BBB Foods Inc. ($TBBB)

Good morning, everyone. My name is Sophia, and I will be your conference operator. Welcome to Tiendas 3B First Quarter 2026 Conference Call. [Operator Instructions] Also, please note that 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 are joined by Tiendas 3B 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, and thank you for joining us today. 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 the questions you may have. We delivered another quarter of excellent performance and started the year with a strong momentum. Let me briefly highlight a few key results from the quarter. We opened 123 net new stores in this quarter for a total of 3,469 stores, bringing the LTM net store openings to 580. As of the end of this quarter, we had 20 distribution centers up and running. Our same-store sales growth grew 16% versus the first quarter of 2025. Revenues in the first quarter of '26 increased by 33% year-over-year to MXN 23 billion. And again, in this first quarter, reported EBITDA was MXN 554 million. If we exclude noncash share-based compensation, EBITDA increased by 39% to reach MXN 1.3 billion. Finally, for the first 3 months of 2026, cash flow generated from operating activity reached MXN 2 billion or a 64% increase year-over-year. Let's take a look at operational performance. When we look at store openings, as we mentioned before, we opened 123 net new stores in the first quarter. For the last 12 months, we opened 580 net new stores. That's a 20% growth compared to the number of stores that we reported in March of 2025. Our expansion strategy remains consistent, and we continue to densify existing regions while gradually expanding into new ones. Revenue growth remains strong. We continue to be one of the fastest-growing retailers globally. Total revenue in the first quarter reached MXN 23 billion, an increase of 33% year-over-year. We've seen very strong same-store sales growth of 16%. And this same-store sales growth was driven in large part by the ongoing improvement in our value proposition to customers and also a stronger brand recognition of the brand 3B that we see every day getting stronger and stronger. When we compare our same-store sales performance with ANTAD, the gap remains notable. What we are seeing is a gap of more than 14 percentage points, and that despite operating with very low internal inflation. I'll now pass the microphone to Eduardo.

Thank you, Anthony. Good morning, everyone. Sales expenses as a percentage of revenue increased by 5 basis points to 10.3% year-over-year in the first quarter of 2026. Most of the expense lines showed operating leverage with a slight increase mainly driven by utilities, permitting and higher D&A. Admin expenses, excluding share-based payment, remain unchanged. In the first quarter of 2026, we continue our investments in new regions and additional talent to support our growth. Separately, first quarter of 2025 included a onetime expense of MXN 54 million related to the secondary follow-on. With respect to share-based payment expense, these charges are noncash and already reflected in our fully diluted share count. Additional details are available in the appendix of this earnings release, where we also provide projections for this noncash expense. EBITDA for the first quarter of 2026, excluding noncash share-based payment expense increased 39% to MXN 1.3 billion, primarily driven by strong sales growth. The adjusted EBITDA margin increased by 22 basis points year-over-year. As you know, we don't drive to an EBITDA. It will continue to increase over time, driven by the work we continue to do. Our business model generates significant negative working capital, which in turn supports strong operating cash flow. In the first quarter of 2026, adjusted negative working capital reached MXN 9.4 billion compared to MXN 6.5 billion in 2025, excluding IPO proceeds. This represents approximately 11.3% of total LTM revenue, also excluding IPO proceeds. Our accelerated growth continues to be self-funded. I will now turn the call back over to Anthony for some final remarks.

This is a very strong start to 2026 that looks very promising. We operate a high-growth business model that is resilient and that does very well across economic cycles. It is a business that offers very attractive unit economics, generates cash and becomes more competitive as it scales. The market potential is enormous, and the runway for opening store is very long. I am excited and remain confident about the future of 3B. Thank you for joining us today. We will start the Q&A session. Please go ahead, operator.

[Operator Instructions] Our first question comes from the line of Héctor Maya.

