Fomento Económico Mexicano’s Q4 2025 Earnings Call: Brazil Expansion, Health Division Struggles, and Restructuring Timelines Don’t Match

Date of Call: Feb 25, 2026

Financials Results

• Revenue: Increased 5.7% year-over-year, with Proximity Americas up 5.3% on a comparable basis.
• Gross Margin: Proximity Americas expanded 40 basis points to 48.1%. Valora's gross margin was 37.9%, down 550 basis points year-over-year due to reclassification; comparable basis would have expanded 70 basis points.
• Operating Margin: Proximity Americas operating margin was 12%, up from prior periods due to overhead reduction and productivity initiatives. OXXO GAS operating margin was 4.8%, maintaining profitability.

Guidance:

• OXXO Mexico aims to regain growth and relevance through sharper value proposition and improved customer experience in 2026.
• OXXO Brazil targets ~15% growth (approx. 100 net new stores) in 2026, focusing on scaling in Sao Paulo and building operational execution.
• Bara plans to grow store base by approximately one-third in 2026.
• OXXO Colombia aims for 20% store base growth in 2026, building on strong unit economics.
• Restructuring efforts expected to generate ~MXN 1 billion annualized savings beginning in 2026, ramping up to full impact in 2027.
• Spin's losses estimated to improve by ~20% in 2026.
• Targeting ~2x net debt to EBITDA (excluding Coca-Cola FEMSA) by year-end, with flexibility for additional returns.

Business Commentary:

Proximity Americas Performance:

• Proximity Americas reported revenue growth of 5.3% in Q4 2025, with same-store sales growth approaching the mid-single-digit range at 4.4%.
• The improved performance was driven by enhanced same-store sales and traffic trends, particularly in Mexico, following tactical affordability-focused initiatives to address competitiveness issues.

Restructuring and Efficiency Initiatives:

• FEMSA announced restructuring efforts expected to generate savings of MXN 800 million annually from Proximity Americas and an additional MXN 1 billion from FEMSA Corporate, with full impact anticipated by 2027.
• These initiatives aim to create a leaner organizational structure and focus on cash flow rigor, driven by headcount optimization and improved operational efficiencies.

OXXO Colombia and Bara Growth:

• OXXO Colombia achieved positive EBITDA for the first time in 2025, with Bara adding 63 net new stores in Q4, contributing to a total of 157 for the year.
• Growth was supported by a strong value proposition and increased private label offerings, with Bara targeting a store base increase of 20% in 2026.

Coca-Cola FEMSA and Strategic Priorities:

• Coca-Cola FEMSA reported revenue growth of 2.9% and an operating income increase of 13.3% in Q4 2025.
• The growth was driven by a focus on volume expansion, leveraging AI and analytics through the Juntos+ platform, and fostering a customer-centric culture.

Financial Services and Spin Restructuring:

• Spin reported a reduction in negative EBIT by 30% in 2025, with expectations for a further 20% improvement in 2026.
• The restructuring of Spin to align more closely with OXXO Mexico aims to enhance digital and physical integration, focusing on payments, services, and data.

Sentiment Analysis:

Overall Tone: Positive

• "I am very happy with how the year ended on the fourth quarter because it looks like we're turning -- taking a turn... we see the trend continues upwards in terms of traffic, and that keeps me optimistic." "We are confident in the resilience of our portfolio, the actions we have taken to unlock further value..." "We should have a strong 2026."

Q&A:

• Question from Thiago Bortoluci (Goldman Sachs): Regarding the balance between growth and profitability in OXXO Mexico, how ready is the assortment/value proposition, and what low-hanging fruit remains? Also, on the magnitude of restructuring efficiencies (~3% of net income), what low-hanging fruits exist and what ensures execution?
  Response: CEO prioritizes profitable traffic and market share over short-term profitability; sees margin expansion opportunities with suppliers. Restructuring driven by organizational consolidation, headcount optimization, and Spin cost tightening, with savings expected to ramp in 2026/2027.

