs and nonrecurring items in the past quarters. However, even after considering these factors, our long-term strategic focus drove a 274 basis point increase in ROE in the first quarter of '26 compared to the same quarter of 2021. This demonstrates our long-term commitment to creating long-term value for our shareholders. In the following slides, we will review the main highlights of our businesses in Mexico and the U.S.

On Slide 7, for the first quarter of 2026, our same-store sales grew 2.1%, outperforming ANTAD's self-service segment by 73 basis points, a lower spread compared to ANTAD is explained by our strong presence in the Southeast of Mexico, which is experiencing even softer consumer trends than the rest of the country. We continue to enhance our e-commerce strategy to give customers diverse shopping options. As such, our e-commerce sales penetration in Mexico increased by 76 basis points to 4.2% in the first quarter of '26 compared to the same quarter in 2025. This performance was driven by higher consumer satisfaction and stronger repeat purchase rates across our digital channels and a strong third-party performance, mainly from Rappi Turbo, Rappi, Uber Eats and DD.

Please turn to Slide 8. Despite the continued weakness in the consumption environment in Mexico, total sales in the first quarter increased 6.3% compared to the first quarter of '25, supported by growth in same-store sales and a 4.6% expansion in sales floor area. EBITDA in the quarter increased 6.2% compared to the same period of the previous year and EBITDA margin remained at 9.5% as higher labor costs were offset by strict expense control, along with enhanced inventory and strategic promotional management. I will now turn the meeting over to Carlos Smith CEO of Chedraui USA for his comments on our U.S. operations. Carlos, please go ahead.

Thank you, Antonio. Good morning, everyone. Chedraui USA continues to operate in an environment with stricter integration enforcement, which negatively impacted store traffic in the first quarter, particularly at El Super and Fiesta. We also faced a strong comparative base from Q1 2025, which, when coupled with the reduced traffic, had an impact on same-store sales performance this quarter. As we stated on last quarter's call, we implemented strict expense controls to help mitigate the loss of operating leverage. It is important to note that we continue to boost productivity at our RCDC operation and we were successful in improving our EBITDA margin in the quarter by 21 basis points.

Finally, I would like to comment that while we don't expect major changes in immigration enforcement in the near future, we remain confident that in the medium and long term, our operations and profitability will continue to improve as we optimize RCDC operations and maintain tight control over expenses. Now we will review the results for the first quarter. Please turn to Slide 9. Chedraui USA same-store sales declined by 2.8% in U.S. dollar terms compared to the same quarter of last year. This is explained mainly by lower transactions at El Super and Fiesta due to immigration enforcement and a high same-store sales base comparison to the prior year. At Smart & Final, same-store sales decreased 1.4% in U.S. dollar terms, once again affected by lower transactions in Southern California, where immigration enforcement has been stricter coupled with the impact of softer sales coming from household customers.

Chedraui USA's total sales decreased by 2.6% in U.S. dollar terms. In Mexican pesos, the 14.3% translation effect contributed to a sales decline of 16.5%. Please turn to Slide 10. EBITDA was basically flat in U.S. dollars but declined 14.2% in Mexican pesos, while EBITDA margin rose 21 basis points to 7.7% as a result of disciplined expense control across the organization and cost benefits from the RCDC. The combined El Super and Fiesta EBITDA margin reached 8.3% compared to 9.3% in the first quarter of '25, mainly explained by the pressure on transaction count experienced at El Super and Fiesta. Finally, Smart & Final's EBITDA margin of 7.3% improved 135 basis points compared to the same quarter of 2025, largely explained by the efficiencies gained at RCDC as well as gross margin improvements. This concludes our report on the U.S. operations.

Thank you, Carlos. Now we turn to the consolidated financial results on Slide 9. Consolidated sales of MXN 6,796 million declined 6.2% compared to the first quarter of '25, mainly explained by a 14.3% appreciation of the Mexican peso when consolidating Chedraui USA sales. Gross profit posted a 2.8% decline in pesos terms. However, favorable inventory and promotional management in Mexico reduced RCDC costs and efficiencies at Chedraui USA contributed to a gross profit margin expansion of 87 basis points to 24.3% in the quarter compared to 23.4% in the prior comparative quarter. Consolidated operating expenses, excluding depreciation and amortization decreased by 2.2% in peso terms and represented 15.7% of sales. This result is explained by the effect of the appreciation of the Mexican peso when consolidating the results of Chedraui USA's operation and expense containment programs in both countries.

Consolidated operating income decreased 0.6%, with operating margin increasing 30 basis points to 5.3%. Consolidated EBITDA declined by 3.8% and EBITDA margin was up 22 basis points to 8.6%, benefiting from cost and expense efficiencies. Financial expenses decreased by 2.9%, explained by lower interest expense on Chedraui USA's debt and the appreciation of the Mexican peso against the U.S. dollar in the last 12 months. The prior was partially offset by lower financial income in Mexico driven by lower interest rates. Consolidated net income increased 1% to MXN 1,583 million and represented 2.3% of consolidated sales, up from 2.1% in the prior year quarter. Finally, please move to Slide 12. We closed the first quarter of 2026 with a net cash position of MXN 2,556 million. And our net cash to EBITDA ratio improved to minus 0.10x from 0.03x net debt to EBITDA ratio in the same period last year. CapEx for the quarter totaled MXN 2,096 million, representing 3.1% of sales and increasing by 63.8% compared to the same quarter of 2025. Now please allow us to move on to the question-and-answer section.

[Operator Instructions] Our first question comes from the line of Bob Ford with Bank of America.

It's going to be a tough year in Mexico and the U.S., Tony. And I was wondering if you could discuss or maybe expand on some of the efficiency and expense mitigation strategies that you referred to earlier about how you're thinking about that over the balance of the year. And then the gross margins have been very impressive. Maybe if you could touch on some of the segmentation, private label or perhaps other elements besides price that are behind that? And then lastly, I'd love to hear your comments on the performance of your latest vintages of Supercitos. You're clearly skewed towards opening a lot of these smaller locations right now. And I'm very curious in terms of how they're performing with respect to sales and returns versus your existing store base?

Bob, thank you for your question. Well, consumption has been softer than expected in Mexico as well as in the U.S. And particularly, in Mexico, where we have a very important presence in the South, South and Southeast. To give you some numbers, well, ANTAD reported same-store sales decrease in the Southeast of 1.9% in that region where we do close to 42% of our sales. We were positive, we were not negative. That means that in every region where we participate, we have been able to outperform ANTAD. And so that shows that our proposal to the consumer is valued and still being valued by the consumer and probably more than what used to be in the past. We are focusing in sustaining our strategy to be able to outperform the market where we participate. We are focusing in efficiencies in -- on the expense side, and we have been able to sustain that. On the other hand, on the gross margin side, even though due to the weakness of consumption, we expect a more competitive environment. On the other hand, it's clearly that when the market is weak in consumption, everybody also takes care of and focuses on not losing gross margin.

So that has been enabling us to sustain the gross margin and even increase it a little bit. On the Supercitos side, depending on the region, if you take other regions than the Southeast, we are growing quite strong on the Supercitos same-store sales basically the metropolitan area of Mexico City, which -- where everything looks really good. But we still believe there's a huge opportunity on the Supercitos. Remember that probably a little over than 50% of the market's still informal and that's where the Supercitos are competing against. We have not changed our guidance, we believe that there are still opportunities that we can focus on and still looking forward to meet the guidance. We see in the second quarter of the year, a weaker comparison base than what we had in the first quarter. So we still believe we can reach the guidance in the long-term, Bob.

Okay, no, very encouraging.

No, thank you.

Our next question comes from the line of Ben Theurer with Barclays.

Actually following up a little bit on your reiteration of the guidance. And I want to go north of the border, particularly looking at the U.S. market, which clearly there is a lot of -- there are a lot of things still going on in immigration policy and enforcement has been talked about and just the softness that was there and a little bit that base effect. So as we move throughout the rest of the year and maybe any early signs of April, have you seen this trend going from the low single-digit negative, maybe more towards a neutral on same-store sales in the U.S. so that we can actually try to get to the guidance of 1% to 2% same-store sales growth. So just to understand a little bit what you're seeing currently in the market versus what was 1Q.

Yes. Yes, I think when we look at our sales performance, there's probably 3 topics that we need to consider. The first is, obviously, in Q1 of 2025, we had a very, very strong quarter. Same-store sales were up just shy of 3%. Really, really strong growth at the El Super and Fiesta banners, which were just shy of 5% and Smart & Final had a very, very good quarter. So we knew we had a very tough base. The second item there is, obviously, we've got a very cautious consumer that's stretched thin, they're dealing with less EBT dollars. The consumer that's willing to shop at a lot of places, they're concerned about grocery pricing, and they're looking for value.

But ultimately, as a price leader, that is exactly what we're focused on because that's what we deliver. So we think we've got a good advantage there. Certainly, the immigration policy has impacted us. We see -- what we're seeing now is a little bit less noise and less theater. And we will be cycling through some of that noise that we had last year towards the second -- towards the end of the second quarter. So we expect some improvement there. And yes, I think that we've seen we've seen some improvement in March. We've seen some improvement in traffic in April. So we think things are going to get on the right track here shortly.

Okay. And then following up on that, I mean, you still have a 30 to 60 basis points margin expansion target in the U.S. business. So 1Q is closer to 20 basis points. So should we think about this in a similar way as kind of like traffic comes back, operating leverage comes back into the system and you kind of like get this into the guidance range? Or is there anything else that you can do from a cost savings efficiency perspective to get a little bit more margin out of the U.S. business?

Well, you certainly -- you hit the nail on the head in terms of the leverage that we gained by the top line improvements. But certainly, we will never stop looking for efficiencies in our supply chain and within our store operating expenses as long as it doesn't impact the ability to serve our customers.

[Foreign Language] Antonio Hernandez, [Foreign Language].

Our next question comes -- I'm sorry, go ahead.

Just a quick one regarding Supercitos. Can you provide a little bit more color on what's the CapEx there maybe per store? And also, where do you see more opportunities besides Mexico City and the metro area?

Thank you for your question. About Supercitos, we don't give CapEx per store. But just to give you an idea, the return on invested capital, it's a little bit higher than the bigger format and still is, it's sustainable. Of course, growth and expansion in same-store sales differ between the cities where we penetrate and that's due to the particularities of every region where we participate. But we're bullish about the Supercitos, we believe there's a huge opportunity. Again, remember that more than 50% of the market in Mexico still in the informal sector so the opportunity is still very important for Supercitos.

Our next question comes from the line of Renata Cabral with Citi.

Well, my question is related to the CapEx this quarter. We saw an increase compared to last year. And we know that CapEx might be concentrated sometimes in some quarter. If you can give us some color on why it was increased in the first quarter of 2026, it would be really helpful.

