Fomento Económico Mexicano's Q1 2025: Unpacking Contradictions in Traffic, Margins, and Expansion Strategies

Traffic loss and traffic share, gross margin expansion initiatives, store expansion strategy in the US are the key contradictions discussed in Fomento Económico Mexicano's latest 2025Q1 earnings call.



Challenges in Mexico and Impact on Proximity Americas:
- Proximity Americas experienced a 6.8% decrease in total revenues, with same-store sales contracting by 1.8% and average traffic decreasing by 6.6%.
- The decline was attributed to factors such as a persistently soft consumer environment in Mexico, a tough calendar setup, and a weak trade situation with the U.S.

Initiatives to Boost Traffic and Gross Margin:
- FEMSA implemented a series of top-line growth and cost containment initiatives to drive traffic and maintain positive gross margin expansion.
- These initiatives include increasing affordability across categories, expanding financial services, and leveraging promotional income to offset operational pressures.

Projections for Recovery and Revenue Growth:
- Despite a slow start in 2025, the company's base case expectation is for a high single-digit increase in revenues, with stable operating margins relative to 2024.
- FEMSA projects a sequential improvement in top-line dynamics, supported by economic activity and consumer sentiment recovery in Mexico.

Expansion and Store Strategy:
- The company is continuing to expand its retail footprint, targeting 1,100 to 1,200 store openings per year, with an emphasis on quality over quantity.
- Despite some cannibalization effects, FEMSA sees an opportunity for continued profitable growth, driven by strategic store placement and high return on invested capital.