Alsea, S.A.B. de C.V. (ALSEA) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Alsea's Fourth Quarter and Full Year 2024 Earnings Video Conference. My name is Gerardo Lozoya, Head of Investor Relations and Corporate Affairs. And today, our Chief Executive Officer, Armando Torrado; and our Chief Financial Officer, Federico Rodriguez, will be presenting the results. Before we continue, a friendly reminder that some of our comments today will contain forward-looking statements based on our current view of our business and that future results may differ materially from these statements. Today's call should be considered in conjunction with disclaimers in our earnings release and our most recent Bolsa Mexicana de Valores report. The company is not obligated to update or revise any such forward-looking statements. Please note that unless specified otherwise, the earnings numbers referred to are based on our pre-IFRS 16 standards. I will now hand it over to Armando for his initial remarks. Please go ahead, Armando.

Thank you. Thank you. Good morning, everyone, and thank you, Gerardo, and welcome, welcome to the Alsea's Fourth Quarter and Full Year 2024 Earnings Video Conference. I would first like to thank our team members for their continued dedication to Alsea, the hard work and commitment that has been key to our solid performance this quarter and throughout the year. Today, I will provide an overview of the quarterly and full year performance, covering our financial results, regional highlights and key brand developments, and I will also highlight our progress on digital transformation, ESG initiatives and expansion strategy. To begin with here, here are the key highlights for the 4Q of '24. In the fourth quarter, we reported an 11.1% year-over-year increase in total sales, reaching MXN 21.7 billion or a 12% increase when excluding foreign exchange effects. Same-store sales grew 7.2%. EBITDA increased by 13% in the fourth quarter, reaching MXN 3.6 billion with a margin of 16.4%. It is relevant -- it's relevant to notice the strength of our brands in different regions, which is in conjunction with the optimization of the portfolio with the sale of 54 units of Burger King in Spain, strategic pricing and cost control measures that were effectively and offset the minimum wage increases. We improved in both margin and financial strength. We served almost 34 million digital orders in the quarter, amounting to MXN 7.3 billion, which accounted for 33.5% of our total sales. For the full year, digital sales also reached 33.5% of our total sales, slightly up from 33.4% in 2023, evidencing the success of our digital strategy and growing consumer performance. Regarding our brand performance in the fourth quarter, Alsea -- Starbucks Alsea same-store sales increased by 5.2%. For Starbucks Mexico, same-store sales increased by 3.3%, mainly supported on the counter and delivery channels with strong contributors from the morning daypart. For Starbucks Europe, same-store sales declined 7.4% as we continue working toward recovering -- recover traffic. Performance was also impacted by reduced consumer traffic in key tourist area, particularly in Valencia, which was affected by the recently flooding. And finally, in South America, same-store sales increased by 30.5%. Regarding Domino's Pizza Alsea, we posted a 4.8% increase in same-store sales. In Mexico, Domino's same-store sales increased by 5.1%, driven by effective commercial and operations strategies. In Spain, same-store sales increased 3.5%, reflecting successful commercial strategy such as Croissantizzima, which has been well received by our customers. And in Colombia, Domino's performed well, achieving a 10.5% growth in same-store sales, driven by higher transaction volume. Passing to Burger King Alsea, same-store sales, excluding Argentina, decreased by 1.1%. In Mexico, Burger King reported a same-store sales contraction of 1.1%. However, the continued rollout of digital kiosks and other digital strategies is expected to support future growth. In Chile, same-store sales were flat. Regarding the Full-Service Restaurant segment, we delivered a 3.9% growth in same-store sales. Vips Mexico, which recently turned 60 years anniversary, had a strong 3.8% year-over-year growth in same-store sales, fueled by strong operational performance and expansion on delivery channel and successful [ seasonal ] promotions. In Mexico, Italiannis was the best performer, with a high single-digit growing same-store sales, while the rest of the portfolio was in mid-single-digit range. In Spain, Vips and Ginos reported a solid same-store sales of 3.8% and 3.3%, respectively, [ despite ] the impact of our flooring in Valencia. Our global expansion strategy is focused on capitalizing on the most profitable opportunities across our key markets. During the fourth quarter, we opened 107 new stores, including 74 corporate units and 33 franchisees, especially targeting high-traffic areas. Alongside our expansion in high-potential regions, we are also remodeling existing locations to enhance customer experience and drive growth. Despite macroeconomic challenges, we successfully opened 275 stores in 2024, 205 corporate units and 70 franchisee stores. Looking ahead to 2025, we remain focused on identifying high potential areas to expand our footprint. Regarding our loyalty programs, our digital transformation continues to be to full growth. By the end of the quarter, loyalty sales grow by 33.1%, reaching MXN 5.1 billion, accounting for 25.1 million orders and contributing to 26% of total sales. Additionally, by the end of the fourth quarter, Club By in Spain has surpassed 2.8 million members, while Starbucks reached 2.3 million active users across all Alsea regions. ESG and people. We continue to advance in our ESG initiatives this year, demonstrating our commitment to sustainability and social responsibility. As we reflect on our 2024 achievements, I want to highlight the collaborative efforts across company to shape our sustainable strategy. This work has been essential in establish short-, medium- and long-term goals focused on reducing emissions, enhancing packaging in circularity, ensuring responsible sourcing and certifying suppliers on their sustainable equity. Our commitment to the community and [ later ] development has been strengthened through these initiatives, ensuring that sustainability remains a core component of our operation and strategy. By integrated sustainability into everything we do, we are not only shaping a better future, but also building a strong foundation for long-term success. Additionally, Fundaci n Alsea has a record investment in more than MXN 90 million and serving more than 1.5 million meals in Mexico through 34 soup kitchens, and we continue to ensuring food security for vulnerable communities and support human development through education and employability initiatives. Now I would like to hand it over to Federico Rodriguez. Please, Federico.

