BBB Foods Inc. (TBBB) Delivers Explosive Growth But Faces Margin Headwinds—Is Now the Time to Buy?

Ready to bet on the next big thing in Mexican retail? Let me tell you, BBB Foods Inc. (TBBB) is making waves with its Q1 2025 earnings, but this isn’t your average “buy the hype” story. The numbers are screaming growth, but there are red flags lurking beneath the surface. Let’s break it down.

The Good: Growth on Steroids

First, the positives: BBB Foods just delivered a 35.1% surge in revenue to 17.132 billion pesos, fueled by its aggressive expansion. They’ve added 117 net new stores in the quarter alone, pushing their total store count to 2,889, and same-store sales jumped 13.5%. That’s not just growth—that’s a tidal wave of demand for their “Bueno, Bonito y Barato” (“Good, Nice, and Affordable”) value proposition.

The cash flow is equally impressive. Operating cash flow jumped 49% to 1.195 billion pesos, and the company’s net cash position is a robust 1.567 billion pesos, plus $150 million in USD reserves. CEO Anthony Hatu isn’t just opening stores—he’s doing it with discipline, prioritizing return-driven talent investments and strategic distribution centers to cut logistics costs.

The Bad: Margins Under Siege

Now, here’s where the caution bells start ringing. While revenue is soaring, margins are collapsing. Gross margins dropped from 4.9% to 4.1%, and administrative expenses jumped to 4.1% of revenue, driven by share-based compensation that now eats up 8% of gross profit. CFO Eduardo Pico admitted this isn’t a one-time hit—it’s an ongoing 1.2% of annual sales burden.

The math here is brutal. If sales hit, say, 18 billion pesos this year, that’s 216 million pesos annually siphoned off to compensate executives. That’s real money—and it’s not going away.

Meanwhile, the “tough consumer environment” in Mexico isn’t helping. While BBB’s low-cost model is a lifeline for price-sensitive shoppers, the company is bracing for rising labor costs as Mexico’s working week rules shift. Pico says part-time staffing might cushion the blow, but there’s no denying the pressure.

The Ugly: GuruFocus Flashes Yellow

GuruFocus isn’t giving TBBB a free pass, either. It’s flagged four warning signs, though specifics are vague. My money’s on the share-based compensation binge and the unsustainable pace of expansion. Opening 117 stores in a quarter isn’t easy—it’s a high-wire act requiring flawless execution. One misstep, and those margins could get worse.

The Analysis: Growth vs. Dilution

Here’s the deal: BBB Foods is a classic growth-at-all-costs story. The revenue and store numbers are undeniable, but the question is: Can they keep this up without diluting shareholder value?

The positives are clear:
- Market leadership: Their “hard discount” model is resonating in Mexico’s price-sensitive economy.
- Cash-rich balance sheet: That 1.567 billion pesos in net cash is a cushion against headwinds.
- Strategic distribution centers: Once operational, they’ll slash logistics costs and boost margins long-term.

The negatives are equally clear:
- Margin erosion: If gross margins dip below 4%, this business model could stall.
- Share-based compensation: A ticking time bomb for future earnings.
- Labor costs: Mexico’s labor market is a wildcard that could eat into profits.

Conclusion: Buy the Dip, But Stay Vigilant

Let’s get real: This is a high-risk, high-reward play. If you’re an aggressive investor, BBB Foods’ 13.5% same-store sales growth and 35% revenue surge are hard to ignore. The expansion into distribution centers could be the catalyst to turn those margins around.

But here’s the catch: Avoid paying too much. Wait for a pullback to a valuation that reflects the risks. If shares dip below, say, 10x forward EBITDA (assuming EBITDA stays around 705 million pesos), that’s a better entry point.

The jury’s out on whether the growth justifies the dilution, but one thing’s certain: BBB Foods isn’t playing small. They’re either building the next Walmart of Mexico—or they’re overextending. I’m in the first camp, but I’ll be watching those margins like a hawk.

Final Take: TBBB is a “buy the dip” story for aggressive investors. The growth is real, but don’t blink—this one’s got teeth.