• Question from Ricardo Alves (Morgan Stanley): On OXXO's gross margin and long-term strategy for financial services/cash in/out, especially remittances. Also, on potential excess cash in 2026 and capital return flexibility.
  Response: Commercial income and financial services (including remittances) are growing; Spin's digital integration with OXXO ecosystem is key for future. Company expects to distribute ~$2.4-$2.5 billion to shareholders in March 2026-March 2027, with flexibility for additional buybacks or dividends if closer to 2x leverage target.

• Question from Rodrigo Alcantara (UBS): How does KOF fit into the new structure, and any early comments on security incidents in Jalisco?
  Response: KOF is evaluated for value; no merger with Coca-Cola FEMSA considered. Security incident in Jalisco resulted in minor employee injuries, ~6,000 stores closed precautionarily, but response was effective with authorities; business is stabilizing.

• Question from Alvaro Garcia (BTG Pactual): Clarify restructuring cash burn impacts and Spin's formal merger with OXXO. Also, comment on Proximity Americas' revenue growth (5.3%) vs. same-store sales (4.4%).
  Response: Spin will remain separate but aligned with OXXO; cash burn expected to decline. Revenue gap partly due to strong LatAm performance and replacing underperforming stores with new ones.

• Question from Robert Ford (BofA Securities): Strategy in Brazil post-separation from Raizen, time to cover overhead, and promising categories. Also, next moves for Mexican drugstore business.
  Response: Brazil same-store sales grew double digits; target ~1,000 stores to cover overhead, focusing on food, coffee, and beer. Mexican pharmacy business is not winning; future may involve omnichannel or OXXO integration.

• Question from Antonio Hernandez (Actinver): Cross-selling or learnings between Bara and OXXO private labels?
  Response: OXXO and Bara have distinct value propositions; OXXO can expand private label in certain categories, but each will compete in their own segments. Bara has significant white space potential in Mexico.

• Question from Héctor Maya López (Scotiabank): Appetite for M&A in the U.S. given political uncertainty and timing for more aggressive growth in the U.S.
  Response: M&A appetite remains but cautious due to high seller expectations; focus on tuck-ins. U.S. strategy is long-term, with expansion contingent on the right risk-reward opportunities.

• Question from Renata Fonseca Cabral Sturani (Citigroup): Are Bara and Brazil scalable platforms, and which initiative (Bara, Brazil, U.S.) is the biggest opportunity in the next 5 years?
  Response: Bara is more advanced for hyperscaling; Brazil is focused on quality and process maturity. OXXO Mexico and Coca-Cola FEMSA are top priorities; U.S. and Europe are longer-term opportunities.

• Question from Ulises Argote Bolio (Santander): What needs to change for a successful 2026, specifically for OXXO Mexico?
  Response: Success defined by mid-single-digit top-line growth, same-store sales growth in OXXO Mexico, market share gains, EBIT breakeven in Colombia, Brazil hitting targets, Europe strong performance, and Coca-Cola FEMSA gaining share/ROIC.

• Question from Henrique Brustolin (Banco Bradesco BBI): Operational changes needed to gain traction in breakfast/coffee/daily replenishment in OXXO Mexico and timing for impact.
  Response: Focus on simplifying coffee offerings (aiming for higher cups per store), winning breakfast narrative, and improving daily replenishment competitiveness. Multiple tests ongoing, with 2026 expected to show progress.

Contradiction Point 1

OXXO Brazil's Growth Strategy and Timeline

It involves inconsistent messaging on the pace and focus of store expansion in Brazil, impacting expectations for growth trajectory.

Renata Fonseca Cabral Sturani (Citigroup Inc.) - Renata Fonseca Cabral Sturani (Citigroup Inc.)

2025Q4: OXXO Brazil is still focused on maturing processes in Sao Paulo before accelerating growth. - Jose Antonio Garza-Laguera(CEO) & Juan Fonseca(Investor Relations)

Are Brazil and Bara scalable platforms with durable economics, and which of the big opportunities (Bara, Brazil, U.S.) will be the largest in the next 5 years? - Alejandro Fuchs (Itaú Corretora de Valores S.A.)