Anthony, Eduardo. Congratulations on the results. We saw a key competitor implementing some adjustments, which they said led to better results in March. Have you seen anything different in the competition dynamics, particularly, could you please comment if you have seen any kind of change or impact on your sales in March and April? And also just a quick clarification from your press release and different filings, we have seen that the expiration of the lockup period is coming in August 6 of this year. But in your 20-F, we saw that it expires in July 8. So just to double check, when exactly does the lockup expire and how should investors think about it in terms of stock overhang?

Héctor. Good to hear from you. Yes, it's -- just to be super clear, it's August 6 for the expiration of the lockup. In terms of competition, you know as well as we do, this is a very competitive market. It always has been. But specifically, if we have seen anything different this quarter? The answer is no.

Héctor, we will amend the 20-F for the -- just to be specific on the August 6, just so you know.

Super, yes, it was a bit confusing, but thank you for the clarification.

Our next question comes from the line of Andrew Ruben.

Andrew Ruben from Morgan Stanley. One of the items you mentioned as one of the same-store sales drivers was brand recognition that it continues to improve. Curious, first, how you measure and identify this. And second, we know it's a minimal marketing approach. So if you talk about brand building as you move into the newer regions and how you compare that brand recognition in your newer versus more dense markets, that would be interesting.

Andrew, let me start with the latter part. Brand recognition is a little bit of an interesting beast. In a sense, we measure it just to be very concrete. We do massive surveys every year, roughly 15,000 customers and noncustomers on a wide geographical area are polled and gives us a fairly good sense of what the 3B brand means to most people that are relevant to us. In terms of -- another factor that you want to take into account is because of our expansion strategy, which is stretching, by the time we get to a new region, we've already -- people already know us because we're not jumping to a completely new region. It's been a gradual stretching of the areas in which we operate. So there's -- that helps a lot in terms of coming into something new and people already know you, they might have already shopped with you in existing store, et cetera. So that goes a long way. In terms of what we spend, you're absolutely right. We're a minimal spend in terms of advertising, and it's mostly word of mouth and social media. And if you just go and Google 3B on the Internet, you'll see that there is a slew of materials talking about 3B and 3B products, et cetera. And a large, large part of it is not us. It's our customers posting about us, and that helps a lot.

Our next question comes from the line of Bob Ford.

This is [ Bob Ford ], Bank of America Corp. Anthony, how advanced are you in the process of building out the skill sets and the redundancy in your central administrative staff. And then I was wondering if you could also provide us a short update on the progress of the new ERP and maybe the window for your expected deployment. And then lastly, I'm really excited about your [indiscernible], right? And I was curious how they're evolving and maybe how you're thinking about merchandising in the second quarter, particularly when it comes to things like Mother's Day and the World Cup.

Great. Let me start with the latter one as it's fresh in my mind. The [indiscernible] are very important, and they add a lot of excitement to the shopping experience in our store because as most of you know, there are products that change roughly every 2 weeks, and it's always like a treasure hunt and a wow effect that you find in these baskets. And we've been able to sell in these baskets of [indiscernible] a lot of things, and we've sold bicycles, we've sold white and brown goods. We've sold clothing, and we continue to do so, and it's a very exciting category for us. And then one that's shown tremendous potential and growth. So don't be surprised if you see this continuing to evolve and take more participation within 3B sales. In terms of hiring and what's happening in central offices, as you know, we're very focused on increasing the density of talent, as we firmly believe that that's what drives everything at the end of the day. if you're going to punch above your weight and if you're going to move at the speeds at which we move, the key ingredient is talent. And so we will continue to invest in talent this year and probably through 2027. I mean at some point, it tapers off in relation to the total size of the company. But at this stage, consider that we're in growth mode. And I think it's an excellent investment that we're making here for the future. The deployment of the ERP is well underway, and I personally am very happy with the progress we're seeing. So this is, as I mentioned in previous calls, a 3-year project, and so I think we're halfway through now.

And when you deploy, will you deploy in modules? Will there be some functionality introduced to the stores before the final completion.

