Wal-Mart de México, S.A.B. de C.V. (WALMEX) Earnings Call Transcript & Summary

Good morning. I'm Salvador Villasenor, in charge of Investor Relations at Walmex. Thank you for joining us today to review the results for the first quarter of 2024. Today with me is Guilherme Loureiro, President and Chief Executive Officer of Walmart de Mexico y Centroamerica; Dolores Fernandez Lobbe, our Chief Merchandising Officer of Mexico; and Paulo Garcia, our Chief Financial Officer. The date of this webcast is April 24, 2024. Today's webcast is being recorded and will be available at www.walmex.mx. Before we start, let me remind you that the content of this webcast is property of Wal-Mart de México S.A.B. de C.V. and it is intended for the use of the company's shareholders and investment community. It should not be reproduced in any way. This webcast may contain certain references concerning Wal-Mart de México S.A.B. de C.V.'s future performance that should be considered as good faith estimates made by the company. These references only reflect management's expectations and are based upon currently available data. Actual results are always subject to future events, risks, and uncertainties, which could materially impact the company's actual performance. Now it is my pleasure to turn the call over to our CEO, Gui Loureiro.

Thanks, Salvador, and good afternoon, everyone. Thank you for joining us to hear about our first quarter 2024 results. I'm happy on the progress we've made across the business by implementing our long-term strategy. We continue to deliver low and affordable prices for our customers while we accelerate our new businesses to provide full solutions, get closer to them and reinforce that loyalty. This is the result of the effort of all our associates. And once more, I would like to thank them since this progress would not have been possible without their contribution. We started 2024 with a good first quarter, delivering double-digit total revenue growth in constant currency and with operating income growing 80 bps ahead of sales. We are seeing a positive effect from additional money flowing to the economy from government advanced payments, coupled with higher minimum wages, which led to customers having additional disposable income, thus increasing consumption. This quarter, we also had a positive calendar effect of 250 bps on revenues, including an additional day from leap year and the Easter week shift to March compared to last year, which took place in April. I will give more detail about these results in a minute. This quarter, we continued to invest to improve our price gap and price perception. These efforts have been reflected in the loyalty of our customers. I'm very glad to share with you that this quarter, we outpaced by 190 basis points the ANTAD's self-service same-store sales growth. We are happy that our actions are resulting in higher growth, but we are aware that there are still various opportunities to improve the business. We're helping customers to save money and live better through our stores as cornerstone whilst going beyond traditional retail and provide our customers access to the benefits of the digital economy. During the first quarter of the year, our e-comm GMV grew 25% driven by on-demand and marketplace, helping us to continue leading in omnichannel. Also, we reached 13.3 million active users of Bait, a 34% Walmart Connect revenue growth, and more than 400,000 Health Memberships sold. As I have told you before, these new verticals continue to grow at an accelerated pace as we are becoming increasingly better at knowing our customers' needs beyond traditional brick-and-mortar retail with every quarter that passes. So let's review our performance during the first quarter of 2024. Please consider that, when I talk about results in Central America, I'm referring to figures on a constant currency basis. During the quarter, consolidated revenues grew 10.8% in constant currency. Mexico and Central America delivered 11.2% and 8.7% growth, respectively. Walmex reported double-digit operating income growth of 11.6%, well ahead of sales, with Mexico and Central America growing 12% and 9.3%, respectively. This was a positive quarter in both top and bottom line. Paulo will explain further on the financials later in this presentation. Now let's review sales performance in Mexico. Same-store sales grew 9.4%, out of which 4.1% came from increase in ticket and 5.3% from traffic. Bodega and Sam's Club delivered the highest growth as in previous quarters. Walmart Supercenter is seeing improvements from our investments across the portfolio. This quarter, Bodega, Sam's and Supercenter outpaced ANTAD's self-service same-store sales. It is good to see all our formats delivering healthy growth rates. In terms of regions, the center, south and metro regions posted very similar same-store sales growth, while the north region delivered slightly lower, yet also solid growth. In terms of merchandise divisions, General Merchandise led growth this quarter, delivering double-digit growth, fueled by home and toys categories, the latter helped by post-holiday markdowns. All our formats, regions and merchandise divisions reported positive same-store sales for the third consecutive quarter. Dolores will expand on the operational highlights later in her presentation. Now let's look at our performance compared to the market. This first quarter of the year, we grew ahead of the self-service and clubs market measured by ANTAD by 190 bps as we achieved the broadest GAAP versus ANTAD in 11 quarters, partially helped by strong general merchandising performance. This also shows that our value proposition is resonating with our customers. As mentioned in our last quarter's webcast, we still see room for improvement, and we will continue innovating to make sure we meet our customers' needs. Now I'll pass the word to Dolores for her to go through some operational highlights. And afterwards, I will return to comment on Central America, store openings and ESG.