Renata, thank you for your question. Well, usually, the speed of CapEx depends on the opening of the new stores basically and we're being able to open them early in the year compared to the past years. We believe that most of the stores will be earlier than the fourth quarter of the year instead of what happened last year, for example, where we opened most of our stores in the fourth quarter of the year. And I think that puts a little bit more pressure on the CapEx. But on the other hand, it's more efficient for us to be able to open stores earlier in the year than the fourth quarter where it gets really busy. So I think we're going to be benefited on the operations side.

Very clear. If you allow me just a follow-up regarding the capital allocation, considering the current level of the balance sheet, which is pretty healthy. What are the priorities of the company in terms of expansion, dividends and potential M&A?

Well, yes, Renata. Well, we're focusing basically in our organic growth at the moment. And then investment in remodeling stores and technology and open always for M&A expansion, even though we don't have a particular target at the moment that we are talking to, we are open for that. And as we have said all the time that in case we don't find any consolidation opportunities, we will just increase our dividend policy as we have done I think in the past 2 years ago.

Our next question comes from the line of Emiliano Hernández with GBM.

Regarding e-commerce, as penetration continues to grow, how should we think about the structural profitability of the channel versus brick and mortar? And also given the increasing relevance of third-party platforms here, how are you balancing growth versus control over customer data pricing and the overall customer relationship? Should we expect a greater emphasis on the own channel going forward?

Well, yes, as e-commerce penetration keeps increasing, we reached 4.2% in Mexico and 3.5% in the U.S. Remember that we do e-commerce in 2 ways. In Mexico, we use our own platform, and we also use third-party operators where we are more efficient in terms of the cost of doing it. In the U.S., we do it through third party, and we don't lose any efficiencies in our operation since we do that. In Mexico, we have also started a project with Rappi doing quick commerce and that particularly doing it with a third-party association, we're being even more efficient and losing less of the efficiencies compared to the physical store. So we believe that with the increase projected, we will be able to hold our EBITDA margins as we projected in the guidance, even though, yes, it's growing fast, and we believe it's going to keep growing in the near future. But with the combination of physical stores and the association with the third-party operators, we believe we can sustain our margins in the long term.

Our next question comes from the line of Froylan Mendez with JPMorgan.

You've been mentioning quite a lot this favorable inventory and promotional management in Mexico being like the key driver for gross margin expansion. My question is, what was different? Or how do you perceive the reaction from the consumer this time around versus maybe last year where your comments were also similar? And a follow-up on that same question, how long can these price increases in the industry last with this more sensible or less strength on the consumer side? What's the breaking point for the consumer to actually start behaving differently or more -- or changing their consumption based on price increases from the industry?

Well, thank you, Froylan. Well, the better you manage your inventory, you're more capable to react to the changes in behavior of the consumer. Clearly, when you go through a week consumption situation and your inventory is sound and fresh, it allows you to react better. Yes, we are seeing differences in consumption. The buying power of the consumer is weaker than we had in the past and probably weaker than what we expected. But we're better positioned to confront that particular situation. We expect that with the freshness of inventory that we have at the moment, we're not going to be pushed to lose any EBITDA margin, even with the changes in consumption that we are seeing for e-land, it's very clear. The consumer is changing, but we are well positioned to support that.

Does that complete your question? Our next question comes from the line of [ Letizia Falasco ] with [indiscernible].

What are the key operational drivers behind the new distribution center? And what is the expected basis points benefit you see to capture for the EBITDA margin by year-end 2026?

[ Letizia ], well, I think that we're going to stick to our guidance for which, of course, includes the improvements that we're expecting to flow through the RCDC throughout the year. You're seeing some of that in Q1. Our gross margin expansion was really solid and especially at Smart & Final, and we expect that to continue.

Okay. Yes. Very clear.

Our next question comes from the line Alejandro Fuchs of Itaú.

I just have one follow-up. I see maybe Antonio or Carlos, if you can elaborate a little bit more on this strict expense control that you're implementing in Mexico and in the U.S. Are you planning to implement this through all of the year? If you can give us a bit more color on what these projects are, that would be very helpful.

Well, we're focusing in a strict expense control, even looking for savings in the corporate areas, both in Mexico as well as in the U.S. and being as efficient as possible at store level. There, we are very cautious at store level because we don't want to lose sales, we want to maintain service. But basically, yes, we are focusing on that and exploring the inventory efficiencies that we have developed in Mexico as well as in the U.S. In the U.S., particularly coming from the investment in the RCDC that we have already talked about. And and in Mexico using the freshness of our inventory. Basically, that's what we're focused, Alejandro.

[Operator Instructions] Our next question comes from the line of [ Alberto Mono ] with [indiscernible].

Regarding Supercitos, could you detail your expansion strategy for the coming years? And what should we expect a sustainable in our run rate for new openings in the medium term?

Well, about the expansion in Supercitos. We believe, as we have said, there's a huge opportunity due to the informal sector of the market. And we believe that we would be close to 1,000 Supercitos in the coming year. We are focusing on that. This year, we'll open 130 Supercitos. We believe that we can double the number in the coming years. And yes, it's a huge opportunity due to that informal sector that is still part of the market in Mexico.

We have no further questions at this time. Mr. Chedraui, I'd like to turn the floor back over to you for closing comments.

Well, I just want to thank everyone for joining and looking forward to talking to you again at the end of the second quarter. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Good morning to all participants, and welcome to Grupo Comercial Chedraui's Fourth Quarter 2025 Commercial Conference Call.

[Operator Instructions]

Participating in the conference call today will be Mr. Jose Antonio, Chedraui's -- CEO of Grupo Comercial Chedraui; Mr. Carlos Smith, CEO of Chedraui USA; Humberto Tafolla, CFO; and Arturo Velazquez, IRO for the company. We will begin the call with the initial comments on Grupo Comercial Chedraui's fourth quarter financial results by the company's CEO, Mr. Jose Antonio Chedraui; and Chedraui's USA CEO, Carlos Smith. Thank you. You may begin.

Good morning to all, and welcome to our presentation of Grupo Comercial Chedraui's Fourth Quarter 2025 Results. I want to begin by sincerely thanking our valued customers for choosing to shop at our stores, especially during this challenging economic environment, both in Mexico and the U.S. Your continued trust inspires every day.

I also want to probably recognize our employees unwavering dedication to advancing our 3 strategic pillars throughout 2025, their commitment to delivering a unique shopping experience, providing the best assortment at the lowest prices and consistently exceeding expectations has been crucial to strengthening our customers' loyalty. In Mexico, our same-store sales have once again outperformed ANTAD's self-service segment by 164 basis points, making an outstanding 22nd consecutive quarter of outperformance.

For the full year, our same-store sales growth exceeded ANTAD's self-service by 140 basis points, making this the fifth consecutive year of remarkable achievement. At Chedraui USA, although sales were impacted by continued immigration enforcement and the U.S. government shutdown in October and November, EBITDA margin improved by 178 basis points to 8.6% and by 6 basis points to 6.9% when including additional noncash accruals made for general liability and workers' compensation claims in the quarter. This was supported by rigorous expense management and efficiencies from our Rancho Cucamonga distribution center.

Finally, I'm pleased to note that we completed the most aggressive store opening year in Chedraui's history, and we surpassed our store openings target. In Mexico, we opened 65 stores during the quarter for a total of 142 stores in 2025. As such, we ended 2025 with a total of 1,067 stores in Mexico and the U.S. Our organic expansion will continue throughout 2026 as we expect to open 147 stores in Mexico, of which 17 of these are larger store formats and the remaining are Supercito. While in the U.S., we expect to open 5 stores, 4 El Super and 1 Fiesta.

Now to start our presentation, please turn to Slide 4, where I will highlight key achievements of the quarter. Chedraui Mexico's same-store sales grew 3% in the fourth quarter of 2025 and surpassed ANTAD's 1.4% growth for the 22nd consecutive quarter. Chedraui Mexico's total sales increased 6.9% due to higher same-store sales and a 4.4% sales floor expansion. Consolidated EBITDA increased 101 basis points to 8.6% and 7 basis points to 7.7%, including extraordinary items in the quarter. Chedraui Mexico's EBITDA margin stood 8.7% and 8.5%, including an extraordinary payment to fiscal authorities from prior fiscal years.

Chedraui USA's EBITDA margin increased by 178 basis points to 8.6% and 6 basis points to 6.9%, including extraordinary noncash accruals for claim liabilities. Net cash to EBITDA improved to minus 0.28x in the fourth quarter of '25 compared to the minus 0.18x in the fourth quarter of '24. We accelerated our organic growth in Mexico by opening 65 stores in the quarter for a total of 142 stores in 2025, above target. In the following slides, I will comment in more detail about our fourth quarter results.

Turn to Slide 5, please. During the fourth quarter, consolidated sales declined 3% compared to the fourth quarter of 2024, primarily reflecting the currency translation effect for Chedraui USA sales from a 10% appreciation of the Mexican peso against the U.S. dollar. Consolidated EBITDA increased by 9.7% and EBITDA margin stood at 8.6%, a 101 basis point improvement. If extraordinary items for the quarter are included, EBITDA declined 2.2% to MXN 5,793 million, and EBITDA margin rose by 7 basis points to 7.7%. This performance reflects effective inventory and promotional management as well as a disciplined expense control across all business units.

On Slide 6, our strategic M&A investments and organic growth strategy have continued to support the positive long-term trend in consolidated net income. Over the past 4 years, net income has achieved a compounded annual growth rate of 17.4%, highlighting the effectiveness of our growth strategy and disciplined financial management. Our return on equity has recently been affected by RCDC transition costs and nonrecurring items for the quarter. However, even after considering these factors, our long-term strategic focus drove 167 basis points increase in ROE in 2025 compared to 2021. This demonstrates our commitment to creating long-term value for our shareholders. In the following slides, we will review the main highlights of our businesses in Mexico and in the U.S.

On Slide 7, our continued commitment to offer the lowest prices and targeted customer promotions with an assortment of products that our clients prefer and a unique shopping experience enabled us to achieve a 3% increase in same-store sales, outperforming ANTAD's self-service segment by 164 basis points in the quarter. During the last several months, we have focused on enhancing our e-commerce strategy to give customers diverse shopping options. As such, our e-commerce sales penetration increased by 70 basis points to 3.9% in the fourth quarter of '25 in Mexico compared to the same quarter in 2024. This performance was driven by higher customer satisfaction and stronger repeat purchase rates across our digital channels, in addition to our strong third-party partnerships with platforms such as Uber, Rappi, DiPi and Rappi Turbo, which have continued to enhance our growth.

Please turn to Slide 8. Despite a weaker-than-expected consumption environment in Mexico, total sales in the quarter increased 6.9% compared to the fourth quarter of 2024, supported by a 3% increase in same-store sales and a 4.4% expansion in sales floor area. As commented, Chedraui Mexico incurred an extraordinary onetime payment to tax authorities corresponding to the revision of prior fiscal years, which impacted EBITDA margin by 20 basis points. EBITDA in the fourth quarter of 2025 increased 8.2% and EBITDA margin expanded by 11 basis points to 8.7%, driven by strict expense control, along with enhanced inventory and strategic promotional management, which was able to offset higher labor costs. If the extraordinary item for the quarter is included, Chedraui Mexico's EBITDA grew 5.8% year-over-year to MXN 3,271 million, while EBITDA margin declined 9 basis points to 8.5% of sales.