Yes. Always, it's gradual and modular and that's the way to do it low risk, right? You deploy, you test, then you expand it.

And when it comes to changing functional POS systems or just hardware at the point of sale, how should we think about that time period?

Yes. Again, the deployment is planned to be gradual to minimize risks. You will see it appear in one region, and then it will be fine-tuned, refined. And then once it's, let's say, bulletproof, it gets deployed to the rest of the company.

Our next question comes from the line of Alejandro Fuchs.

Thank you, operator, Alejandro Fuchs from Itaú de Valores. Congratulations on a very strong start of the year. I just have 2 brief ones. First one for Eduardo. Was wondering Eduardo, if maybe you could break down for us the same-store sales growth between traffic and ticket so we can get a little more color. And then the second for Anthony, I wanted to see, Anthony, if maybe you could provide more details on how you're seeing these new stores performing outside the center of Mexico, how has been their relative performance this quarter between the different regions. If you can maybe elaborate a little bit more into differences in different parts of Mexico, that would be very interesting.

Alejandro, it is -- 2/3 is coming from volume, which is a transactions and number of SKUs per ticket and 1/3 by average price per SKU. And just to be clear, the latter one is largely driven by a better mix because our internal inflation remains close to -- it's very low. So again, it's 2/3 from volume and 1/3 from average price per SKU.

Alejandro, we have seen very consistent performance across the board in new stores irrespective of geography. And the reason we believe is because we are selling basic goods and behavior in consumption when it comes to basic goods tends to be quite similar across the board. And we all consume roughly the same amount of toilet paper irrespective of where we live. And you'll see that applying -- it's been fairly consistent, I would say. It's no change.

Our next question comes from the line of [ Lorena Romanato ]

This is Gabriela from Goldman Sachs. I would like to explore a bit more the SG&A dynamics in the context of the minimum wage increase, the reduction in work week in Mexico? Is there any measures have been implemented to address this continued increase in labor costs? And we know that G&A also came broadly stable year-over-year with revenues. And we know there is quite a variable component there as you accelerate extension. But how should we think about that trajectory during the course of the year?

Gabriela. Multiple questions here, but I'll start with -- you mentioned labor. Labor, yes, it's a component. And what I would say is, as you saw in my presentation, for selling expenses, we saw leverage in most of line items, including labor. So when we look at expenses, and this is the way we look at expenses as a percentage of revenue, this is something that continues to decrease. If we compare last year versus this year, labor did decrease as a percentage of revenue. And the reason for that is twofold. One is because our sales continue to increase. And then the second one is we do a number of initiatives inside the store and not only the store also at the distribution centers. As we've mentioned before, we measure everything on hours worked. So we're always having initiatives to reduce the number of hours worked at the store level. So even with the increase in minimum wage, we were able to see leverage on that line item. In terms of the reduction of hours worked, this is something that, yes, we have been testing and we have been considering. And when it happens, it happens, which will happen next year. And this is something really not a big concern on our side. We will continue to drive efficiencies at the store level to be able to cope with that eventuality. In terms of overall SG&A for the year that you also asked, we don't really provide any type of guidance on SG&A. What we've said before is that in the long run, you can expect that SG&A will continue to decrease as it will decrease as a percentage of revenue. For this year, G&A, we should expect that it's fairly stable as what you saw last year. As you heard Anthony, we will continue to increase our talent pool here in headquarters and also because we're adding more distribution centers this year that also has a portion of admin expenses.

Our next question comes from the line of Froylan Mendez.

Froylan Mendez from JPMorgan. Eduardo, could you just give a little bit more granularity on the sources of gross margin expansion during the quarter? I know you mentioned commercial -- this was mainly coming from commercial margin. But was it on improved terms, product mix or some operational efficiencies? And secondly, you mentioned those big service you do every year. I was wondering what have been the key findings from this year's survey compared to last year's surveys regarding changes in consumer habits, preferences? And how is this information influencing your strategic decisions at the store.