Thank you, Armando. Good morning, everyone. The sales increased by 11.1% in the fourth quarter and 6.3% for the full year, driven by solid consumption, preference for the company's brands and effective commercial strategies in Mexico and Spain. Excluding the FX, sales increased 12% for the quarter and 10.9% for the full year. For the fourth quarter, sales in Mexico were up 8.5% to MXN 11.6 billion. In Europe, sales increased by 14.5% to MXN 6.5 billion, while in euro terms sales increased by 0.8%. Finally, South America sales increased by 14.1% to MXN 3.5 billion. For comparable purposes and attending the accounting rules, the operation of the 54 units of Burger King in Spain as well as the sale of these assets has been included as a discontinued operation below EBITDA line. The EBITDA increased by 13% in the fourth quarter and 8.5% for the full year, driven by solid consumption and the preference for the company's brands. Excluding FX, EBITDA increased 11.5% for the quarter and 11% for the full year. In Mexico, the adjusted EBITDA increased by a strong 14.7% to MXN 2.8 billion for the quarter. This growth was driven by lower material costs, increased sales, successful commercial and promotional campaigns and effective expense and labor management. Additionally, the 3.8% growth in same-store sales continued to improve operating leverage. For the full year 2024, adjusted EBITDA increased 18.5% to MXN 10.5 billion with a margin expansion of 180 basis points. In Europe, the adjusted EBITDA decreased by 2.1% to MXN 1 billion for the quarter and by 9.7% in euros, driven by a drop in same-store sales. This decline was primarily due to macroeconomic pressures and the previously mentioned brand boycott. For the full year, adjusted EBITDA decreased 4.4% to MXN 3.3 billion with a margin contraction of 150 basis points. In South America, adjusted EBITDA declined by 17% to MXN 488 million, driven by a reduction in the operating leverage and an increase in the cost of food and other inputs. For the full year, adjusted EBITDA decreased 21.5% to MXN 1.8 billion with a margin contraction of 370 basis points. Net income for the fourth quarter decreased 45.3% year-over-year to MXN 575 million. This was mainly due to a negative noncash effect from currency exchange translation, which increased the cost of our U.S. and euro-denominated debt in Mexican peso terms by the end of the quarter. For the full year 2024, EPS was MXN 1.68; post-IFRS 16 EPS was MXN 0.94. Going to the CapEx. For the full year, we amounted MXN 6.5 billion, slightly exceeding the initial guidance. This was mainly due to the start of construction of the new distribution center in Guadalajara. This investment will strengthen our logistical capabilities and support future regional growth. We allocated 27% to maintenance CapEx, 58% for store openings and remodelings and 16% to other strategic projects. Throughout the year, we prioritized prudent and responsible investment with a clear focus on profitability. Our pre-IFRS 16 gross debt increased by MXN 6.9 billion year-over-year, reaching MXN 33 billion by the end of 2024. This rise was due to the debt incurred to finance the minority shareholder acquisition in Europe, as well as due to the impact of a weaker Mexican pesos on the foreign currency debt at quarter end. At the end of '24, 89% of the debt was long term, with 65% denominated in Mexican pesos and 35% in euros. We remain committed to maintain a strong balance sheet and are confident in comfortably meeting all the covenants and obligations, thanks to our healthy capital structure. At the end of the year, we posted a cash position of MXN 6.5 billion. Turning to financial ratios, the total debt to pre-IFRS 16 EBITDA ratio closed the year at 2.8x, while the net debt-to-EBITDA ratio stood at 2.3x. Before going to the Q&A session, I want to add some details to our other current liabilities line and cash flow. The other current liability lines includes a pending MXN 40 million payment to minority shareholders of the European entity we acquired in 2024. This obligation was already paid a couple of days ago. Therefore, you won't see this effect going forward. Additionally, more than 60% of this account, the other current liability, is explained, as we have [ tell ] in previous communications, of derivative instruments for hedging, recurring and variable compensation of the management and the store managers, et cetera, operating and supply provisions such as water, electricity, Internet, et cetera, legal and labor reserves, among others. I also want to highlight the company's strong cash flow generation. Several times, we have explained the seasonality component of the business, the Christmas season being the relevant driver to generate a positive working capital in the last quarter, while we usually see the opposite during the first half of each year. Despite some one-off impacts like the payment to abroad suppliers in Argentina, and the change in payment conditions to perishable product suppliers in Europe in the first half of 2024, we delivered solid cash flow conversion before dividend payments. Before discussing the 2025 guidance, I want to highlight that, excluding FX, we successfully achieved our revenue and EBITDA growth guidance with a 10.9% and 11% growth in 2024, respectively. Our 2025 guidance reflects the commitment to sustainable growth, operational efficiencies and disciplined capital allocation. We expect a mid-single-digit same-store sales growth; a top line growth in the low teens; between 180 and 220 new store openings, around 60% to 70% of them will be corporate ones; CapEx of around MXN 6 billion. Regarding the EBITDA ratios, pre-IFRS 16 expectations: an EBITDA growth of approximately mid-single-digit; a total debt-to-EBITDA ratio between 2.6x to 2.8x. And post-IFRS 16 expectations: EBITDA growth of roughly mid-single digit, a total debt-to-EBITDA ratio between 3x and 3.2x. These assumptions considered in the guidance are a 2.2% GDP average growth in all the regions, including Mexico, Argentina, the 12 countries where we participate; and an exchange rate of MXN 20.8 per dollar and MXN 22.8 per euro. Despite external challenges, we remain confident in the ability of Alsea to execute the strategy, capitalize on high-potential opportunities and sustain strong results. I will now pass you over to the operator for the Q&A session. Thank you very much.

