Good morning, everyone. My name is Leonard and I will be your conference operator. Welcome to Tiendas Tres B First Quarter 2025 Conference Call. All lines have been placed on mute to prevent any background noise. There will be a question-and-answer session after the speakers' remarks, and instructions will be given at that time. Please ensure that your full name is displayed correctly on Zoom. And if not, please take a moment to edit your display name. Also, please note this call is for investors and analysts only. Questions from the media will not be taken nor should the call be reported on. Any forward-looking statements made during this conference call are based on information that is currently available to us. Today, we're joined by Tiendas Tres B's Chairman and Chief Executive Officer, Anthony Hatoum; and Chief Financial Officer, Eduardo Pizzuto. I will now turn the call over to Anthony. Please go ahead.

Good morning, everyone and thank you for joining Tiendas Tres B's first quarter 2025 earnings call. I will begin with a review of our operating results for the quarter and will be followed by our CFO, Eduardo Pizzuto, who will provide an overview of our financial performance. We will conclude with a Q&A session to answer any questions you may have. We are very pleased with the results of our first quarter, especially in the context of this market environment. Our consistent execution and our attractive value proposition have allowed us to accelerate growth and increase market share gains. We opened 117 net new stores for a total of 2,889 stores. Same store sales grew by 13.5%. Total revenues increased by 35% to MXN17 billion. EBITDA increased by over 12% to reach MXN705 million. Cash flow generated by operating activities reached MXN1.1 billion, a 49% increase year-over-year. We ended with a net cash position of approximately MXN1.6 billion. In addition, we have $150 million of cash. Regarding our operational performance in terms of store openings, we opened 117 net new stores this quarter compared to 94 stores for the first quarter of 2024. We are accelerating our store openings. If we look at our revenues and same store sales, we continue to be one of the fastest-growing retailers globally. Total revenues reached MXN17.1 billion, an increase of 35.1% year-over-year. Our same store sales growth of 13.5% is driven by our value proposition to customers, which continues to improve. When comparing our same store sales with ANTAD, the gap is notable and increasing. I will now pass the microphone to Eduardo.

Thank you, Anthony. Good morning, everyone. Sales expenses as a percentage of revenue slightly increased from 10.2% to 10.3% due to our accelerating store opening pace. As Anthony just mentioned, we increased our pace by roughly 100 stores in the last 12 months. With regard to operating leverage at the unit level, we continue to see a decreasing trend in cost as a percentage of sales. However, this is not apparent at the consolidated level as we continue to accelerate the pace of store openings. It's important to note that we pay the full cost of new stores in regions before we see the full revenues. Admin expenses as a percentage of revenue increased by 60 basis points from 3.5% to 4.1%, including an incremental MXN84 million on noncash share-based payments, roughly 50 basis points. We're also investing for current and future growth acceleration, hiring key personnel for the 4 new regions we're opening in 2025, and increasing talent density at headquarters, particularly in IT, purchasing, controls, and legal. We posted robust growth of 12.7% in our EBITDA, which reached MXN705 million. Our margin decreased from 4.9% to 4.1% due to the increase in investments to support our accelerating growth. Our business model generates significant negative working capital, leading us to generate significant cash flows from changes in negative working capital. For example, in March of '24, our negative working capital was MXN4.8 billion compared to MXN6.5 billion in March of '25. This is roughly 10.5% of total revenue. I'd also like to highlight that our accelerating growth continues to be self-funded. I will now turn the call back over to Anthony for final remarks.

Ours is a robust business model that is very resilient. Our value proposition continues to increase, and our competitive advantages are real and increasing. As a result, we will see continued growth and gain in market share. We will keep increasing our investments for future growth, which has always been our approach and is a proven strategy. We believe that this will pay off in increasing growth rates and the creation of value for our shareholders. We continue to do the same, just faster and better. We can now start our Q&A session. So please go ahead, operator.

Our first question comes from the line of Bob Ford. Please state your company and ask your question.

This is Bob Ford from Bank of America Merrill Lynch. How should we think about your investments in talent, both in terms of the magnitude of the expense and the capabilities and functionality that these additions bring about? With respect to the new distribution centers you're planning for this year, how should we think about the split between increased density in existing trade areas versus entry into new regional markets?

Bob, thanks for the question. Any investment we make is made with a simple criterion in mind: what's the return on this investment. So when we increase talent density and it results in an increase in expenses, as we have observed this quarter, it's definitely because we are planning for our future growth. It's been our strategy to invest for future growth, and we strongly believe that an increase in talent density is one of the key competitive advantages and one of the key drivers to create opportunities and drive growth going forward. The second question was about the density of distribution centers. We adopt a standard approach to opening distribution centers. We prefer them to be all operating in exactly the same way, which makes it easier for management because they're all in equal regions. We decide where to open new distribution centers based on the locations of our stores. If they happen to be near each other, that's logical because we aim to reduce distances between distribution centers and their stores to increase logistics efficiency. That's the only criterion that matters: how efficient are you logistically? If you're more efficient, you're making the right decision.