Let me take that one, Froylan. How are you? On the massive surveys, they're basically -- they ask questions about where do you shop? How do you shop? Why do you shop? How do you make a decision? Where do you spend your money? What do you think of the brand? Do you know what it means, et cetera, et cetera, et cetera. So what we do see over time is an increasing brand recognition of the 3B brand and what it stands for. And then we also see shifts in decision-making. Who's your -- where do you shop first versus where do you shop second? And I think all the tendencies favor 3B, and you see a very strong favorable tendency over the last 5 years. In terms of exactly influencing our decision, yes, it does because there's definitely shifts in consumption pattern. Some categories gain strength and some lose strength. So post COVID and during COVID, anything related to pets saw strengthening and anything related to consumption of alcohol are decreasing. And you see those things. And of course, you adapt and you focus more on those that have more promise. And that's completely normal, and we do that on a continuous basis.

Froy, in terms of your question on gross margin, yes, we did mention that commercial margin on the increases. This is -- it's both on the 2 topics that you mentioned. It's mix, it's efficiencies. But I'll end up with saying that it continues to be volatile, right? So -- but this specific quarter, yes, it's both. It's mix and driven by efficiencies with our suppliers.

Yes. And I mean I'll add, Froylan, that it's no secret that as you scale you are improving your purchasing power across the board and not only ours, but whoever is supplying us with products also gains purchasing power. So and gains efficiencies. And those translate partially into margin and partially go into price, and that basically drives the virtuous circle.

Our next question comes from the line of Antonio Hernandez.

Congrats on your results. It's Antonio Velez from Actinver. Just a quick one regarding which categories were best performing during the quarter and also regarding your recent pilots, any findings that you have there?

Yes. On the -- look, across the board, all categories have done extremely well this quarter. And I would say, if you look at some subcategories, we've seen a decrease in sweetened beverages, and that's driven by a new tax on sweeteners that kicked in, in January, but it was more than compensated for by the non-sweetened beverage subcategory. And so net-net, an increase across the boards in all categories. What was your second question, sorry?

Well, regarding, for example, the fridge, frozen, all these different like new product categories within the store any new findings or how are these new categories working out for you?

Well, they're doing extremely well. And one thing to keep in mind is that we don't launch a new category unless it's been extensively tested maybe obsessively tested. So by the time we do launch it, we're fairly certain that it's going to do extremely well. And so these categories you just mentioned are extremely promising.

Our next question comes from the line of Joe Thomas.

Anthony and Eduardo. It's Joe Thomas here from HSBC. Just digging into that last question a little bit more. Could you talk about the fresh trial, specifically, please. And if there's any sort of sales uplift associated with that and what the opportunity is to extend that to retrofit existing stores for that? And then on a related topic, CapEx for the year. I'm just wondering if you could give some sort of update around that and how you expect it to be phased over the quarters.

It's worth just stepping back and saying that at any point in time, there's about 60 different products/new lines being tested in our stores in parallel and some of them make the final cut, and then you see them deployed across the companies. In the case of fruits and vegetables in particular, the results are promising as the test has been running and been fine-tuned and refine-tuned. And we remain quite optimistic that it's a worthwhile category to have. In those test stores, yes, it's no surprise then when you add fruits and vegetables, you do see an uplift in tickets. It's normal. And so we remain quite excited about this category. In terms of your second question was CapEx, I'm going to let Eduardo answer.

Joe. On CapEx, we're disclosing in our 20-F, it's about MXN 5.2 billion, which that includes the number of stores that we guided, also includes additional distribution centers and of course, all the equipment around that, including trucks and cars, et cetera. So we are today quite comfortable with that number and executing on that for the balance of the year.

Our next question comes from the line of [ Alberto Rodriguez ]

No question here. Thank you.

We have a follow-up question from Héctor Maya.