[Operator Instructions] The first question is from Mr. Alejandro Fuchs from Itau BDA.

Congratulations on the results. Two quick ones from my side on -- in Europe. Looking at same-store sales in Starbucks, it seems that sequentially we're seeing a better performance. I wanted to see if you can walk us through maybe the monthly results on the brand? Was maybe November better than October, December better than November, and how you see that maybe to start the year? That will be the first one. And the second one, very quickly on profitability also in Europe, although the EBITDA at a store level swap margin contraction when you see the EBITDA as Europe as a whole, we saw margin expansion, right, year-over-year. Want to see if you can walk us through maybe what are some of the savings initiatives and efficiency programs that you're seeing in Europe as well?

Alex, thank you very much. Yes, in France, we'll continue working towards recovering from the pre-boycott traffic. And we have seen, of course, the situation improvement, as you can see in the report, with a much -- of course, there is [ each ] comparable base, but the traffic is performing better. As we mentioned, the full recovery, and I've been telling that to you guys, will take a little bit more than 18 to 24 months. But we expected a full year by the -- to recovery by the end of 2026. But -- I mean, we still continue implementing commercials, promotion campaigns, and there's some bundles and some digital things that we are doing. We are, as I said, expected, and we are looking and seeing a gradual recovery in these first 9 weeks of the year. The declining, it's [ only ] a low single digit now. So I think by the end of the year, we will have better numbers in this region that -- in order -- I mean it's -- they are very small, again, in our complete portfolio regarding EBITDA margins, but our recovery, it's in continuing and in good way to -- for the future.

And regarding -- Alex, regarding the EBITDA expansion that you are mentioning, we are working in all the lines, not only in Europe but in the rest of the company were suffering impressions from a minimum wage. Obviously, the depreciation of the FX as you have seen in the guidance. We're working across all these initiatives. We have several plans. And as Armando said, in Europe, the same-store sales in France have started to improve sequentially from the previous quarter. And additionally, the portfolio management that we did with the disincorporation of the 54 units of Burger King in Spain are helping us. So we are fully concentrated in the cash flow generation of the portfolio, with Europa, South America...

Alejandro, this is Gerardo. So if I may add some color on kind of the sequential improvement that we have seen in Europe -- but I would say this is for the complete portfolio of our brands -- I would say December was a pretty strong month, as we mentioned in our opening remarks. If you compare that December versus October, November was definitely higher. So it was again sequentially improving through the quarter. And so far, I would say, in the first, let's say, a couple of months that we that we already passed in 2025, top line and same-store sales continue to be, I would say, robust.