I believe you're under-stored in your core market, where you started in Mexico City. I think the opportunity to drive greater density is massive, and because there's familiarity with the brand, your stores are likely to mature faster.

Absolutely. You're correct that there is still significant runway in the areas where we're operating. Our strategy has been to spread out while also increasing density in those areas. I would be hard-pressed to tell you that we've saturated any area. There is still space to open stores in regions where we currently operate. You're right that in the areas we're established, we have a tremendous leverage because our brand is well-known, and people who could be new customers have probably shopped with us before. This leads to improved performance when we open new stores.

Regarding the systems investments you mentioned in the press release, can you elaborate on some expected capabilities and the transition period you outlined, as well as the path to increased functionality and new products and services?

Absolutely, Bob. When evaluating tech investments, we assess the return on investing in technology. I break it down into two parts. One, the new generation of tech is significantly more efficient than the current technology that powers our existing systems. While our current tech works well and is scalable, leveraging more efficient systems is beneficial. There may be some overlap between old and new tech during the transition, which could lead to increased expenses temporarily. However, the new tech platform comes with capabilities that the old one doesn't offer, especially concerning big data. Our business generates significant amounts of data, and the efficiency and usefulness of this data with new technology far surpass the old. AI is a key component; our old tech limits our ability to utilize AI with our databases, but with the new tech, we can fully implement it.

Question comes from the line of Alvaro Garcia. Please state your company name and ask your question.

Alvaro Garcia from BTG Pactual. My first question is for Eduardo on sales expenses. I was wondering if you could comment on the timing of certain growth investments, DCs, and new stores throughout the year and the impact on Q1 specifically. You mentioned in the prepared remarks that we pay for the full cost of the store and DC before setting up shops. Could you clarify how we should think about sales expenses as the primary driver of leverage on the margin moving forward?

Absolutely. The timing of this investment is due to our pace of store openings. We're increasing from 400 to 500 stores. This means we're paying off the initial investments for the stores, and revenues will come afterwards. This pattern has been consistent as we've grown. Expect this trend to continue this year as well due to our growth rate increase. In terms of our distribution centers, the same logic applies. We open stores first, and then our regions will become more efficient once the DCs are implemented, opening within the next 3 to 6 months. Once they're operational, we'll start seeing benefits primarily in logistics expense. On the unit side, you mentioned leverage on sales expenses. At the unit level, we continue to see positive leverage, though it may not be apparent on a consolidated basis. If you look at older store vintages, we are still seeing leverage there. The new stores we're opening are on track with our targets for unit economics.

My second question is on share-based expenses going forward. We saw a significant uptick in the first quarter. Is this a new normal or just a bulkier quarter? Any comments on that line item would be helpful.

Yes, we should consider the current figure for the remainder of the year. It's about 1.2% of sales, related to options and RSUs granted at the end of last year. So, this is not a one-time bump in Q1; expect it to continue throughout the year.

Just a reminder, share-based compensation has been impactful for us. It has driven results and fostered the entrepreneurial spirit that exists at Tres B today. It has protected us from losing talent, and we'll continue this because it offers an excellent return on investment.

Our next question comes from the line of Joseph Giordano. Please state your company name and ask your question.

This is Joe Giordano from JPMorgan. I have three short questions. First, the gross margin has been a little volatile, and I know the company's focus is to maximize operating leverage. Can you provide insight into the dynamics behind the gross margin for Q1, particularly with an increased penetration of private label products? Also, are you seeing any aggressive pricing approaches from competitors? Regarding expenses, last year, you effectively offset minimum wage increases. How do you view 2025 regarding your ability to offset expense pressures aside from growing sales, such as adjustments in headcount?

I'll address your questions in two parts: gross margin and personnel expenses. On gross margin, nothing has changed. It's the same dynamic driven by scaling, where we take advantage of the benefits of scale for both commercial and private label products, which will lead to a steady improvement over time. While there may be changes in volatility from quarter to quarter, this is normal given how we manage pricing on a product-by-product basis. We have not seen any pressure related to dropping prices lately since our pricing strategy continues to optimize for the volume of products sold and total revenue generated. On the personnel expenses side, we need to consider two things: the increase in wages due to our accelerated growth and the need for training staff ahead of store openings. Although you may see these expenses rise, they are highly diluted by our growth in sales.

Our next question comes from the line of Alejandro Fuchs. Please state your company name and ask your question.

I have two quick questions. Could you provide some insights on same store sales breakdown between traffic and ticket during the quarter? Additionally, regarding free cash flow generation, the quarter was strong. Do you expect this trend to continue, or will cash usage increase due to more openings throughout the year?

For the first part, we're seeing solid growth in both tickets and ticket size, so I'd say it's about 50/50. Regarding our cash flow generation abilities, I'll let Eduardo respond.