Héctor Maya, Scotiabank. I recall that the penetration of private label last quarter was 58% of sales. But could you give us an update on what the level was this quarter? And also, is there a threshold at which the business starts structurally changing from what we have now with higher penetration? Or would you say that everything remains the same, if you operate at 60% of private label compared to 70% or 80% penetration. I mean more than at the margin level, how would things change with suppliers, their scale, their relevance? And how do you think about development of new SKUs and how you arrange them at the store with a higher penetration?

Héctor, no, we don't -- we update this number once a year, but you can imagine that the trend continues upwards. In terms of, do I see a change of how we operate with more private label. The answer is no, not really. And here, I will tell you just take a look at BIM who's been in this market way longer than we have. It's a little bit like a time machine that gives you a fairly good answer as to what things might look like a few years down the road. But immediately for us, there is absolutely no change if you go from 50% to 60% to 70%, no structural change. In terms of those -- part of your question was how do things change with suppliers. I would answer that by saying things change naturally as you get bigger. I mean, suddenly, you're selling 30% more, you're buying 30% more. Everybody has to march in lockstep to sustain that growth, and that has not stopped for the last 10 years, it's been the case. So it will continue to be so in terms of planning ahead of time and projecting growth and projecting procurement needs, et cetera, et cetera. As you know, we plan way ahead of time. And that has allowed us to sustain these growth rates above 30% now for over 12 years without any hiccups. And to be able to do that, you need to be very disciplined in terms of execution and in terms of planning. And I expect that to continue.

Our next question comes from the line of [ Guli Arshad ]

Can you hear me out?

yes, Guli. Please go ahead.

So Anthony, congratulations on your usual strong results. I know that a strong IT department is one of the pillars of 3B growth story. So how are you incorporating AI mentality and processes inside the company? Or is it relevant?

Yes. No, absolutely. Great to hear from you Guli, to start with. There was a question earlier on about SG&A and expenses and I made a comment about our investment in talent and a big chunk of that investment in talent is actually in IT. And with the firm belief that a lot of our future growth is driven by executing across the board on IT strategy. Sometimes I joke internally that we're an IT company selling groceries. So yes, there is a very strong component of artificial intelligence that's starting to take root in the company, very similar to what's happening in many companies. And you can see already the effects in terms of improved efficiency and gains of time across the board. And I think this tendency will continue and gets stronger, especially as companies providing these tools start providing better and better tools. And the speed at which we've seen improvements in these tools is absolutely staggering. So expect that this becomes part of normal life in 3B.

Our next question comes from the line of Federico Galassi.

Federico Galassi, The Rohatyn Group. One question from my side is in the last year, 1.5 years, the corporate business, if you want, for more information to the IDR, the new counselor, et cetera, was of one of the teams that drag the margins, taking out the operational side, do you believe that you have the structure necessary to grow in the last -- in the next years?

Sorry, Federico. Let me see if I understood your question. You're asking that do you think we have we have built the right structure centrally to sustain our growth rates going forward. Would that be your question or?

Absolutely. Beyond the operational side, not that we continue to grow the new stores.

And again, this belief and philosophy that we have of planning ahead of time, which has served us extremely well and explains how we can sustain such rapid growth rates over time and not have any hiccups applies to everything, and it applies to thinking about what the corporate structure essentially should be and what kind of talent needs you need and how many people you need in which areas you can execute on your plans and across the board, how do you raise the level of performance of the team in general. And that's been all planned for and not today. So we're executing on it, and I think we're in very good shape to sustain future growth. And I come back to this very strong belief we have that it's the team that makes the difference, right? Everybody knows how to sell groceries and it's all a question of how well do you execute and how fast do you execute.

We have run out of time for further questions. I would now like to hand the call back over to Anthony Hatoum for his closing remarks.

Well, thank you, everybody, for participating and joining us today. I'd like to thank all our investors, current and future for believing in us. And I'd like to thank all the analysts who have joined us today for their continued coverage and their excellent questions. Thank you again, and we look forward to talking to you in the next earnings call.

Thank you. You may now disconnect.