Our next question is from Mr. Ben Theurer from Barclays.

Congrats on a solid finish, let's call it this way. Two questions as well, if I may. So number one, looking at your growth outlook for next year, could you maybe give us a little more nuanced view as it relates to the same-store sales growth? You're expecting mid-single digit on obviously on a consolidated basis, but maybe just high level, what you think of Mexico versus South America versus Europe? That would be my first question. And then the second, if we could just dig a little bit into the CapEx and the new store openings. It feels like at the midpoint, it's about 30% less stores than what we had in 2024 on the openings side. But CapEx is kind of like seen only less than 10% lower than what it was last year. So just wanted to understand what's driving that higher inflation, just given that the store openings are actually down more meaningful on a year-over-year basis? Is it that Guadalajara distribution center, or what's behind it? Just a little bit more on details here as well?

Yes. Sure, Ben. Thank you very much, Ben. Regarding the growth that we are seeing in the top line for the next year, as you have seen in the guidance, we have a mid-single-digit increase in the different countries. I would say it's pretty similar for the different regions. Obviously, we have a sequential improvement in France. It is not going to be so relevant as we wish. But I would say that, for Mexico and the rest of the regions, it should be on a mid-single to high single digit depending on the region. It's pretty similar. And additionally, the 3% to 4%, depending on the region of the new openings, obviously, we have considered all the different things. And additionally, you should consider the FX [ depreciation ] that we have into the top line because of the euros that we convert to pesos. It's really different. It's an increase of around 2, 2.5 pesos from an average perspective from 2024. That would be the guidance for top line in 2025. And regarding the CapEx decreasing regarding new openings, yes, we are not so interested in new openings, especially because, as we have said, obviously we do not have, at this point, the 100% of the transaction that we had in France 2 years ago. So we are delaying a little bit the pipeline for this region. We want to grow, yes, but on a profitable way. And additionally, the CapEx is not having a relevant decrease because of the service in Guadalajara, the distribution center, the new distribution center. The total CapEx for this facility is around MXN 750 million. We spent around MXN 200 million last year, and this year will be the difference to accomplish with this gap. Do you want to add some...

No, just -- I mean we've been very rationalized and just very productive in the CapEx allocation, and we still do it. I mean, the budget that we did last year, we only covered 90% or 89% by the end of the year. So we're going to still do the same this year. Just seeing where we need to spend, how we need to spend, remodels, [ openings ] and every -- and as Federico says, we are using more [indiscernible], especially in Benelux and -- where to open also in South America. So I think that's good news, because the pipeline in the store is robust, but full of very profitable stores. And then just to mention on the same-store sales, the budget and the projections that we have is positive traffic in all regions. It's not leveraged by any chance just in the ticket average. All the regions and all the brands like last year was the same, they are positive in traffic.

And Ben, regarding top line, I have to add that we are focusing on defending traffic. That's a critical part of the same-store sales. Obviously, we have taken inflation. This is 0. We are not interested to grow through ticket, that's artificial, but we want to increase the traffic in each one of the stores, each one of the regions, each one of the brands, I would say, -- that's a challenge, and that's the reason we are not planning to trespass fully -- in a full way the inflation that we have in the raw materials.

Our next question is from Mr. Tiago Harduim from Citi.

I would like to explore two points here. So we already discussed a little bit the same-store sales for the guidance. But maybe if we can get into a little bit more of detail into the store openings. If I'm not mistaken, it was 180 to 220. So just wondering whatever new information you could give us on brands, geographies, just so we could understand the focus and opportunities on the store openings. And the second point I would like to address here is to hear a bit from you on the Domino's brand. We saw an overall pretty solid same-store sales, right? Mexico in the 5.1% and Colombia's extraordinary 10.5%. So just wondering how is the competition going? How is it for the different geographies, and again, whatever opportunities you see here? And yes, that's it from my side.

Tiago, regarding the openings for 2025, 80% of the openings will be based on Starbucks and Domino's Pizza. And the main regions where we are allocating these new openings, Mexico and Europe, with around 80% to 85% of the pipeline. The remaining stores will be casual dining in Spain and Mexico, and barely around 5 to 7 new stores in South America.