I will now turn the meeting over to Carlos Smith, CEO of Chedraui USA, for his comments on our U.S. operations. Carlos, please go ahead.

Thank you, Antonio. Good morning, everyone. Chedraui USA continues to operate in an environment with stricter immigration enforcement, and this quarter was further impacted by the U.S. government shutdown that occurred in October and November. Although we were able to increase our average sales ticket, these events negatively impacted the number of transactions at our stores, bringing our same-store sales negative for the quarter.

As we stated on last quarter's call, we implemented strict expense controls to help navigate these headwinds, which were effective in mitigating our loss of operating leverage in the quarter. As Antonio referenced earlier, it's important to note that operating expenses were affected by additional noncash accruals made during the quarter relating to general liability and workers' compensation claims, which impacted EBITDA margin by 171 basis points. While the number of new claims is trending down, the cost to resolve these claims has increased, not only for us but across the retail industry. We continue to take actions to reduce the frequency and cost of these claims.

I would like to highlight our commitment to delivering solid long-term results despite short-term challenges. Despite current trends, both El Super and Fiesta same-store sales have grown considerably over the last 4 years. When comparing 2025 data with 2021, the same-store sales compounded annual growth rate for El Super is 6.2% and 6.6% for Fiesta. Also, EBITDA margins over the same period increased by nearly 41 basis points for El Super and 310 basis points for Fiesta, even when considering the headwinds we faced in this fourth quarter.

Now we will review the results of the fourth quarter. Please turn to Slide 9. Chedraui USA same-store sales declined by 2.8% in U.S. dollar terms compared to the same quarter of last year. This is explained by a decline in transactions at El Super and Fiesta due to immigration enforcement, the delay and partial release of SNAP benefits as a result of the government shutdown and a high same-store sales base comparison to the prior year.

At Smart & Final, same-store sales decreased 0.9% in U.S. dollar terms, primarily due to lower transactions in Southern California, where immigration enforcement has been stricter than in other regions, coupled with the impact on SNAP benefits due to the government shutdown. Overall, Chedraui USA's total sales decreased by 2.2% in U.S. dollar terms. Additionally, the 10% appreciation of the Mexican peso against the U.S. dollar contributed to a sales decline of 11.6% in Mexican pesos.

Please turn to Slide 10. EBITDA increased 11.4% in Mexican pesos while EBITDA margin rose 178 basis points to 8.6% as a result of disciplined expense control across the organization. If accrued noncash claim provisions are included, Chedraui USA's EBITDA in Mexican pesos declined 10.8% less than sales and EBITDA margin of 6.9% increased 6 basis points compared to the fourth quarter of 2024. The combined El Super and Fiesta EBITDA margin reached 8.5% compared to 8.9% in the fourth quarter of '24, mainly explained by the pressure on transaction count experienced at El Super. When accrued noncash claim provisions are included, EBITDA margin stood at 7.2% in the quarter.

Finally, Smart & Final's EBITDA margin of 8.7% improved 379 basis points compared to the same quarter of 2024 and 171 basis points, including additional claim accruals. This is explained by the improvements in the RCDC operations and the aggressive perishable pricing campaign in the fourth quarter of 2024. This concludes our report on the U.S. operations.

Thank you, Carlos. Now we turn to the consolidated financial results on Slide 11. Consolidated sales of MXN 75,221 million declined 3% compared to the fourth quarter of '24, mainly explained by a 10% appreciation of the Mexican peso when consolidating Chedraui USA sales. Gross profit rose 2.9% due to favorable inventory and promotion management in Mexico, reduced RCDC costs at Chedraui USA and Smart & Final's price campaign in the fourth quarter of 2024.

Gross profit as a percentage of sales stood at 23.2% in the quarter compared to the 21.8% in the prior comparative quarter. Consolidated operating expenses, excluding depreciation and amortization, decreased by 0.8% as a result of a strict expense control. When including extraordinary items in the quarter, operating expenses, excluding depreciation and amortization, increased 5.5% compared to the fourth quarter of '24.

Consolidated operating income increased 19%, with operating margin increasing 101 basis points to 5.5%. If extraordinary items are included, operating income of MXN 3,403 million declined 1.4% compared to the fourth quarter of '24 with an operating margin of 4.5% at similar levels to that of the fourth quarter of 2024. Consolidated EBITDA increased 9.7% and EBITDA margin was up 101 basis points to 8.6%. When including extraordinary items, EBITDA declined 2.2% and represented 7.7% of sales, a 7 basis points increase compared to the prior comparative quarter.

Financial expenses remained flat, explained by lower interest expense on Chedraui USA's debt and the appreciation of the Mexican peso against the U.S. dollar in the last 12 months. The prior was partially offset by lower financial income in Mexico, driven by lower interest rates. Consolidated net income amounted to MXN 1,846 million and MXN 1,344 million if extraordinary items are included.

Finally, please move to Slide 12. We closed the year with a net cash position of MXN 6,923 million, and our net cash-to-EBITDA ratio improved to minus 0.28x from minus 0.18x in the same period last year. CapEx for the 2025 totaled MXN 8,549 million, representing 2.9% of sales and coming in below the prior year due to the significant investment in RCDC in 2024.

Now please allow us to move on to the question-and-answer section.

[Operator Instructions] The first question comes from Bob Ford with Bank of America.

Antonio, given the difficult economic environment in Mexico and the U.S., how are key value drivers evolving? And how are you thinking about differentiation and retention strategies? And then also, how are you thinking about channel opportunities over the intermediate term, particularly when it comes to small box and e-commerce in Mexico?

And then lastly, with respect to the labor claims, I was curious if these are for cumulative trauma, right, something like a repetitive stress issue? And what steps you can take to protect against frivolous lawsuits, particularly in California?

Thank you, Bob. Well, I will comment about Mexico and then Carlos can talk about the U.S. Well, in Mexico, as you've seen, we're seeing a slowdown in consumption, ANTAD reported very low growth in sales. So we believe that what we're doing is trying to increase our penetration in every market within the formats that we already have put in place. We believe that there are still room in certain cities for the big boxes, which are very efficient and profitable. And then in other areas, we're going with the smaller boxes, mainly Super Chedraui and Supercitos. So we believe that with the formats that we have for physical stores, we are just in the right place where we want to be.

On the other hand, as you mentioned, we're focusing a lot on the e-commerce side. We believe that we can increase our sales penetration closer to 5% this year. We're being very successful with our own platform as well as with the third-party operators. That includes Turbo, where we have a lot of expectations in the near future. delivering customers in less than 15 minutes. So that's a huge opportunity, not only to penetrate the markets where we have presence at the moment but even going to other markets without having to open a physical store. So we feel that we have the right physical formats and the focus in the e-commerce to reach our sales projections for this year, Bob.

Carlos, maybe you can...

Yes. Bob, Carlos here. Yes, the adjustment that we made is really related mostly to general liability claims in our stores, which is customer accidents, slip and falls and things like that. And as you probably know, this has been an industry-wide issue as it relates to the increase in costs as it relates to closing a claim. So if a claim cost us $10 4 years ago, those claims today are costing us 3x that. And this has been an industry-wide problem, as you can see through everyone's reporting. And the key for us is really to address frequency, frequency at our stores. What are we doing to make sure that our stores are -- that we're providing a safe environment for our customers. And the second portion of it is to be very aggressive in our claims handling process.

So we've invested quite a bit of money internally to ensure that we sniff out what you call fraudulent claims, which there's always some. But our position is we take every single claim extremely, extremely seriously, and we try and process it as quickly as possible. So the key here moving forward is ensure that our frequency is down through our operations team and that once we do have a claim that, that claim gets closed as quickly as possible.

The next question comes from Rahi Parikh with Barclays.

The next question comes from Antonio Hernandez with Actinver.

Just wanted to know how are you seeing consumer trends so far this year? I mean you already provided some guidance some weeks ago but wanted to get a clear picture on whether so far this year in both Mexico and the U.S. looks like what you expected previously or any changes in that?

Antonio, I barely heard your question but I understand that it's basically consumer trends, what you're asking about Mexico and the U.S. Is that correct?

Exactly. So far this year in both Okay.

Okay. Well, consumption, we believe -- I'll talk about Mexico. We believe Mexico will continue to be slow in consumption, even though we have the soccer World Cup, which will help for sure. We still see that there is no reason why to think that consumption will pick up strong in the coming months, except for this particular reason of the World Cup. Being that said, we believe that we can achieve our guidance to be able to grow at least 3% same-store sales. We believe that's achievable. We are prepared for that. We have a strategy for every format of our physical stores as well as focusing in the e-commerce segment where we believe we can grow double digit. So we believe we're prepared for that.

We're adjusting the assortment. We are being very aggressive in our pricing strategy and the new stores and the remodeling stores, we're making sure that the atmosphere, the service involved in those particular stores meet the expectations of the customer segments that we are trying to serve. So that would be about Mexico.

Antonio, in the U.S., obviously, we operate in areas of high Hispanic densities, and that consumer is still a little bit weary through all of the immigration enforcement activity. So we're very aware of that dynamic in our markets. But in general, I will tell you that the consumer is stretched thin. Things are more expensive. And our customers are willing to shop in multiple places. So as they look for value to stretch their dollars. So it's imperative for us to execute properly on our strategy with our pricing, with our perishable assortment in order to provide that value that they're looking for.

The next question comes from Froylan Mendez with JPMorgan.

Can you hear me?

Yes, we hear you.

First question is on the U.S. on the margin expansion on Smart & Final. It was really amazing to see the margin expansion. I know there are some benefits from RCDC. But should we think of this margin level as a sustainable one going forward? And if that is the case, should we think that there is some phase on the guidance for next year in terms of margin expansion in the U.S. That's my first question.

And second, on -- more on Mexico regarding your first comment on the formats and how you are extending. Is there a very big difference in profitability between the big box and the smaller box formats? Color on that would be great.

Froylan, this is Carlos. Yes, we had a very nice result in terms of margin expansion at Smart & Final. Last year, we started a very aggressive price campaign at Smart & Final. Our buying gross margin grew significantly quarter-over-quarter. A lot of that is related to now starting to see the benefits of our RCDC materializing but our team has done a fabulous job in other areas to lower cost of goods. And we've been able to maintain that aggressiveness in pricing, not only in our produce departments but also in other perishable categories as well as center store where our pricing indices versus our competitors are very, very strong. So we feel very good about our pricing position at Smart & Final. And yes, these are not only sustainable margins but we still see an opportunity to increase them.

And well, about format profitability, even though all formats meet our goals in return on invested capital and that it's quite similar in every format. The smaller formats tend to -- due to a lower investment tend to be more profitable. So we're always trying to focus on the opportunities that we have, the land opportunities and the customer we are trying to meet. If we could, we would maintain the combination of expanding a little bit faster in the smaller formats but maintaining the big boxes growing because they are profitable as well.