Thank you, Gui, and hello, everyone. Let me go through some of the key operational highlights that have contributed to the results you saw in the previous slides. We continue to focus on our first strategic priority: to win in discount. In this first quarter, Walmex price perception increased by 130 basis points, with Sam's Club and Supercenter having the highest increases. The emphasis in price perception is critical as it immediately influence consumers' behavior and builds trust and loyalty, although we know it is a much more volatile metric. Our same-store sales growth was led by Bodega. Morralla, our now permanent initiative with MXN 5 to MXN 35 article offers at Bodega, remains an important sales driver. We sell 1.3 Morralla articles per minute, which shows how valuable this is for our customers. During the quarter, we had Easter season, which has strong impact on some of the food categories. In our Walmart formats, we had double-digit growth on these categories versus last year's same period, while in Bodega, for example, we sold 35 million tuna cans, enough to give one to each person in our 3 most populated states. A key driver to win in discounts is Our Brands product offering. The quality and value they provide is very well received by our customers. This quarter, Our Brands penetration increased more than 50 basis points versus the same quarter of 2023. The biggest increase came from our General Merchandise division led by the home category. Our Brands will continue to be a key element of our strategy, and we will continue expanding our product offering by leveraging our global presence. This is the case of this quarter in the Equate line for female hygiene that was developed in Walmart Chile. Sam's Club continues to be the other format driving higher same-store sales growth. During this quarter, we hosted our Socio Fest event where we show our members the value of the membership and all its benefits, reinforcing loyalty. We had double-digit growth versus last year's event driven by individual members. Aligned with our EDLC philosophy and to partly offset labor cost increase, we continue implementing productivity initiatives at our stores and distribution centers. This quarter, we implemented the first self-checkouts in Bodega Aurrera Express. Also, we have simplified some processes at the checkouts like reducing authorizations for cancellations, which helps reduce 140,000 man-hours and impacting directly on waiting times for our customers. As for our distribution centers, productivity has been constantly increasing, too. This quarter, it grew at a high single digit compared to the same period of last year. We will continue deploying additional mechanization and automation initiatives like walkie pallets, new sorters, among others. We continue betting on innovation, improving customer shopping experience and reducing our cost to serve across all our operations. Now let's look at e-commerce performance as we continue to lead in omnichannel. During the first quarter, e-commerce GMV grew 25%, representing 6.6% of total GMV in Mexico. On-demand continues to be the main growth driver. In Bodega, Despensa a tu Casa continues to grow, adding close to 90 new stores with the service in this quarter, now offering it in close to 750 stores. Walmart Pass continues to be an important element. Active members grew 36% versus last year's first quarter. As we told you a couple of quarters ago, customers with the membership have higher spending and more than double frequency versus nonmembers. Regarding extended assortment, accelerating marketplace is a key e-commerce priority. During the quarter, marketplace grew 39% versus Q1 2023, with a number of marketplace SKUs increasing close to 80% and sellers increasing more than 50%. Three key elements to accelerate marketplace growth are Walmart Fulfillment Services, cross-border and improving the seller experience overall. Walmart Fulfillment Services is getting close to represent 40% of total marketplace, offering our sellers our Walmart-standard logistics services to get faster to the customers. Cross-border has a lot of potential, and we are preparing the ground to accelerate it. Related to this and seller experience, we are working on a standard Walmart e-commerce front-end platform together with other Walmart markets. This is going to be deployed later in the year, delivering a unique experience for sellers where they can have a single sales profile globally and access to all of our markets, providing the necessary personalized service for each country according to its needs. Regarding our new businesses and our strategic priority to become the ecosystem of choice, let me start with Bait. Bait reached 13.3 million active