Yes, thanks for mention that Domino's Pizza, I think, is super important. We did an extraordinarily well year, I will say, and just a great quarter. Why was that? In Spain, we launched a new product innovation that is Croissantizzima. We had record weeks all year -- all the 6 - or the 13 weeks of the quarter. Just making -- it's a little bit hard to innovate in this business, but that one is just a great product that make the difference. And that was a little bit of growth that we have in Spain. Also, I would like to say the carryout strategy that we've been focusing the last 18 months here, competing with our competitors that have carried out promotions, are also being very successful in all the regions. Another thing, of course, the digital transformation, we invest in our own application now, and the conversion rate on that application, it's been in double -- high double digits. So that is transforming well. We are also doing some -- the tender and the digital -- the channel, some Domino's are also been very successful. So I think it's not going to be the case this year. We are doing well in that in that brand. Of course, that one in Mexico is affected a little bit by the exchange rate because our cost of goods is a little bit more aligned, or [ the cargado ], to cost. But I think that all overall, the business unit had a very successful year, and hopefully this year will be the same.

Our next question is from Mr. Antonio Hernandez from Actinver.

Congrats on your results. Could you please elaborate a little bit more on the trend that you're seeing so far during the year now in Mexico? I mean -- thanks for the color on Europe, but any more color that you could provide on Mexico? And also wanted to know if part of your guidance is based on a better second half versus the first half given the different comps and also calendar effect in the first half?

Well, Antonio, we saw some resiliency of the consumer in the last months of the year, as Gerardo and Armando said. It was fantastic last quarter of the year, not only because of the strong seasonality of December, but all the brands have a positive trend talking around the same-store sales but, more important, around traffic. It was amazing, with the exception of one brand. The rest of the brands in Mexico had a positive behavior, not only in Mexico, but in the rest of the region, South America and Europe, too. And obviously, as I said before regarding the guidance for 2025, we are building budget guidance with 2% of GDP. Obviously, the private consumption, it is not going to be easy, if it is going to be positive, we hope. But additionally, we think that we have -- we must have a mid-single-digit growth in all the different geographies. I would say that the behavior in first half and the second half is really similar, talking around the guidance. So it is not going to be really different from our perspective.

Our next question is from Mr. [ Declan Hanlon ] from Santander. Our next question is from Ms. Renata Cabral from Citibank.

It's actually a follow-up about the quarter in Mexico. Can you give us a little bit of trends what happened, especially in Starbucks, which is a really very important brand for you, in terms of pricing and traffic for the quarter?

Renata, in the last quarter, we had a positive same-store sales for the brand in Mexico around mid-single digit, especially [indiscernible] with really related with the message for 2025. We're having a positive trend regarding traffic. We are not increasing because of the ticket inflation. We think that with the current economic environment and the volatility, the worst thing that we can do in Alsea, not only in Mexico or for Starbucks, but for the rest of the portfolio, is have higher prices for the customer. So we are being really positive around the comparable store base and additionally the openings that we are having in Mexico, and this message has been repeated more than once during the last year. We're having paybacks better than the stores than we opened 22 years ago, when we set the first store in Paseo de la Reforma in Mexico. So we are having returns on investment below 2 years. So we are pretty happy. We will increase the footprint and increase the penetration for Starbucks in Mexico, but additionally, I want to highlight what's happened with the Casual Dining in Mexico and Spain during the whole year, we have a figure from high to -- from mid- to high single digit regarding same-store sales. More than 60% of this figure was built with traffic. And we want to highlight, because a lot of time we will see several questions around Starbucks or Domino's, but the Casual Dining portfolio is a relevant leg of the strategy of Alsea for the future, and we will continue increasing the footprint, as we will do with the Starbucks in Mexico and the rest of the geographies. Thank you very much.

Federico, that's great color. If you'll allow me, just a very quick second question regarding coffee prices. Here in Brazil, we are a great exporter, we are talking a lot about that, the increase in prices. If you can give a little bit of color what you're expecting for the year? And how is the contracts you have qualitatively terms with Starbucks in terms of purchase of the coffee go into Mexico help us a lot to understand the main dynamics?

Okay. This answer regarding coffee, as we have established before, obviously we saw the trends that has the market regarding coffee. We have seen several increases of about 30% to 100% depending on the day. As we acquire the coffee from Starbucks, the parent company, we never have a significant increase or a significant decrease. The main part of the FX that we are putting in place into the guidance is related with the FX that we are having. From a MXN 17.5 per dollar that we had as an average in 2024, we are going to MXN 20.8 as we said in the guidance of FX, and that's the depreciation that we are reflecting into the guidance. So I would say that even when we are aware of the increases in the coffee and we have a strategy for the pricing for the final customer, we are more worried around the FX, because obviously MXN 1 is around 30 basis points on the final composition mix of the EBITDA, both for 2025. And with the futures that we are seeing at the market, it's around 100 basis points.