The next question comes from Ulises Argote with Banco Santander.

A quick one from my side. I was wondering if you could help us quantify there out of the 133 basis points improvement we saw in the gross margin. Can you help us understand a little bit with how much of that came from the RCDC benefits and how much of that was kind of other impacts that we had there in the quarter?

Ulises, yes, the majority of the benefit comes from our gross margin line, which is a combination of improvements in our buying gross margin. I mentioned a little bit about that at Smart & Final. But if you look at Smart -- Super, I'm sorry, on an annualized basis, our purchasing gross margin grew 124 basis points. So you can really start seeing now the benefits of the RCDC materializing in cost of goods, which is great. And the second portion of that is that we are seeing great operating stability at our RCDC. Our productivity is improving every day. We're not exactly where we want to be. So we still have some room to grow, but we're happy with our progress. And our freight charges are continuing to come down. So the things that we mentioned as benefits of the RCDC are beginning to flow through, which is what we expected.

And in Mexico, well, I think we are getting better managing inventory but it's also important to mention that focusing on the customer base of MiChedraui customers and being able to promote more efficiently has benefited us lowering the cost of promotional activities that we would have in the past. Remember that we have almost 40 million customers in our loyalty program, and we are starting to do particular promotions to sets of customers. And we believe that in the near future, we can even go deeper and do particular promotions to every customer with the participation of our vendors, which is very important in this program.

The next question comes from Renata Cabral with Citigroup.

The first one, I would like to ask if you could shed some light in the initiatives that the company is doing to mitigate the potential impact of the labor reform related to the reduction of working hours per week. We know that will be gradual. Just to understand the main initiatives here.

And my second question is related to the announcement of the government in terms of investment in the country, the Plan Mexico. And how do you see those investments going towards the -- especially the south of the country where Chedraui has a big presence and the opportunity there?

Renata, well, about the labor hours reduction, we have been working already on it using our workforce more efficiently. We have already 3 programs going on where we believe we can become more efficient using the hours of our team at the store level. And we believe that we will suffer very little from this gradual reduction that will start in 2027.

On the other hand, the investment that the government has announced for sure, benefits us when it reaches the cities and the areas where we participate. We saw what happened with the Tren Maya or with the Dos Bocas investment. And if that happens in our particular cities in the coming months or years, for sure, we will benefit from that. Thank you, Renata.

The next question with Rahi Parikh with Barclays.

Can you hear me now?

Yes, we can hear you clearly.

Great. Great. I'm sorry for the issue earlier. So my question is kind of for the RCDC. What new technologies and AI are built now there versus the tour that we attended last year and what's remaining? So kind of just what's the goals in terms of technologies to include there, AI to help inventory management? Like what tools are out there for you to implement? And then I know you mentioned somewhat on like how RCDC helps margin a bit but do you have any estimate on cost savings going forward?

Yes. So the initial start-up of our RCDC was relatively vanilla. So our second phase will include some more automated areas, et cetera. But our -- the first launch is really very vanilla. Most of the AI support that we're getting is within the tools that we use to forecast and determine demand at the stores. So that's obviously connected to our supply chain, and it's helped us quite a bit in terms of reducing our inventory levels at the RCDC as well as our stores. So the real use for us is an inventory management and assortment planning. Like I mentioned, we've got great stability currently at the RCDC but we still think that we've got some improvement in labor productivity as well as in more efficiencies related to our transportation function.

Makes.

Sense. And then one other follow-up for this immigration for U.S. Do you see that you kind of have to raise wages to retain workers? I know you mentioned tougher there in terms of sales but just looking on the cost side.

No, I don't think that we -- I don't think we're in an environment where we've got wage pressure. I think our wage structures at all 3 banners are very, very competitive. And we see that in our turnover numbers, which are probably just below industry average. So I think we're in good shape there.

The next question comes from Alvaro Garcia with BTG.

I have 2. One on Mexico. I was wondering if you can speak about the importance of assortment in your smaller formats. So we recently saw sort of Walmart talking about lowering or reducing their assortment size of Bodega Express. So I was wondering if you could talk about the strategic relevance of having the necessary assortment for your customers at Chedraui in your smaller formats in Supercito.

And then my second question is on the dividend. You obviously have a net cash position. I know you're very much excited about growth, both organic and potentially inorganic in the future. But any sort of comments on what drove the decision to sort of increase it in line with inflation would be helpful.

Thank you, Alvaro. Well, about the assortment in Supercitos, even though we are trying to manage more efficiently inventory and SKU reductions always produce that. We are focusing that Supercito and every format fulfills their mission towards their customers. We are very aware that we want to be a proximity store and not a hard discount. We don't want to be a hard discounter. We want to differentiate for that. And we want to accomplish the mission of replenishment of a full basket. Therefore, the reduction possibilities in SKUs are limited to this strategy that we have put in place. To give you an idea, we have a little bit the double of assortment that we have against a typical hard discounter, for example. And we will continue with the assortment that fulfills the mission that we believe our proximity format is set for.

On the other hand, the dividend, well, we have enough cash that we're not being able to use in our expansion program. And therefore, we just believe that there is better opportunity to use that cash for our investors than just having that cash sitting in our company invested in other investment opportunities rather than stores. If we cannot use the cash in stores or technology to become better or more efficient, we'll just increase dividends.

Thank you. There are no further questions in queue at this time. I would like to turn the call back to management for closing comments.

Well, I just want to thank everyone for joining and hope to be talking to you at the end of this first quarter of 2026. Thank you again.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.

Good morning to all participants, and welcome to Grupo Comercial Chedraui Third Quarter 2025 Conference Call. Participating in the conference call today will be Mr. Jose Antonio Chedraui, CEO of Grupo Comercial Chedraui. Mr. Carlos Smith, CEO of Chedraui USA; Humberto Tafolla, CFO; and Arturo Velázquez, IRO for the company.

We will begin the call with initial comments on Grupo Comercial Chedraui's third quarter financial results by the company's CEO, Mr. Jose Antonio Chedraui and Chedraui USA. CEO, Carlos Smith.

Good morning to all and welcome to our presentation of Grupo Comercial Chedraui's Third Quarter 2025 results. I would like to start by acknowledging the recent severe flooding in the Veracruz region, particularly in the cities of Alamo and Posa Rica which temporarily disrupted operations in 3 of our stores. Most importantly, we are pleased to report that all our employees and their families are safe. Through Fundación Chedraui, the company quickly implemented several measures to support impacted employees and local communities. These actions included the distribution of food baskets and the launch of a point-of-sale roundup fundraising campaign to provide additional assistance. The company remains committed to reopening the affected stores as soon as possible to continue serving customers with the essential products they rely on.

The company faced a challenging operating environment in the third quarter. In Mexico, consumer trends have continued to soften while operations in the U.S. were impacted by changes in immigration enforcement. Despite these challenges, the dedication of our teams and the continued trust and preference of our customers enabled us to deliver solid results. In Mexico, same-store sales outperformed ANTAD self-service segment by 183 basis points making the 21st consecutive quarter of outperformance. EBITDA margin increased by 6 basis points to 9.9% reflecting consistent operational discipline and the successful execution of initiatives aimed at driving efficiency and productivity.

At Chedraui USA, although sales were below our expectations due to changes in immigration enforcement, EBITDA margin improved by 34 basis points to 7.3%, supported by a rigorous expense management and continued cost reductions from our Rancho Cucamonga distribution center, RCDC basically. We are also pleased to announce that Grupo Chedraui opened its 1,000 store during the third quarter, a great milestone for our employees and shareholders.

Now to start our presentation, please turn to Slide 4, where I will highlight key achievements of the quarter. Chedraui Mexico's same-store sales grew 2.8% in the third quarter and surpassed ANTAD's 1%, this is the 21st consecutive quarter exceeding ANTAD's results. Chedraui Mexico's total sales increased 5.2% due to higher same-store sales and a 3.7% sales floor expansion. Consolidated EBITDA grew 3.2% compared to third quarter of '24. Consolidated EBITDA margin of 8.5% increased 28 basis points compared to 8.3% in Q3 of '24. Chedraui Mexico's EBITDA margin rose 6 basis points to 9.9%. And Chedraui USA's EBITDA margin grew 34 basis points to 7.3%. Net cash to EBITDA stood at minus 0.03x. We accelerated our organic growth in Mexico with the opening of 32 stores. Consolidated net income grew 13.3% to MXN 1,646 million in the quarter. In the following slides, I will comment in more detail about our third quarter results.

Turn to Slide 5, please. During the third quarter, consolidated sales were flat compared to the previous year, primarily reflecting the currency translation effect from a 4% appreciation of the Mexican peso against the U.S. dollar. It is important to note that despite the loss of operating leverage in certain operations, consolidated EBITDA for the quarter increased 3.2% versus the prior comparative quarter to MXN 6,129 million, while the EBITDA margin expanded by 28 basis points to 8.5%. This performance reflects effective inventory and promotional management as well as disciplined expense control across all businesses units.

On Slide 6, our strategic M&A investments and organic growth strategy have continued to support the positive long-term trend in consolidated net income. Over the past 4 years, net income has achieved a compounded annual growth rate of 16.4% highlighting the effectiveness of our strategy and disciplined financial management. Our return on equity has recently been affected by RCDC transition costs. However, even after considering these factors, our long-term strategic focus drove a 219 basis point increase in ROE to 13.2% in the third quarter. These demonstrate our commitment to creating long-term value to our shareholders. In the following slides, we will review the main highlights of our businesses in Mexico and the U.S.

On Slide 7, our summer campaign, Por ti, cuesta menos delivered strong results during a period characterized by increased promotional activity. Our continued commitment to offering the lowest prices and targeted customer promotions enabled us to achieve a 2.8% increase in same-store sales outperforming ANTAD self-service by 183 basis points in the quarter. Also, our e-commerce sales penetration increased by 70 basis points to 3.8%. This performance was driven by higher consumer satisfaction and stronger repeat purchase rates across our digital channels. In addition, third-party partnerships with platforms such as Uber, Rappi, DiDi, Rappi Turbo and Mercado Libre continue to enhance growth and strengthen our ability to meet customers' diverse shopping preferences.

Please turn to Slide 8. In Mexico, sales increased 5.2% compared to the third quarter of 2024, supported by a positive same-store sales and a 3.7% expansion in sales floor area. We're pleased to report that despite a challenging environment, Chedraui Mexico's EBITDA grew 5.9% year-over-year to MXN 3,381 million. While the EBITDA margin expanded by 6 basis points to 9.9% of sales. This solid performance was driven by strategic expense control and enhanced inventory and promotional management, which offset higher labor costs. I will now turn the meeting over to Carlos Smith, CEO of Chedraui USA for his comments on our U.S. operations. Carlos, please go ahead.