This is about negative working capital and changes within it. We need to assess this over the longer term rather than on a quarter-to-quarter basis. Yes, we generated significant cash this quarter due to consistent fundamentals in key metrics. Payables and inventories remain stable, and while inventories slightly decreased leading to cash generation, our cash balances will consistently generate from CapEx for new stores and continued growth. Some quarters will be higher, others lower, but overall, we expect a continuing upward trend, and we remain self-funded as we've been for many years.

Our next question comes from the line of Ulises Argote. Please state your company name and ask your question.

This is Ulises Argote from Santander. I wanted to get your thoughts on potential impacts and how you could offset pressure from operating stores under the gradual reduction of the working week in Mexico that was announced recently. I also have another follow-up question.

As we've explained, even with the gradual reduction, we have some flexibility in staffing and can adjust schedules to comply. We will monitor how this impacts labor costs but anticipate that as we increase sales, costs could stabilize and decrease as a percentage of sales.

For my follow-up, what is the strategy surrounding the YEMA brand? Should we expect some rollout of standalone YEMA stores on top of the current ones, or will this serve more as a differentiator in some stores?

YEMA has been a successful concept and we plan to roll it out, albeit at a different pace than our Tiendas Tres B stores.

Our next question comes from the line of Andrew Ruben. Please state your company name and ask your question.

Andrew Ruben at Morgan Stanley. I wanted to ask about your comp spread versus ANTAD, which has widened significantly. What changed between Q4 and the favorable results seen in Q1?

Our clients are choosing us because we offer a better value proposition. We are continuously improving our product portfolio and expanding our offerings. This explains why we see our same store sales at a level higher than what ANTAD is experiencing. We're also focused on essential goods that consumers regularly buy, making us less affected in tight budgets.

Our next question comes from the line of Pablo Vaz. Please state your company name and ask your question.

This is Pablo Vaz from Sumit Management. Looking back to fiscal year 2024, there was a slight uptick in your cash conversion cycle, partially due to a decrease in days payable. Do you expect this trend to continue and how has your relationship with suppliers evolved?

I think payables and inventories will remain stable in the foreseeable future. Small variations may arise quarter-to-quarter, but I wouldn't put too much weight on them. Our relationship with suppliers has always been strong and continues to improve as we scale. We do not expect to extract better terms from our suppliers at this time.

Our next question comes from the line of Jim Luther. Please state your company name and ask your question.

You mentioned you're operating in a challenging consumer environment. Can you expand on what you mean by that and expected trends? If Mexico doesn't secure a trade agreement with the U.S. soon, will that impact domestic consumption from your perspective?

Consumers in Mexico are under pressure and have reduced their spending. Still, we haven't seen an impact on our sales. What we offer is a high value proposition that benefits from those looking to save money. We also provide essential goods, which consumers are less likely to cut from their budgets. Regarding trade relations, we've evaluated various scenarios and tend to come out positively in all. We have a business model resilient to inflation, and economic downturns tend to attract new customers that remain even after conditions improve.

Our next question comes from the line of Héctor Maya. Please state your company and ask your question.

Héctor Maya from Scotiabank. How have your discussions with suppliers evolved in light of the current consumer and tariff context? Are there any new efficiency initiatives being discussed?

We work closely with our suppliers on long-term plans, and our discussions are well ahead of consumer patterns. We have proactively planned efficiencies with our suppliers, and the allocation of savings has been predetermined. This trust allows us to efficiently operate and seek win-win solutions together.

What is the communication like with your commercial brand suppliers?

Our relationships with commercial brand suppliers are very strong, but the planning with them isn't as long-term as with our private label suppliers.

Our next question comes from the line of Javier Perez. Please state your company name and ask your question.

Congrats on the strong execution and expansion. I wanted to ask about stock-based compensation, which reached nearly 8% of gross profit in Q1. How should we view this over the long term, particularly in a low-margin retail environment?

We firmly believe that stock-based compensation is a high-return investment and will continue to use it. This approach has contributed to our substantial growth rates and provides strong benefits in maintaining high growth and efficiency. While stock-based compensation is a noncash expense, it’s critical to our success and shouldn't be a double-counting concern in modeling. Regarding dilution, we have published an illustrative example on our website showing an expectation of around 160 million shares, all of which have already been accounted for.

Concerning dilution, please refer to the illustrative example we provided, as it highlights expected future dilution clearly.

Regarding my stake in the secondary offering, it's a small percentage of my total ownership. The primary reason for selling was to handle fiscal obligations.

That's all the time we have for the Q&A session. I would like to hand the call back to Anthony for his closing remarks.

Our business model is resilient and robust. Our value proposition continues to increase, and our competitive advantages are tangible and growing. We expect ongoing growth and market share gains. We will keep increasing investments in future growth, which has been our strategy and is a proven approach. We believe this will lead to greater growth rates and value creation for our shareholders. Thank you to our investors and analysts for your ongoing support and confidence in our strategy. If you have any questions, please feel free to reach out to Eduardo and me. Thank you again.

Thank you. That concludes today's call. You may now disconnect.