And just one other to be clear, since this thing started, I mean, the higher of the prices and the futures of the prices of the coffee, we're still talking, of course, with our partner in Seattle regarding what other options that we have in case there's any tariffs or whatever around [indiscernible], and there is a lot of options in the table, as well as of, as we know, we use Mexican coffee, most than what is roasted in the U.S. and come back to Mexico. That is not a taxable product. So we are stay there, but we are looking at other options in Asia and of course Colombia that is -- we are sourcing a great coffee there with a good partner of Starbucks. And we are working there, and that's something that whether we are on top in -- so we can avoid any inflation and any increase of the price that is the strategy for this year in order to continue to build traffic in our brands.

Our next question is from Mr. lvaro Garc a from BTG Pactual.

I have three questions. I'll go one by one. On the guidance on margins specifically, I was wondering if you can maybe give a regional breakout. Given all of your comments thus far on the call, it seems like most of the pressure will be concentrated in Mexico given the FX dynamic, but I was wondering if you can give a bit more color on -- and we do have easier comps, right, in Europe and Lat Am. So any color on sort of the regional breakout on the margin pressure specifically embedded in your guidance would be helpful?

Yes, sure, lvaro. Well, I would say that the pressure is -- the pressure that was often for the 2025 is set in Mexico. As I established with Renata's questions, a depreciation of MXN 1 impact the gross margin of approximately 30 basis points. So this impact could be 100 basis points at the gross margin level. This obviously is without doing nothing. So we are working on efficiency strategies as Armando said, with different suppliers, a strategy to have a stockpile of the different key products like the cheese or the coffee, so we can mitigate part of these impacts. In Europe, we should see a sequential improvement in the margins in the whole year. And I would say a pretty similar thing for South America. That was the first question.

Yes. Great. That was the first one. The second one is on higher D&A also for you, Federico, we saw materially higher depreciation. I was wondering if you have a little bit more color on that.

Yes, sure. Regarding the variations and the peaks that you are seeing in the regional components of the D&A post IFRS 16, we have standardized the criteria of the different leasing contracts. The IFRS 16 accounting law is really complex. And obviously, we signed a different lease contracts for cash aligning, [indiscernible], each region on different ways. It is not the same in Mexico than the landlords that we have in Europe, et cetera. So we are standardizing this criteria. This does not imply -- and I want to highlight this, lvaro, for the rest of the investor community -- this is not implying an increase in the rental expenses, both in the way we account the leases from an IFRS 16 perspective. Obviously we manage the business, and we have established several occasions on a pre-IFRS 16 situation, because that's the way we control the cash flow. We sign with a mandatory term of 5 years, not more. So it is really easy to go out without paying any kind of penalty when we want to exit from some of the -- on the sites that we are exploring right now.

So most of the impact was a shift in mix [ towards ] more IFRS 16...

That's it. Yes. It's totally an accounting rule, and we commented this with the auditor, obviously, because it was going to make a lot of noise, but the rental expense is the same. When you see from a cash flow perspective, the conditions, the terms, we have 60% of the rental or the leases with a fixed component and the remaining 40%, especially shopping malls, airports, et cetera, on a variable basis.

Yes. And then my last question is for Armando on Christian. Christian Uri, the new appointment of CEO. Your mandate, obviously, was a post-pandemic mandate and sort of rightsize the ship and did a great job and -- it was great to be a part of this time. But what do you think Christian's mandate might look like? Is it going to be the same? Or do you think -- do you expect a shift in his mandate or a change in mandate with him as CEO?

Thank you for your question. I think exactly we are in a [ major ] program, as I told you guys, and I said to you guys in January when I had the privilege to see you. It's going to be a major program of 4, 5 months. I mean, he's been in the company for the last 20-something years, so he's specialized, he knows all the brands, he's been in the 2 regions out of the 3. So he knows. I think our strategy that I have given to the market regarding the pillars strategy that we are doing now, how we are focusing in pillars, in economic units, I mean, that won't change. I mean the Board is the one with him to set the strategy for the future, that we just had the Board yesterday and last week we got together. And the strategy regarding our pillars are the same the talent of attraction in this company, retention, talent, just be the best employer of the business will be the same. Operational excellence since I arrived. This -- this company is about operating well restaurants, great service, great product, great image, and that will create people to come back. Of course, Alvaro, this digital transformations in I arrived, I was very focused on changing all the POS of the company, the systems, technology, and now we are doing some AI. So there's a lot of things right now in the digital transformation in Burger King with [indiscernible] that has to be a continuity. And then I will say, get some return of investment on that one. I mean the portfolio growth, you've been seeing that our portfolio growth is just been very focused on the brands that are giving us the best results. A strong balance sheet, the same. We've been focused on the CapEx. We're trying to -- going to pay debt last year, given some dividends. And then -- so I think the balance sheet, always, of course, innovating, being the -- been a great partner in sustainability with our community. So I think, yes, I mean -- and the synergy and critical mass of this company to create more value will still the same. So I think the plan for Christian, myself, the Board, is very clear, and we're going to attach to that plan.