Thank you, Antonio. Good morning, everyone. In the quarter, Chedraui USA experienced the headwinds of stricter immigration enforcement activity across the United States. These activities have had a negative impact on the number of transactions at our stores, primarily at El Super and Fiesta as well as the average sales ticket for our business customers at Smart & Final. We have to assume that immigration enforcement activities will continue to affect our operations in the coming months, and therefore, we have implemented strict expense controls to offset the expected loss of operating leverage. It is important to note that despite current trends, both El Super and Fiesta's same-store sales have grown considerably over the last 4 years. When comparing the first 9 months of 2021 to the same period of 2025 same-store sales compounded annual growth rate for El Super was 6.9%, 7.3% for Fiesta. Also, EBITDA margins over the same period increased nearly 100 basis points for El Super and 330 basis points for Fiesta. These results demonstrate our commitment to delivering solid long-term results despite the short-term challenges.

To review the results of the third quarter, please turn to Slide 9. Chedraui USA same-store sales declined by 1.9% in dollar terms compared to the same quarter of last year. This is primarily explained by a decline in transactions at El Super and Fiesta due to stricter immigration enforcement and a high same-store sales base comparison to the prior year. At Smart & Final, same-store sales decreased 0.5% in dollar terms, primarily due to a lower average ticket from business customers. Overall, Chedraui USA's total sales decreased by 0.9% in dollar terms. Additionally, the appreciation of the Mexican peso against the U.S. dollar by 4% contributed to a sales decline of 4.6% in Mexican pesos.

Please turn to Slide 10. Disciplined expense control across the organization allowed Chedraui USA's EBITDA margin in Mexican pesos to remain flat compared to the third quarter of 2024. This control compensated for the loss of operational leverage leading to a 7.3% EBITDA margin, which represents a 34 basis point increase compared to the third quarter of 2024. The combined El Super and Fiesta EBITDA margin of 8.1% in the quarter was 25 basis points lower than in the prior comparative quarter. Smart & Final's EBITDA margin of 6.6% improved from 5.7% in the third quarter due to decreasing RCDC expenses versus the previous year. We are confident that the ongoing strategy of increasing perishable penetration and ongoing efficiencies from RCDC will contribute to Smart & Final's margin recovery in the coming quarters. This concludes our report on the U.S. operations.

Thank you, Carlos. We now turn to the consolidated financial results on Slide 11. Consolidated sales of MXN 71,768 million were flat compared to third Q of '24 and were primarily impacted by a 4% appreciation of the Mexican peso. Gross profit rose 4.8% due to favorable inventory and promotion management in Mexico and reduced RCDC costs at Chedraui USA. Gross profit as a percentage of sales stood at 24.6% in the quarter compared to 23.4% in the prior comparative quarter. Consolidated operating expenses, excluding depreciation and amortization increased by 5.6% compared to the third quarter of '24. This is mainly attributed to higher labor costs in Mexico and the U.S. and a higher store count in Mexico.

Consolidated operating income of MXN 3,745 million grew 3.9% compared to the third quarter of 2024, with the operating margin increasing by 21 basis points to 5.2% of sales. Consolidated EBITDA grew 3.2% and represented 8.5% of sales, a 28 basis points increase compared to the prior comparative quarter. Financial expenses declined 7.3% due to lower interest expense on Chedraui USA's debt and the appreciation of the Mexican peso against the U.S. dollar in the last 12 months. The prior was partially offset by lower financial income in Mexico driven by lower interest rates. It's remarkable to note that despite the challenging environment, consolidated net income at 2.3% of sales grew 13.3% to MXN 1,646 million in the quarter. This result represents a 27 basis point improvement compared to the prior comparative quarter.

Finally, please move to Slide 12. We closed the year with a net cash position of MXN 743 million and our net cash to EBITDA ratio improved to minus 0.03x from a positive 0.02x in the same period last year. CapEx for the first 9 months of 2025 totaled MXN 5,860 million representing 2.7% of sales and coming in below the prior year due to the significant investment in RCDC in 2024.

Now if you allow me, please move on to the Q&A section. Thank you.

[Operator Instructions] Our first question comes from Renata Cabral with Citigroup.

The first one is about the softness in the economic situation, both in Mexico and in the U.S. My question for you is how the company is calibrating pricing promotions and cost control to preserve margins without sacrificing traffic, if you can see some actions that the company is taking would really be helpful. And the second question is related, but it's more towards Mexico and regional gaps in terms of performance especially in the Southwest of the country. What are the levers that you are using to narrow the performance gap in terms of store clustering and pricing or format differentiation?

Thank you, Renata. Well, I will talk about Mexico. As we already mentioned, and you pointed out clearly, we're experiencing softness in consumption particularly in the south region of Mexico due to higher basis. We don't have Tren Maya, we don't have the airport of Tulum. We don't have the construction of Dos Bocas, and we are experiencing Pemex not paying as well as they used to their vendors and service providers. Due to those reasons we're experiencing this situation. Now on the pricing strategy, we are just as aggressive as we have been in the past years. There's nothing new about it. We maintained the gap against our competition. And as you already know, we have probably the best cost structure that supports this price aggressiveness that in the end, allow us not only to maintain our margins, but even to increase them and we believe that will continue to happen.

We don't see anything different. Actually, the way we operate an aggressive market, it's just like more of what we're used to. We'll keep working on being more efficient, managing inventory so that we have as few as possible cost reductions. And being conscious and focusing in reducing all the costs and expenses that will allow us to maintain our margins. It's just the way it is, and we've been doing that for a long time already. Thank you. Smith?

Renata, this is Carlos. Very similar story, I guess, in the U.S. Certainly, as we look internally anticipating a tougher market condition in a tougher environment. Internally, we're very, very focused on efficiency within our processes and productivity. Very, very tight expense controls so that ultimately from a customer-facing standpoint, we continue to deliver on what we think is incredibly important, which is value, right? We work very hard at maintaining proper price gaps with our competition. We're very, very focused on our average retail pricing so that it doesn't creak in order to continue to offer great value and ultimately gain market share.

Our next question comes from Ben Theurer with Barclays Bank.

Just following up, obviously, on the issues and call it, the softness in Mexico. I wanted to understand how you think about, in general, just the expansion plan for the remainder of the year. Is there anything that you reconsider on the CapEx side? And how should we think about just the idea of investments as we look maybe a little bit of a sneak preview in 2026? And then I have a quick follow-up question.

Thank you for your question, Ben. Well, actually, we're not slowing down on our expansion program. Even though we are experiencing these softness in consumption environment, particularly in the South region, we still feel we're going to be very close to our guidance in terms of sales, very close to the low range. So we'll -- we're aiming to hit that guidance on sales. On the other hand, we'll probably be able to expand our EBITDA margin even a little bit higher than we -- what we projected in our guidance. And probably instead of opening 10 big stores we'll end up with probably 2 more, which will end up with 12 of the big stores. And we're right on the Supercito to open 130 stores throughout the year. So we're not changing our strategy. We feel there's a lot of opportunity even though consumption is not as strong as we would like to. There is an informal market where we still feel there is an opportunity for us with all of our formats, and we'll pursue that for sure.

Okay. Perfect. And then one quick one for Carlos. I mean, now with the distribution center up and running, can you remind us how we should think about just the margin evolution over the coming quarters? Because it felt like it was a little behind schedule and maybe some of the recovery. So I just want to understand if there was something still within the third quarter that impacted? And how should we think about going forward as it relates to the not having double costs anymore what the impact of EBITDA margin that should have?

Right. Thanks, Ben. Yes. Well, first of all, our RCDC operation is making improvements every day, and we're very excited about that. Our service levels to the stores is very, very good. Our productivity is improving. We're currently running at about 85% of where we think we're going to end up. And freight as a percent of sales in Q3 has already equaled where we were back in Q3 of 2023. So we're excited that on that -- on the transportation side, we're probably a little bit ahead of schedule. On the warehouse operation was slightly behind schedule. But overall, we're still -- we still have not shed all of our duplicate costs. And that will be tailing off towards the end of next year. Most of them coming off at the end of Q1 and Q2, and we'll be getting back to a very normalized state towards the end of 2026.

Our next question comes from Alejandro Fuchs with Itaú.

I have very -- just 2 quick ones. The first one, in terms of gross margin you saw very relevant expansion. I wanted to see if maybe you can walk us through...

Alejandro, this is Carlos. I'm really, really sorry. We cannot hear your question. Can you speak -- can you pick up the handset or do something different?

Yes. Is this better?

No, no.

Maybe I'll reconnect if you want to continue with other questions. Thank you.

Okay.

Shall I go to the next question?

Alejandro we'll look for you afterwards. We'll contact you and try to answer your questions. I'm sorry, -- it was not just possible to hear you.

Okay. And this is the operator. I did try and add some gain to his line, but it sound quality was bad. So I'll go to the next participant, okay? Our next participant is [indiscernible] from Actinver.

This is [indiscernible] from Actinver. You're growing ticket below inflation. Can you provide more color on the factors driving this performance, particularly the role of competition, private label dynamics that's shifting customer behavior?

If I understand your question, [ Andre ], you're asking about our dynamics about customer and ticket inflation. Well we're expanding our customer base, our transactions but not being able to grow our ticket, particularly, again, in the Southwest region. And we still maintain our pricing gaps against our competition. We are still beating ANTAD and well, at the moment, I don't know what Walmart results will be for the third quarter, they have not reported. But we still feel we are at the same competitive environment as we were.

Our next question comes from Bob Ford with Bank of America.

How are you guys thinking about evolving consumer elasticities as things slow down and maybe private label in particular or key traffic drivers both in Mexico and the U.S. And then, Carlos, I think you foreshadowed this in the past, but I'm just really curious with respect to like the RCDC and subsequent capabilities that we should be mindful of, not just like the elimination of redundancies or getting to those efficiency rates you expect in the warehouse, but just incremental capability.

Bob, thank you for your question again. While, yes, private label is very important to support our pricing strategy. But not only that, we're working on private label and on exclusive brands as well to enhance our differentiation against our competition, focusing on quality, freshness in all of our formats, sustaining the pricing strategy that we have already put in place. And I think that is working. Even though we are experiencing a difficult consumption situation where we do a little over 50% of our sales in Mexico. We're still in the end on the overall being able to sell -- to grow sales more than our competition. And if you look at those particular regions, we're gaining market share there. So I think we're just on the right track.

Yes. Bob, Carlos. You've heard me speak to this before in terms of how well we think our formats in the U.S. are positioned to excel and win during difficult times because of our value proposition. So certainly, we feel that leading with price is important, leading with perishables is important. It generates frequency and during difficult economic times our formats are well positioned to capture additional market share from folks trading now.

So in terms of the RCDC, I think I've shared with all of you, some of our thoughts. But certainly scale is very, very important. Capacity is very, very important for both organic growth and nonorganic growth. In terms of private label, you've heard me say this. We're slowly migrating a lot of the strength of the private label program that we have at Smart & Final into our other banners. It's doing well and we expect it to continue to grow, not only what we currently have, but expanding some of the assortment and the price points that we have -- arsenal. And then the ability to -- especially at the El Super banner, the ability -- where we have a limited assortment, the ability to quickly pivot on dynamic assortment, right? Because we have a lot of that assortment available to the banner right now within the full assortment that we have at the RCDC. So we've got some new tools that we're dealing with given the launch of the RCDC.

