BBB Foods Inc.'s Q3 2025: Contradictions Emerge on Value Proposition, Gross Margins, Private Label Penetration, Market Strategy, and Talent Investments

Date of Call: None provided

Financials Results

• Revenue: MXN 20.3 billion, up 36.7% YOY
• Operating Margin: EBITDA margin 5.8% (EBITDA increased 43.6% excluding non-cash share-based payments); reported EBITDA loss MXN 404M including share-based payments

Guidance:

• Expect same-store sales to remain strong over the next couple of years driven by product improvements and continued store maturation.
• Continue aggressive store expansion with a stated runway for at least 14,000 stores in Mexico.
• No specific margin targets; expect margins to improve over time though quarter-to-quarter volatility will occur.
• Board decided not to make additional reserves for the 2026 equity incentive plan.

Business Commentary:

* Store and Revenue Growth: - Tiendas 3B opened 131 net new stores in Q3, totaling 3,162 stores, and reported 36.7% year-over-year revenue growth to reach MXN 20.3 billion. - The growth was driven by an increase in store openings and a strong same-store sales growth of 17.9%.

• Financial Performance Trends:
• EBITDA reported a loss of MXN 404 million due to non-cash share-based payments. Excluding these payments, EBITDA increased by 43.6%.
• Sales expenses as a percentage of revenue increased slightly from 10.1% to 10.2%, while admin expenses, excluding share-based payments, rose by 16 basis points.

• Store Maturation and Return on Investment:
• Newer store vintages are maturing faster than initially expected, with stronger returns on invested capital.

• This is attributed to improved brand recognition and a stronger value proposition leading to quicker customer acquisition and increased sales.

• Future Expansion and Product Innovation:

• Tiendas 3B plans for significant future store growth, aiming for at least 14,000 3B stores in Mexico.
• The company is focused on product innovation, especially in perishables and other high-potential categories, to enhance its value proposition and attract more customers.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 'another quarter of exceptional growth' with same-store sales +17.9% and revenues +36.7% YOY, noted improving EBITDA margin ex-share-based payments (5.8%), positive cash generation (MXN 3.0B YTD) and stated 'the future looks bright.'

Q&A:

• Question from Bob Ford (Bank of America): Can you comment on current value propositions and the volume response; do you need to sharpen value propositions given price reinvestment in the marketplace; how should we think about market share in trade areas around oldest cohorts and implications for younger units; as you scale are you seeing unsolicited interest from national suppliers and how will you use national suppliers as you enter new categories?
  Response: Scaling improves purchasing and logistics so margins should rise over time though quarter-to-quarter volatility is normal; price decisions use elasticity testing; oldest cohorts continue to grow above inflation; suppliers can meet scale and planning is done three years ahead.

• Question from Joseph Giordano (JP Morgan): New store vintages are maturing faster — is maturation level a moving target and how are returns for new cohorts behaving; how should we think about expansion acceleration given higher returns?
  Response: Newer vintages are maturing faster and delivering equal or better cash-on-cash returns than older cohorts; models will be updated annually to reflect improved metrics.

• Question from Álvaro García (BTG Pactual): Eduardo said next quarter comps on sales expenses may be more favorable—can you expand; on faster ramp-up of new stores, is ramp-up concentrated centrally or seen in newer regions as well?
  Response: Selling-expense favorability is timing-related (DNA expense recognition); faster ramp-up is observed across all regions with no geographic differences.

• Question from Alejandro Fooks (Analyst): Any difference in competition by region when expanding and, on same-store sales, is growth more from volume (transactions) or mix (more SKUs per ticket)?
  Response: No material regional change in competition; same-store-sales growth is mainly from more transactions and increased items per basket (both contribute).

• Question from Héctor Maya (Scotiabank): How confident are you maintaining very strong sales growth next year as older stores mature; how do you decide how much purchasing savings to keep as margin versus pass through to price?
  Response: High confidence near-term that sales remain strong driven by upcoming product improvements; allocation of savings is decided product-by-product via elasticity testing, balancing margin and volume.

• Question from Alexandra Namioca (Morgan Stanley): Any update on perishables pilot status and will new categories appear next year?
  Response: Perishables tests are positive but company will only scale after ensuring end-to-end value-chain quality and efficiency.

• Question from Irma Scars (Goldman Sachs): Customer journey—what brings customers in and how do they migrate across categories; how are demographics considered; will operating expenses grow below same-store sales next year given investments made this year?
  Response: Customers arrive mostly by word-of-mouth, start with basic goods and progressively adopt other categories aided by private-label trust; stores can absorb more SKUs; operating leverage is real for older stores but overall pressure depends on expansion pace.

• Question from Alex Wright (Jefferies): As you grow, will increasing internal talent alleviate HR limits to expansion; CapEx cadence—are you on track to come in below the MXN 3.65B budget?
  Response: Ongoing investment in talent development is intended to support faster expansion; full-year CapEx expected close to prior guidance (~MXN 3.7B).