Our next question is from Mr. [ Ruy Mendes ] from JPMorgan.

I was wondering, after seeing the divestment of Burger King and when you think about and you have said about focusing on the most profitable brands, is there anything left that can be sold in your portfolio? That's the first question. And second, I would like to understand how is the stand-alone Starbucks strategy going in Mexico? You have been mentioning that, going forward, a lot more of the new -- of the new stores will be more stand-alone, probably in the highways, a little bit different from the footprint that we know here in Mexico. Just want to understand where we're at in that Starbucks strategy?

Thank you, [ Ruy ]. Regarding the first question with the disincorporation of Burger King in Spain, the first reason to disincorporate Burger King because we were not able to grow with this brand in Spain because there are some other players that hold the MFA rights, and they were not permitting Alsea to have more units because it was really a cash cow into that territory, and that was the first reason to disincorporate Burger King. Additionally, we are on a daily basis and looking for new opportunities to unlock value for the different investors. So yes, -- the answer is yes. We are analyzing the -- maybe the portfolio management to disincorporate some of their business units. At this point, they are not relevant into the whole [ pie ] composition of Alsea talking around revenues and EBITDA. And the message that we want to trust us, especially because we hear you of the investor community, is that the business is too complex. So we want to simplify not only for you, but for the management. And we want to give the right voice to the major concepts like Starbucks, Domino's Pizza and the Casual Dining strategy in Mexico and in Spain. And the second...

Regarding the openings, out of the 180 to 220 that we gave in the guidance, of course, that's probably the half only 100 stores that will be opened by our Starbucks pillar. Of those ones, 90% are corporate stores and the other ones are sub-franchisees and licenses that are going to be in Europe. And out of 90 stores, more or less, that we're going to open in Mexico, especially where we have a little bit target of 50 to 70 stores. There is where we have some drive-through stand-alones that are going to be open. That takes a little more time, but all those stores, as Federico says, the good news here is the stores that we open now and that we opened in the last 24 months and the ones that we have in the budget for next year, all of them the value, the creation, the return of investment is still higher than the first store that we opened, and on the unit economics, the way we are, and enforcing the rent negotiation with the landlords, probably sometimes they pay for the shell. And then the investment that we are putting with the green stores that we are executing everything is giving us a good return. Drive-thrus are working well, but the rest of the stores also are working well. So I think the portfolio for this year regarding not only Starbucks, I would say, but Casual Dining division and all the Domino's stores, are they are already in place. We already have practically that the pipeline is set and ready, someone in construction. So I think there's going to be a good -- there's going to be a good quality pipeline, and to -- for good success in our store openings.

Our next question is from Ms. Julia Rizzo from Morgan Stanley.

Really quick, can you give us a little bit more color on the, I think, the non-store expenses, which I think was quite surprising that we saw some reduction compared to previous year, a very good level, if that is recurring or expectations for 2025? And -- I will do a follow-up later.

Sure. Thank you, Julia. Regarding -- I saw the paper regarding non-store expenses question. Obviously, when you see the operating income and the EBITDA and the adjusted EBITDA, which is the EBITDA for all the store level EBITDA that we have, which still are losing 2 components, the preopening expenses that are totally related with the new openings that we have, and in the last year, obviously, we have a completely different pipeline than in 2023. Maybe that's a reason that you are seeing a saving, an artificial saving. But obviously, we still have some different efficiencies in the G&A part. And obviously, as you remember, we have into the other current liabilities, some of the provisions to pay the long-term incentive for the management. There is part of the cancellation that we are performing, like all the years that we are doing because we are not achieving the target set by the major CEO and that's the reason both. I would say that the major deviation is related with the preopening expenses and the different pipeline that we had in the last quarter from 2023.

Can you give the growth part? What was the preopening expenses on the last part...

Preopening. Yes, for example, training expenses, all the rental expenses that you have previously to open on a [ formal weighted ] store -- sorry, some part of the construction of the building of the electricity expenses to set -- to do a fine-tuning of the stores, those are the preopening expenses. And you have this into the different geographies. There's a gap. It is not only related with SG&A between the EBITDA for whole and the operating income. Okay.

Okay. Okay. And a follow-up on Mexico, the margins. The margins were really impressive. The resilience, especially, even the context of wages and also the commodity price going up. I would like to understand what is your view going forward if that '24 or high '23 rate is sustainable or if perhaps something has to do also with the mix [indiscernible].

Thanks for that, because I think it was an impressive number. We saw it since the beginning in the last weeks of November, and we just prepared the whole organization in staffing and operations in order to achieve that. Yes, the casual business division was an impressive number, but also continuing with Domino's. And yes, Starbucks was not the exception. Yes, we're going to see -- we're going to observe some normalization in our growth rate. [indiscernible]

I think I lost you. Sorry, can you repeat?