And Carlos, when you talk about dynamic assortment? Are you talking about seasonal? Are you talking about kind of special buys or closeouts or...

Yes, seasonal, buying seasonal in scale. Halloween is a huge, huge holiday for Smart & Final, and we piggyback on that for the El Super category. So a lot of seasonality, even within your traditional 8-foot sets at El Super where you can try things quickly in and out and see how they perform. So it's just faster to market.

Next question comes from Alvaro Garcia with BTG.

A couple of questions on my end. One following up on Alejandro's question on gross profit. We saw a material expansion in your gross margin. If you could give any color on how much of that is RCDC? And how much of that is in the U.S. versus what you're seeing in Mexico because you had some pretty bullish commentary on Mexico gross margin as well.

And my second question, you mentioned that you expect to maintain guidance in Mexico. A bit surprising, it kind of implies pretty significant sequential uptick into the fourth quarter, really into mid-single-digit territory on the same-store sales front? So any thoughts on why you think you can get there if you're seeing better activity into October maybe would be helpful.

Well, thank you for your question, Alvaro. Well, we feel very comfortable that we're going to hit our guidance. We are seeing a pickup trend in sales in this particular month. And we believe that even though on the sales side, we'll be in the low range of the guidance, we believe we can hit that. We're also cycling the base, the high base in some of the sales expansion due to where I already mentioned the Tren Maya and Tulum airport and Dos Bocas. Not all of them at the same time, we'll see a little bit easier base than what we experienced in the first 3 quarters.

On the margin side, we do not disclose gross margin, but we're being able to gain EBITDA margin, and we feel we're going to be even a little bit higher than what we projected in our original guidance in Mexico. We feel comfortable with that. And we feel that with the next months coming, it will be pretty much what we expect to since sales are going to help a little bit more than what they did in the first 3 quarters of the year.

Alvaro, this is Carlos. Yes. And look, consistent to what we've indicated in previous quarters, we continue to shed supply chain costs and that's improving our margins. And in addition to that, as also as we've indicated, we expected to see some improvement in cost of goods that come from the implementation of the RCDC, and we're beginning to see that as well. Our purchasing gross margin has been improving, and it continues to improve, so we're happy about that. As we continue to maintain average retail pricing in check in order to provide great value to our consumers.

Great. Yes, just one follow-up on -- I think you've mentioned strict expense control a couple of times today on the call. I think that's sort of incremental or new. If you could maybe walk through Carlos where that will come from and how we should think about that in the context of your margin evolution going forward?

Well, it comes from everything. I mean at the end of the day, it comes from all corners of your P&L, but we start with labor and making sure that we're providing proper service, handling our labor productivity goals properly throughout the P&L, store maintenance, advertising. Just making sure we look at every single component of our P&L and making sure we're using our funds wisely.

Our next question comes from Froylan Mendez with JPMorgan.

Just to understand if you could give a similar comment on how confident you are to hit or not to hit the guidance in the U.S. And on top of the previous questions, could you let us know what is the run rate level of EBITDA margins in the U.S. once we completely lap all the double costs that I -- or what I understood could be only until first quarter, second quarter of next year. Those 2 questions, please.

Yes, so we, as you know, we've had some unexpected headwinds here in the last few months in the US particularly impacting the El Super and Fiesta banners through the immigration enforcement issues together with the fact that we had a very, very difficult comparative base. Last year in Q3, El Super grew about 6%, Fiesta grew about 8%. So we knew that going into the quarter, absent all the headwinds related to immigration enforcement our base was high. So we anticipate probably being flat for the rest -- for 2025 in terms of comps, and that's a little bit lower than our guidance.

As we've said on previous calls, our goal is to be 50 basis points higher on our EBITDA margins as to where we finished fiscal year 2023. We certainly didn't anticipate these recent headwinds when we announced those objectives. But independent of that, I think we're going to be really close. So we've got some positive signs that we've seen lately. Customer count in Texas is back to positive, which is very, very good. We're seeing some improvement in El Super, which is very, very good. And in the quarter, our Northern California Smart & Final division had positive comps with very solid customer account growth.

So we understand clearly where this impact is being felt. But we're cautiously optimistic of where we -- what we're seeing lately. Now we don't know how long this is going to last. We certainly believe it's reasonable to think that things will settle down a bit. But regardless of that, I think that we're going to have a different type of market moving forward. We're going to have less immigration flow. We're going to start seeing EBT back to pre-pandemic levels. So we're preparing ourselves for that kind of market.

But we remain super bullish on the Hispanic market in general. As you know, that market is the fastest-growing demographic in the United States. It's 70 million people strong, represents 20% of the U.S. population already. That is expected to continue to grow. It's a young demographic. So we're very bullish on that. But it's going to be a difficult market. But we -- if you've followed us over the years, we've performed very, very well during difficult comps. And as the market adjusts there will be winners and losers, no doubt. And we think that that's an opportunity for us. Not everybody will be able to operate efficiently in a difficult environment.

We've been making very, very strong investments both on the CapEx side as well as in operating side that we've been flushing through our P&L and our balance sheet over the last 12 months. But as you guys know, the decisions we make are focused on the long-term well-being of our company and the creation of shareholder value. We're really not focused on meeting objectives on a quarter-to-quarter basis. So we're going to be close to where we said we would be at the end of 2026.

Our next question comes from Ulises Argote with Santander Bank.

I just had one kind of quick follow-up there on the U.S. So I wanted to see if you could provide any details on the ticket and traffic dynamics there on a pro forma basis. In the release, you put some details around Smart & Final, but I wanted to see if we could get some color there for El Super and Fiesta on ticket versus traffic.

Traffic was down equivalent to sales at El Super side, down about 4%. And it was less down at the Fiesta side and was down for the quarter about 2%. But like I said just a few minutes ago, we're seeing a positive rebound on that side. As I mentioned, impact in sales at Smart & Final was really felt in the Southern California region in the same areas where we have proximity to El Super stores that were impacted by immigration enforcement. The North was good, and we're continuing to see good strength in the North. I'm sorry. Actually, customer count at Fiesta was down 1% and it was basically flat overall at Smart & Final with positive growth in the Northern division. So El Super ticket grew about 1%, Fiesta was down about 1%, and Smart & Final was basically flat.

That's very clear. And another question, if I may. You've given the current cash position that you guys have. Maybe you can walk us through a little bit on what are the capital allocation priorities you might have. You still kind of reiterated that store opening pace and CapEx related to that. But I don't know maybe if there's some room to increase dividends or to try something else there capital allocation wise?

Ulises, as we already said, we'll keep focusing on our store expansion in Mexico and as well as in the U.S. and Mexico will be probably over our guidance in store expansion this year. And even though we have not given the guidance for 2026, we'll keep focusing on that store expansion. On the other hand, with our cash position as we did these past 2 years, we have increased our dividend program and we'll keep doing it if we don't have any better use of that cash with a potential consolidation or organic growth. And that will be our focus in using basically the capital to grow to expand in stores. Otherwise, just expanding the dividend program as we have done.

Our next question comes from Hector Maya with Scotiabank.

You mentioned that you're expansion plans haven't changed. But just wanted to understand if there might be any changes in geographic considerations. For example, for Chedraui, Supercito if other states in Mexico are becoming a higher priority considering the economic issues that you are facing right now in the southeastern region of the country. And same question for the U.S., any considerations for other areas in the same states in which you operate, which maybe were not a high priority before? That would be the first part.

Well, Hector, thank you for your question. Well, no, we're just following our expansion plan, as I already mentioned. I believe that there is a huge opportunity because there's huge participation of the informal market, and that happens in the South as well as in other parts of Mexico. And we believe there's a huge opportunity, particularly for Supercito. Proximity formats, I think are going to be very efficient to service the particular customer need of being able to buy their supermarket basket in the less time without having to carry huge bags of groceries and we're taking advantage of that. And we're not changing our expansion plan and will even increase it next year. We expect to open more stores for next year.

Hector. And no, in terms of the U.S., as you know, we operate in California, we operate in Texas, we're in Arizona, we're in Nevada. We're in New Mexico. And we've got plenty of opportunity within the states that we're currently in to continue to grow our stores. And we're constantly looking at our potential pipeline, but we've got plenty of opportunity there before we launch into different markets where we're not in today.

Very clear. And just the last question to get an update please on your vision for inorganic opportunities in Mexico's northern regions, specifically just to understand, given the consumer -- if given the consumer environment now, if your ongoing appetite might have changed or if potential opportunities should have to wait for now maybe 2026 would not be the year. But after that, just to get a sense, an updated sense on that.

Hector, did you mention inorganic that would mean a consolidation or expansion...

Consolidation. Because in the past, you have mentioned or the company has mentioned that there is appetite in Mexico. I just wanted to understand if that has changed.

No. We have -- it has not changed. We have that appetite but at the moment, we don't have any target or we are not looking at any target or talking to someone about that possibility at this moment. We are open for that. We have done it successfully in the past. And you can be sure that we'll take advantage of that opportunity if it comes to the table.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Antonio Chedraui for closing comments.

Well, I just want to thank everyone for joining. And I hope to be talking to you at the end of the fourth quarter of the year. Thank you. Happy holidays, since I'm not going to be able to talk to you before holidays and safe travels if you have to as well. Thank you.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Good morning and welcome to the Grupo Comercial Chedraui Second Quarter 2025 Conference Call. Participating in the conference call, we will be -- we will have Mr. Jose Antonio Chedraui, CEO of Grupo Commercial Chedraui; Mr. Carlos Smith, CEO of Chedraui USA; Humberto Tafolla, CFO; and Artur Velasquez, IRO for the company. We will begin the call with initial comments on Grupo Commercial Chedraui second quarter financial results by the company's CEO, Mr. Jose Antonio Chedraui; and Chedraui USA's CEO, Carlos Smith. Please go ahead.

Good morning to all, and welcome to our presentation of Grupo Comercia Chedraui Second Quarter 2025 results. Our favorable second quarter results were driven by continued focus on our strategies, three main pillars of offering; customers the lowest price possible, providing the best product assortment for each store and delivering a unique customer experience.

These efforts to fulfill our mission of improving people's lives by providing preferred products at the best prices in every location and inspiring our employees to grow and developing Chedraui played a key role in our success. In Mexico, strong customer preference helped us continue gaining market share.

For the 20th straight quarter, our same-store sales outpaced and [ that's ] self-service sales growth, surpassing it by 122 basis points. This performance was driven by our strong customer relationships, outstanding product assortment and more effective promotions.

Despite a slowdown in the consumer environment, our profitability at Chedraui, Mexico continued to improve. Our results were driven by internal initiatives focused on better inventory and promotion management along with disciplined expense control.

In the quarter, EBITDA margin was 9.5%, 14 basis points higher compared to the second quarter of 2024. At Chedraui USA, Fiesta Mart delivered a solid performance, exceeding expectations with continued same-store sales growth despite a strong prior year comparison.