• Question from Santiago Alvarez (Summit Management): How is product sales mix behaving in older cohorts; is private-label penetration reaching expected levels?
  Response: Older cohorts are approaching typical hard-discounter EBITDA (~7%); private-label penetration rose from mid‑40% (end-2023) to mid‑50% (end-2024) and continues to increase.

• Question from Gully Arshad (Analyst): Any interest from larger national/international players or potential takeover approaches given perceived undervaluation?
  Response: No takeover ('bear hug') approaches known; there have been cooperation conversations but management leaves valuation to the market.

Contradiction Point 1

Value Proposition and Same Store Sales Growth

It involves differing explanations for the drivers behind Same Store sales growth, which is a critical metric for investor evaluation of company performance.

Can you comment on your current value propositions and volume response? Do you see a need to further sharpen your value propositions? How should we assess market share in trade areas near your oldest product lines? - Bob Ford (Bank of America)

2025Q3: We are improving our value proposition to customers by scaling, which leads to better purchasing terms and lower costs. We've conducted elasticity testing dynamically to set pricing. Our older vintage stores continue to grow despite inflation due to improved products and pricing. We expect this trend to continue. - Anthony Hatoum(CEO)

What factors contributed to the acceleration in same-store sales, and how should we assess ticket traffic, basket size trends, inflation in product assortments, and sales momentum following the Easter shift into July and early August? - Robert Erick Ford Aguilar (Bank of America Merrill Lynch)

2025Q2: Fundamentally, it's an amazing value proposition that we keep on improving in everything we offer our customers. This improvement drives more traffic into our stores and existing customers to pick up one more item. We're seeing a notable increase in the number of tickets, real increase in ticket size, and change in the mix of items that makes the ticket bigger. - Kamal Anthony Hatoum(CEO)

Contradiction Point 2

Gross Margin Management

It directly impacts the company's financial performance and investor expectations, particularly in relation to gross margin management and the impact of inflation on pricing strategies.

Comment on your current value propositions and volume response. Is there a need to further sharpen value propositions? Assess market share dynamics in trade areas around your oldest cohorts? - Bob Ford (Bank of America)

2025Q3: We are improving our value proposition to customers by scaling, which leads to better purchasing terms and lower costs. We've conducted elasticity testing dynamically to set pricing. - Anthony Hatoum(CEO)

Can you discuss the causes of gross margin volatility and your approach to pricing management, as well as how you are addressing expense pressures without relying on sales growth through headcount adjustments? - Joseph Giordano (JPMorgan)

2025Q1: We didn't see any pressure to drop prices... We're not cutting personnel other than normal growth. - Kamal Hatoum(CEO)

Contradiction Point 3

Private Label Penetration and Contribution to Same Store Sales

It involves differing views on the role of private label penetration in driving Same Store sales growth, which is an important factor for evaluating the company's product strategy and pricing.

Can you explain the faster maturation of new store vintages and discuss their return performance? - Joseph Giordano (JP Morgan)

2025Q3: Our existing suppliers can keep up with our growth. Long-term planning ensures supply readiness. We are focusing on cost reductions and efficiency gains. - Eduardo Pizzuto(CFO)

How has private label penetration changed this year, and is it a major driver of same-store sales growth? - Joseph Giordano (JPMorgan Chase & Co)

2025Q2: We keep improving our private label portfolio, which has led to increased penetration since 2023. Private label is a main driver of net increase in Same Store sales, as it offers more for the money to customers. - Kamal Anthony Hatoum(CEO)

Contradiction Point 4

Market Strategy and Growth

It involves differing perspectives on the company's growth strategy and market share, which are crucial for investor understanding and expectations.

Can you comment on your current value propositions and the volume response? Do you see a need to refine your value propositions? How should we assess market share in regions around your oldest customer segments? - Bob Ford(Bank of America)

2025Q3: We are becoming a significant player and are receiving unsolicited requests from national suppliers. - Anthony Hatoum(CEO)

How should we think about the balance of growth between new and existing trade areas this year? How much of the increased cost is from new competencies vs compliance/control/support? How should we think about innovation's role in improving value propositions this year? - Bob Ford(Merrill Lynch)

2024Q4: We want to have a presence in every trade area. - Anthony Hatoum(CEO)

Contradiction Point 5

Talent Density and Strategic Investments

It reflects the company's approach to talent management and strategic investments, which are crucial for future growth and operational efficiency.

Will increasing talent density alleviate HR pressures, and is CapEx on target? - Alex Wright (Jefferies)

2025Q3: We’ve planned people needs for future expansion. Our talent density is strong, and we continue to invest in human resources. - Anthony Hatoum(CEO)

How should we assess the magnitude of your talent investment expenses and the capabilities these additions provide? And regarding your new distribution centers, how should we evaluate the allocation between expanding existing trade areas and entering new regional markets? - Robert Ford (Bank of America Merrill Lynch)

2025Q1: Any investment we make is made with a simple criteria in mind, what's the return on this investment. Increasing talent density is part of our strategy to invest for future growth. - Kamal Hatoum(CEO)