No, no, I can repeat. Of course, we had a great November is in -- end of November, we saw the trends. We were very prepared. Of course we did a lot of things not only compound the growth, we double down in some strategies, commercial strategy, in order to fulfill better the restaurants. So yes, Casual Dining was strong. Domino's Pizza was very strong, and Starbucks was not the exception. It was very strong. We did grow well in traffic the last 4, 6 weeks of the year. Yes, we will observe some normalization in our growth rate. We are still at a little bit of a less discompression in the market. But I think we've been experiencing this. We do have tools of digital in Starbucks Rewards, and we have other things are coming, trying to get all the opportunities that we can in order to fulfill the -- account for better traffic in all stores and in all the regions. And also we not only see in Mexico, I think I'm talking here globally. We just had a good conversation with all my 200 team members just 1 hour ago and seeing we have to capitalize every opportunity. And in this business, all the time, there's opportunity in all the stores that you go of attending one more client or selling a little bit more to one. So I think I feel confident of the guide, and I feel confident that we're going to have a tough year, but we've always been -- this has always been challenge, and I think we will make it happen.

And Julia, in the long-term plan, obviously 2025, we -- there's an effect, it is not only in ourself, but in the rest of the industry. We have to reframe what we want to do. And as I said before, and we have established, we want to have more traffic in each one of the stores. Armando have outlined that. And obviously, we will return the margins that we had in the last quarter of 2024. Of course, they are sustainable in the long term. And this kind of volatility, somebody could tell me what is going to be the exchange rate for the rest of the year, that would be great, but nobody know. But of course we have a strategy, and we cannot be only worried because of the short term.

But for the '24, the really good margins of the fourth quarter, is the -- is something that you can give us a little bit more color on how you are going to -- yes, to offset the pressures on wages and -- or [indiscernible] -- maybe that's related with the mix with, I don't know, how Casual Dining margins compare to the rest of the portfolio with something [indiscernible]

These are the basics of the business. We have discussed, regarding minimum wage increases, we have offset this kind of impacts during the last 6 years, because it did not occur only in 2024. We have had a 20% increase during the last 6 years in this country. What are the tools to offset this increase? The increase in productivity. What does the productivity means, transactions per labor hour. We measure all these kind of initiatives the right mix of promotions. Maybe we have sometimes promos on delivery, then we have 20/20 promotions, the implementation of bundles, obviously, trying to understand our customer. The EBITDA margins that we have in the Casual Dining business are pretty similar to those we have in the Starbucks or Domino's business. In fact, in some of the stores are better because a lot of these brands are corporate ones, so we are not paying royalty to the franchise stores. But as I said, we have 2 major components: the cost of food, you know the tactics and you know what is happening in '25 because I have just explained, and the productivity. That is under the control of Alsea. For example, in France, we know how to open a store with [ 2 varies ] at 8:00 in the morning. Here, we have a different composition, different transactions. We have 6. So we have a huge gap between what is happening in Mexico or in South America to what is happening in Europe and some other geographies where the productivity have to be controlled in a different manner. So I think we have the tools, and that's the reason that we achieved those margins in the last quarter. There are not something -- there is nothing extraordinary or any provision cancellation into the figures that we had in the last quarter to be really concrete with your question. And we had a terrific free cash flow generation. But we can do a follow-up.

[Operator Instructions] Our next question is from Mr. [ Enrique Sojo ] from [ Fundamenta ].

I've just got one question. Given the current implied valuation, how has your perspective or opinion changed regarding share repurchases and intensifying what is already currently being done?

I think, well, we've been somewhat active. As you have seen in the past, I would say, couple of months. Now with the price where it is, the valuation, we follow, I would say, the EBIT to EBITDA multiples very closely. So I would say at these levels, we will continue to be active, Enrique. As you know, the plan for the company is to cancel these shares in the coming, let's say, months, in the next shareholders' meeting. So that is also something positive to the investment thesis for Alsea, that we're expecting, I would say, dividends as in the past, plus some of this cancellation of shares. So I would say the return to shareholders would be a little bit higher. So you should expect us to continue to be active on the share buyback, Enrique, again, as we continue to see value, let's say, trapped in the stock price.

That was the last question. I will now hand over to Mr. Armando Torrado for final comments.

Well, so thank you very much for joining our quarterly video conference. And like always, you have any further questions, please contact our Investor Relations team, and thanks. Have a great day. Thank you very much.

Thank you very much.

Thank you.

Alsea would like to thank you for participating in today's video conference. You may now disconnect.