For Smart & Final, the strategic initiatives implemented in the second half of 2024 continued to gain traction, contributing to a 1.5% year-over-year increase in transactions compared to Q2 of 2024. Finally, we are pleased to report that the transition of the 5 legacy distribution centers in California to our Rancho Cucamonga distribution center, RCDC, was completed in the quarter as planned.

In the coming quarters, we expect to gradually see the benefits of improving productivity reflected in our results. Now to start our presentation. Please turn to Slide 4, where I will highlight key achievements of the quarter. Consolidated sales saw high single-digit growth, driven by positive sales growth in Mexico and the U.S.

Chedraui Mexico's same-store sales growth of 3.7% for the second quarter surpassed and tads for the 20th consecutive quarter. Chedraui USA's total sales grew by 1.3% in dollar terms in second quarter 2025, driven by sales floor expansion over the last 12 months.

Consolidated EBITDA grew 6.3% compared to second quarter of 24% and 8%, excluding RCDC transition costs. Consolidated EBITDA margin of 8.9% and 9% excluding RCDC transition costs. Net cash to EBITDA stood at minus 0.05x. We accelerated our organic growth by opening 30 new stores in Mexico and 1 store in the U.S. during Q2 of 2025. In the following slides, I will comment in more detail on these key highlights.

Turn to Slide 5, please. During the second quarter, consolidated sales grew by 9.5% in Mexican pesos, reflecting positive performance -- the positive currency translation resulted from a 10.1% depreciation of the Mexican peso compared to the U.S. dollar. Consolidated EBITDA for the quarter grew 6.3% to MXN 6,552 million compared to the second quarter of 2024.

EBITDA margin of 8.9% was impacted by RCDC transition costs and Smart & Final pricing strategy. Excluding transition costs, consolidated EBITDA would have totaled MXN 6,656 million, reflecting 8% growth and a 9% EBITDA margin compared to 9.1% in the second quarter of 2024.

On Slide 6, consolidated net income continued its positive trend. Over the past quarters, net income's compounded annual growth rate was 25%. When excluding our RCDC transition costs, net income compounded annual growth rate was 26.1%.

Our return on equity has been impacted by RCDC transition costs and Smart & Final's pricing strategy. However, even when accounting for these items, our long-term strategic focus has driven ROE improvement of 280 basis points to 13.2% in the second quarter of this year. This highlights our commitment to creating long-term value for our shareholders.

In the following slides, we will review the main highlights of our businesses in Mexico and the U.S. On Slide 7, our customers' preference for Chedraui, Mexico enabled us to gain market share for the 20th straight quarter and same-store sales growing 3.7% outperforming in [indiscernible] at self-service sales growth of 2.5%.

In the quarter, we increased our penetration in our e-commerce sales from 3.2% to 3.9%. This growth was driven by improved customer satisfaction and repeat business rates for our digital channels. Also, third-party partnerships over Rappi, DD Rappi Turbo and Mercado Libre continued to drive growth, while meeting customers' diverse shopping patterns.

Please turn to Slide 8. At Chedraui, Mexico, favorable same-store sales performance and a 3.4% increase in sales floor area drove sales growth of 7.1% compared to the second quarter of 2024. Chedraui Mexico's EBITDA for the quarter grew 8.7% to MXN 3,254 million compared to the second quarter of '24. EBITDA margin increased 14 basis points to 9.5% of sales due to strategic expense control, as well as in inventory and promotion management, which offset higher labor costs.

I will now turn the meeting over to Carlos Smith, CEO of Chedraui USA for his comments on our U.S. operation. Carlos, please go ahead.

Thank you, Antonio, and good morning, everyone. I'd like to start by sharing that we have completed the transition of our 5 legacy distribution centers to our new Rancho Cucamonga distribution center, RCDC, within the expected time. And activities transitioned to RCDC during the second quarter, and we are now focused on improving productivity at the facility.

I want to thank the team for their hard work, effort and dedication in successfully completing this transition. The RCDC is now responsible for distributing dry, frozen and perishable goods to our Smart & Final and El Super stores in the Western U.S. and is critical to supporting our long-term store growth strategy.

Our perishable pricing strategy launched at Smart & Final in the fourth quarter of 2024 is aimed at attracting more customers to our stores and strengthening brand recognition. It has continued to deliver positive results as seen in the 1.5% increase in customer count for the second quarter of 2025 compared to the previous year.

Please turn to Slide 9. Chedraui drive USA same-store sales in dollar terms declined by 0.3% compared to the same quarter last year. El Super and Fiesta both faced high same-store sales comparisons from the prior year quarter. Fiesta same-store sales continued to show a positive trend, growing close to low single digits.

At the same time, at El Super, transactions experienced a decline of less than 1% impacting sales growth, which we believe is a result of a stricter immigration policy in Southern California. At Smart & Final, same-store sales decreased 0.6% in dollar terms, primarily due to a lower average ticket from business customers and our ongoing pricing strategy.

Overall, Chedraui USA's total sales increased by 1.3% in dollar terms supported by an expansion of our sales floor over the past 12 months. Additionally, the depreciation of the Mexican currency against the U.S. dollar by 10.1%, contributed to a sales increase of 11.7% in Mexican pesos.

Please turn to Slide 10. Our perishable pricing strategy at Smart & Final, combined with declining RCDC transition costs continued to impact operating leverage. However, this was partially offset by Fiesta's strong EBITDA performance, resulting in a 4.3% EBITDA decline in dollar terms.

Chedraui USA's EBITDA in Mexican pesos grew 4.1% and 7.4% with our RCDC transition costs, driven by a favorable currency translation effect. The EBITDA margin in the U.S. stood at 8.3% and 8.6% when excluding RCDC transition costs. El Super and Fiesta Mart continued to achieve strong results with combined EBITDA margins of 9.8% in the quarter and 9.9% when excluding transition costs compared to 9.4% in the prior comparative quarter.

The completion of Fiesta store remodels continues to attract customer traffic to the stores, strengthening profitability of the banner. Smart & Final's EBITDA margin, excluding supply chain transition costs was 7.4% for the quarter. We are confident that the ongoing pricing strategy and the efficiencies from RCDC will contribute to Smart & Final's margin recovery in the coming quarters. This concludes our report on the U.S. operations.

Thank you, Carlos. We now turn to the consolidated financial results on Slide 11. Consolidated sales totaled 73,884 million, representing a 9.5% year-over-year increase, driven by positive sales trends across all businesses and favorable foreign currency translation.

Gross profit rose 10.1% and 10.6% without our RCDC distribution costs, mainly due to favorable inventory and promotion management in Mexico, which compensated for RCDC transition costs and Smart & Final pricing strategy at Chedraui USA.

Gross profit as a percentage of sales stood at 24.1% in the quarter and 24.3% without transition costs, compared to the 24% in the prior comparative quarter. Consolidated operating expenses, excluding depreciation and amortization increased by 12.4% compared to the second quarter '24. This increase was mainly due to higher labor costs in Mexico and the U.S. higher store count in both countries and the depreciation of the Mexican peso.

Operating income of MXN 4,248 million, grew by 4.3% compared to the second quarter of '24 and 6.9% when excluding RCDC transition costs. Consolidated EBITDA increased 6.3%, which represented 8.9% of sales and an 8% increase after adjusting for RCDC transition costs. The EBITDA margin, excluding these costs represented 9% of sales compared to the 9.1% in the second quarter '24.

Financial expenses increased by 6.8% to MXN 1,271 million, explained mainly by higher interest expense due to the capitalization of new property rents in accordance with IFRS 16 and a decrease in interest income from Mexico's cash position due to lower interest rates.

Consolidated net income grew 2.4% compared to the second quarter of '24 and totaled MXN 2,062 million, which represented 2.8% of sales. When excluding transition RCDC costs, net income totaled MXN 2,135 million and represented 2.9% of sales.

Finally, please move to Slide 12. We closed the year with a net cash position of MXN 1,128 million and our net cash to EBITDA ratio improved to minus 0.05x from minus 0.02x in the same period last year. CapEx for the first half of 2025 totaled MXN 3,574 million, representing 2.4% of sales and coming below the prior year, primarily due to the significant investment in our new distribution center during 2024.

Now please allow us to move on to the question-and-answer section.

[Operator Instructions]

Our first question comes from the line of Tiago Hardin with Citi.

I would like to explore a bit more Mexico. So we saw this EBITDA margin expansion, very interesting. Just wondering if we could discuss this a little bit more. I understand that the gross margin was enough to offset. So just wondering if we could discuss how you saw on SG&A.

You mentioned labor impact. So just what we have seen for this line? And also for the rest of the year, if this pattern, is this current print is something we should expect for the second half of '25?

Tiago, thank you for your question. Well, yes, the margin expansion was basically due better managing promotional activity, as well as inventory in Mexico that was able to end up with a better EBITDA margin.

Even though we had an increase in expenses due to labor costs in Mexico. And we believe we can be able to hold the margin expansion throughout the second semester of the year, our guidance was to increase point -- 10 points of extra EBITDA margin. And we believe we are going to achieve that without any problems even in the second quarter -- even in the second semester of the year. We are managing inventory and promotional activities in a very efficient way.

Our next question comes from the line of Alejandro Fuchs with Itau.

[indiscernible] I have two, if I may. The question will be on Mexico kind of a follow-up to the previous question on the gross margin, right? I think that we feel a lot of problems about increased some volatility in ending this quarter overall from the market yet you delivered another impressive gross margin performance.

I want to see if you can walk us through some of you [indiscernible] what has changed in the last couple of years in terms of inventory management shrinkage and some of the improvements that you're seeing? What has changed from the [indiscernible] saw 3 years ago, 4 or 5 years ago to today, your cost on some of these changes? And are there other half follow-up on the U.S.?

Alessandro, I was not able to hear very well. There is something with the communication or the line. But what I understood is that you were asking about the gross margin in Mexico, and how it has changed throughout the years. That was my understanding.

And well, I think, I would say two things about gross margin in Mexico. First, that the gross margin increase. It has been shown throughout the market, with throughout our competitors. And that probably was to support the expense expansion due to labor costs.

It has been shown in our competitions, in our competition as well as in ourselves. In the case of Chedraui, I would say that we're becoming better and better in three aspects. One is shrink. We have been able to reduce shrink. The other one is better management of our inventory and that has been allowed us to reduce price reductions due to inventory obsolence and then management of the promotional activity.

That explains really well about how we have been able to increase margins, without affecting our pricing strategy and being able to support the labor cost increases and be able to end up with better EBITDA margin. I don't know if this was your question, if I understood it correctly, and if I've been able to answer your question.

Yes, was super clear. Maybe if I can do a follow-up on the U.S. for Carlos adjusted EBITDA margin in Fiber almost 10% if you exclude the one-off from the distribution center, very impressive. Can you walk us through, Carlos, maybe, where do you see your profit looking in the U.S. or in the medium term now the operation of the new DC? And then how do you look at the $4 million a some markets performing for the remainder of the year?