2025Q3: OXXO Brazil has progressed significantly in profitability and is on track to become a 4,000-40,000 store business. - Jose Antonio Fernandez Carbajal(CEO)

Contradiction Point 2

Health Division's Performance and Strategy in Mexico

Contradiction on the Health business's operational status and strategic focus in Mexico, affecting investor perception of divisional strength.

Rodrigo Alcantara (UBS Investment Bank) - Rodrigo Alcantara (UBS Investment Bank)

2025Q4: The company is pragmatic and focused on value. While separating is a possibility... the current structure works well, and there is no plan to merge Coca-Cola FEMSA and Proximity. - Jose Antonio Garza-Laguera(CEO)

How does Coca-Cola FEMSA fit into the new organizational structure, and are there any early comments on the security incidents in Jalisco? - Antonio Hernandez (Actinver Casa de Bolsa, S.A. de C.V.)

2025Q3: In Mexico, the operation is underperforming, with many store closures due to security issues in Sinaloa; a new team is in place to fix it. - Jose Antonio Fernandez Carbajal(CEO)

Contradiction Point 3

Scope and Timeline of 'Fit-for-Purpose' Restructuring

Inconsistent statements regarding the breadth and expected financial impact of the restructuring initiative, creating uncertainty around cost-saving measures.

Thiago Bortoluci (Goldman Sachs Group, Inc.) - Thiago Bortoluci (Goldman Sachs Group, Inc.)

2025Q4: The change in structure created by the CEO's arrival and the merger of divisions provided the opportunity for this deeper restructuring. - Martin Arias Yaniz(CFO) & Jose Antonio Garza-Laguera(CEO)

Regarding the balance between growth and profitability in OXXO Mexico's assortment/value proposition and the efficiency initiatives (~$3B in savings), what are the low-hanging fruits, and why haven't these been implemented previously? - Alvaro Garcia (Banco BTG Pactual S.A.)

2025Q3: The fit-for-purpose initiative focuses on OXXO Mexico's headquarters, reshuffling overhead... A broad FEMSA-wide review will be conducted next year. - Jose Antonio Garza-Laguera(CEO)

Contradiction Point 4

OXXO Mexico Same-Store Sales Performance and Outlook

Contradiction on the primary cause of SSS weakness and the expected recovery timeline, influencing investor expectations for near-term performance.

Thiago Bortoluci (Goldman Sachs Group, Inc., Research Division) - Thiago Bortoluci (Goldman Sachs Group, Inc., Research Division)

2025Q4: The focus is on profitable traffic growth... Same-store sales traffic decline is currently a miss. - Jose Antonio Garza-Laguera(CEO)

How is OXXO Mexico balancing growth and profitability through its assortment/value proposition, and are there any low-hanging fruit opportunities? - Thiago A. Bortoluci (Goldman Sachs)

2025Q2: The weakness is attributed to a loss of competitiveness in convenience categories... July SSS was positive low-single digits. - Martin Felipe Arias Yaniz(CFO)

Contradiction Point 5

U.S. Business Strategy and Timeline for Growth

Inconsistent messaging on the timeline and focus for establishing a winning value proposition in the U.S., affecting strategic clarity.

Héctor Maya López (Scotiabank Global Banking and Markets) - Héctor Maya López (Scotiabank Global Banking and Markets)

2025Q4: The operation is still in a learning phase, refining the value proposition in Texas. The company aims to win share in specific regions before pursuing more aggressive growth. - Jose Antonio Garza-Laguera(CEO)

How have political factors influenced M&A appetite in the U.S. and what is the timeline for refining the U.S. value proposition for aggressive growth? - Hector Maya (Scotiabank)

2025Q1: The goal is to have a winning, unique value proposition within the next two years, based on positive early feedback from West Texas. - Jose Antonio Fernandez Carbajal(CEO)