I think I understood. But yes, the Super and the Fiesta banners are performing quite well, even with the additional RCDC costs that are flowing through, particularly on the super side. So as we see that in the next several quarters, as we've discussed, we continue to shed supply chain costs through the end of the year.

So we're bullish on seeing some improvement in the super banner as we move along. On the Fiesta side, we've had a -- once again, a very strong quarter. Gross margin expansion at the level, purchasing gross margin has been very, very solid. We grew -- we expanded it over 100 basis points, primarily through improvements in our purchasing gross margin as well as in our mix.

You hear me talk a lot about expanding our perishable sales mix. We did that very well in Q2, and that's flowing down to the EBITDA line. So we are expecting those conditions to continue through the end of the year.

Our next question comes from the line of Bob Ford with Bank of America.

Carlos, how should we think about U.S. immigration in the crack down and the impact it's having on traffic in your stores, if any? And how should we think about the next steps at Smart & Final and the big unlocks facilitated by the RDC with respect to lower cost, better freshness, wider availability of private label, et cetera.

Bob, yes. Well, certainly, June had some added headwinds for us related to the integration issues. The most exposed areas for us was Southern California and Arizona less so in the Northern California markets as well as Texas and Nevada, even though all of the Western U.S. I would say, was -- had some exposure to this.

However, we believe this is temporary, Bob. We are very bullish on the Hispanic market. And we know that our formats are very well positioned to deliver value to our customers, which, as you know, right now is top of mind for everybody. Everybody complains about the -- how expensive groceries are.

So like I said, I think our -- we believe that our formats are very well positioned to address this. and we continue to gain share. So once again, it's a headwind, no doubt. We believe it's temporary. We're hoping to see some signs out there in the field that reflect an easing of this. But once again, we think it's temporary. With regards to Smart & Final, we're on the right path. We're seeing customer count growth, unit sales growth. We recognize that we're causing internal deflation. But we will continue to lean in on our strategy that's focused on expanding our customer base via pricing and perishables. And we are now fully integrated into our new facility. Perishables will be an asset. We're moving a lot of volume quicker than it's been moved before at Smart & Final. Our assortment for private label is fully integrated into the DC, which will benefit all super quite a bit. And I visiting our stores lately, I'm very, very happy.

Our in-stock position is terrific. So all of those components -- our great ingredients for continued top line growth at Smart Final that we will continue to see, we are displated in produce by 15%. And -- exactly. And that is through our price investment. And we know that we will cycle through that. But we're steadfast in our belief in what we're doing and customer count is telling us a great story, unique phone being up is telling us a great story. So yes, we're excited about the following quarters, not only next quarter and Q4, but 2026 and beyond.

And could you share metrics with respect to the improvement in-stock position? Or I don't know if you have a way to measure the freshness or the shelf life of the produce given the transition of the RCDC?

Yes, I would say from -- I'm not going to tell you exactly what our in-stock levels are, but I can tell you that they're the lowest [indiscernible], we started tracking them through our perpetual inventory system, which is phenomenal.

Our perishable shrink is coming down. Our inventory levels in produce are coming down and our sales contribution from our produce departments is creeping up. That tells you a story.

Our next question comes from the line of Antonio Hernandez, private investor.

Just smart and finally, already -- you've already been mentioning about the different tailwinds that you see ahead in terms of sales, in terms of profitability and so on. But if you could provide more color on what are the EBITDA margins that you see maybe on a normalized level once all these RCC ramp-up is time? That will be very helpful.

Yes. If -- Well, you saw through our release that EBITDA margins came back at 3.1%, I believe, in Q2, which was double where we were in Q1. Our normalized levels back in 2023, We're, I think, on a U.S. GAAP basis, just 5%. And our target is to get them to the 6% range in the U.S.

Our next question comes from the line of Ben Theurer with Barclays.

I was wondering if we could talk a little bit about capital allocation priorities going forward. I mean, you have a history of M&A in the U.S., very successful on the integration side. You now had a little bit of a CapEx project here with the distribution center.

At the same time, you have a very strong balance sheet with essentially no debt. So I was wondering, as you look into opportunities to potentially further grow the business, where are you seeing opportunities from a and M&A side? And if not, how do you think about potentially optimizing your capital structure dividends or buybacks? What are the opportunities you're seeing? And what are the priorities if you could rank them?

Thank you for your question, Ben. Well, obviously, we're focusing growth organically and open to consolidation. We believe, and we're always looking at, and we believe there will be opportunities in the U.S. and probably in Mexico as well.

But if we are not able to reach those potential M&A growth expansion. We'll be focusing in using the cash generation for dividends as we did last year, for example, where we duplicate dividends. And this year, we'll do it exactly the same again. So yes, we'd like to do as efficient as possible capital allocation, first, growth and we're not able to succeed that path, we'll go and do an increase of dividends as we did last year.

Okay. And then just a quick follow-up as to the Mexican market and the opportunities here. Obviously, you have a set of banners and a set of targeting. But just given some of the macroeconomic challenges, any thought or any idea just to potentially also explore opportunities to have a Chedraui banner maybe more focused on what would be hard -- definition of a hard discounter. Is that something you would consider? Or is that off the table?

We're not -- we don't believe we are capable of operating hard discount concepts. We just don't believe in that we are very focused in proximity formats in the future with a better assortment and quality with our pricing strategy that is allowing upbeat even against the hard discounters in some categories, but we believe we have a better concept to on the proximity for the customers.

And yes, there are big opportunities this year. We will expand with 130 new Supercito we are on the right path as well as other smaller formats such as Supercito and Superce to be able to fulfill that proximity mission that we intend to achieve.

Our next question comes from the line of Argos with BTG.

I have two questions on Mexico. On the softer consumer environment, and I know you've sort of tightened the belt into this year, and that's very clear on the SG&A front in Mexico and your margin performance in Mexico.

But I was wondering if you can comment on whether you think the softer environment in Mexico might sort of slowly but surely produce less tight labor market. So maybe giving a little breathing room on what's been a very tight labor market over the last 5 or 6 years? That's my first question, and I'll stop there.

As you have mentioned, and it's very clear that, yes, there is -- we are seeing a weakening of consumption in Mexico, particularly in the Southeast region due to mostly due to mix and the base created in the years before by also other investments such as [indiscernible] and the new dose broadcast refinery we believe that even though that we're seeing this softening of the consumers.

We believe we need to keep focusing in being able to gain market share and try to sustain same-store sales growth and being able to be and pad as we have in the recent years so that we suffer less than expected in this particular situation. We have an efficient operation that allows us to make money even with the weakening of the consumption base. And we're just focusing in being probably the ones that lose less in this particular environment, Alberto.

Would you say -- just a follow-up on that, do you foresee less increases in labor in the coming years because of the softer environment?

Well, it's difficult to predict I see that the government has committed to labor increases and they have been, I would say, very strong supporting that commitment. So it's difficult to predict. I don't think they will use that commitment, and we expect 10% to 12% increases in the next coming years on the labor cost. I don't see that policy changing in the near future.

Yes, that's clear. And then just one more on gross margin in Mexico, very clear answers earlier on sort of on shrink and inventory management and promotional activity. But I was wondering if you can comment on mix -- my sense is that the premium consumer is still doing quite well.

Selecto has obviously increased as a percentage of your revenues in Mexico. I was wondering if you can maybe comment on sort of your banner mix and how that might play a role in your gross margin.

It's -- yes. Well, Selecto, obviously has a better gross margin than the rest of the formats, but also the select format has more expenses. In the end, all of the formats compensate a little bit and we end up with a similar EBITDA margin, I would say, some of them with better gross margin than others, but the ones that experienced better gross margin have also an increase in labor cost because they have better service levels.

So we're focusing in the end in being able to expand our EBITDA margin in all of our formats, and that's how we have been able to sustain. We believe that we can expand at least 10 basis points this year on the EBITDA margin and we are succeeding at the moment, we have been able to expand 17 basis points, which it's even higher than what our guidance projected at the beginning of the year, Alberto.

[Operator Instructions]

Our next question comes from the line of Ulises Argote with Santander.

Just a [indiscernible] from my side. So the first one would be, I was wondering if maybe you could share some color there as how to -- the sales performance was through the specific months during the quarter, both in Mexico and the U.S. just to kind of gauge if that was kind of sequentially improving and then something happened there? Or what was kind of the dynamics there?

And then the other question was just a quick kind of follow-up on some of the previous comments you have been making. So basically, we should understand that you guys are reiterating the guidance for the year across all lines? Is that kind of a correct assumption for us to be making?

Well, I'll talk about Mexico. We're seeing a better trend in the second quarter than in the first one. But that's mostly due to calendar effect where the Easter season was on the base of the first quarter of last year and affected the first quarter.

And then now this year, without that base we see or we saw that the Easter season happened in the second quarter. So that helped the sales trend in the second quarter, but we still see a weak consumption throughout the whole Mexico, particularly in the Southeast region. That's very clear to us.

About the guidance, yes, we're seeing that we're going to be able to achieve our guidance. We don't think there's any need to change that. And probably on the margin side, we will end up with a little better margin -- EBITDA margin than what we projected in our initial guidance. And well, Carlos can explain to you about the U.S.

Yes. We got off to a relatively good start during Q2 for the July holidays [indiscernible] final actually reached a record sales week not counting the COVID weeks, but we're off to a very good start. Sales were in very decent shape through May, and then we hit a little bit of a headwind in June to land just slightly negative 0.2%.

Carlos, just maybe a follow-up to that. So the light trends are already looking better than what you saw in June, which maybe was when you faced the most challenging headwinds. Is that kind of the message that we should be getting from this?

I'm sorry, repeat the question, please?

So the July trends are already better than June with June maybe being the most difficult month there in terms of the headwinds? Is that kind of the correct way to interpret what you were saying?

No. The immigration headwinds started in the middle of June and continued through July. So like I said, we believe this is temporary. We're seeing some signs out in the marketplace of some reactivation of activity.

There's -- we're seeing signs of less social media noise out there, less traditional media none out there. So we're seeing some signs that we believe are positive, and we'll just have to wait and see how long it takes for people to just kind of regain their routines.

Our next question comes from the line of Emiliano Hernandez with GBM.

Just a quick one here. Can you share maybe directionally, how are you seeing same-store sales, particularly in Supercito. And how long are you taking these formats to mature? That was my question.

Well, same-store sales in Supercito are doing pretty much in line with our other formats in the same regions where we participate. What we're seeing in the Supercito is since we're growing very fast opening stores. We're seeing a big percentage of the stores not yet mature that will produce 2 things. One, it's inefficiency in the beginning because sales do not reach what they would when they mature.

So we're inefficient on the expense to sales ratio that affects. But on the other hand, we also expect a better same-store sales growth due to the new stores that have not matured. Therefore, sales expand a little faster that's basically the Supercito situation.

We're happy with the expansion we're being able to achieve. We will meet our guidance of being able to open 130 per sites in the year. And on the other hand, that also produces financial inefficiencies, but that will be supported with growth in the coming years.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Chedraui for any final comments.

I just want to thank everyone for joining, and hope to be talking to you at the end of next quarter. Thank you all. Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.