users, 1.5 million more than last quarter and 7.1 million more than the same quarter last year. We are constantly working on offering more benefits, improving convenience for our users. We continue to increase the top-up locations through different partners, being the BBVA app, the last one to join. Moving to financial solutions. This quarter, we disbursed more than 130,000 credits, 50% more than the same quarter last year. On remittances, we are now offering buy and collect in more than 1,300 stores, which gives our customers the option to pay directly with their non-collected remittances in the point of sale and, after scanning other products, collect only the difference in cash. This helps to reduce waiting lines and times as well as increasing the ticket size. Walmart Connect delivered a strong performance during the quarter as it was the case throughout 2023, posting a 34% growth and implementing 44% more campaigns versus first quarter 2023. We are very excited with the future of Walmart Connect. We see big potential going forward, and we are very close to launch Walmart Luminate, our collaborative tool for our suppliers with shared data and a sharper view of the customer, store and e-commerce. On our health business, this quarter, we sold over 400,000 health memberships, tripling the number sold in the same quarter last year as we learn better on how to address customer needs. Regarding our pharmacy business, this quarter, we had a growth of 11.4% versus the same quarter last year helped by the flu season. Now I will leave you again with Gui, so he can comment about Central America store openings and ESG before going through our financial results. It was a pleasure to share our quarterly highlights with you once again, and I will be glad to answer any questions in our live Q&A tomorrow morning.

Thank you, Dolores. Moving to Central America. During first quarter, Central America closed with an 8% same-store sales growth on a constant currency basis. Sales were driven by a double-digit growth in Nicaragua, Honduras and Guatemala, while Costa Rica represented a low to mid-single-digit growth facing some challenges such as deflation. Our value proposition is helping us deliver good volume growth in all countries. We are focusing on our omnichannel ambition, achieving e-commerce growth of 84% from a small base and increasing more than 40 bps our omni sales penetration. During the first quarter, Walmart Connect doubled its income against the same period last year, while our co-branded cards increased sales share by around 90 bps with increases in all countries. These actions contributed to an 8.7% total sales growth, excluding FX effects, positively impacted by 230 bps calendar effects. Paulo will go into CAM financial details later on. Now let's talk about new stores growth. During the quarter, we opened 12 new stores, 9 in Mexico and 3 in Central America. New stores contribution to consolidated sales growth was 1.8% for the quarter, ahead of the guidance given in Walmex Day between 1.4% to 1.6%. The majority of these openings were Bodega formats, mainly Bodega Aurrera Express as they are the formats where we see more potential to grow, as we shared with you in our Walmex Day over a month ago. To finalize, in our ongoing commitment to environmental, social and governance, ESG, issues, we are pleased to share our recent efforts and achievements in this area. In our effort to provide employment opportunities and contribute to local economy, we held the national recruitment recruit, Recluta Fest 2024. This event offered more than 2,000 job opportunities, demonstrating our commitment to social development and economic inclusion. In our commitment to community support and disaster relief, we donated 27 tons of essential products to brigades fighting forest fires in Guatemala. This was done in collaboration with the Food Bank Desarrollo en Movimiento, further demonstrating our commitment to help communities in need. Building on our aim to support local businesses, we formed a strategic alliance with Banco LAFISE in Central America to support over 500 producers from the Tierra Fértil program. This initiative provides these producers with the necessary financing to enhance their local production, promoting sustainable agriculture and local economic growth. We are proud to announce that we have been recognized as the leading company in the self-service and departmental sector in the 11th edition of the Merco ranking of the 100 most responsible companies in Mexico. Our ESG efforts are rooted in our commitment to contributing positively to society and to the environment. We continue to prioritize this effort in our operations and strategic planning. To finalize, I'm sure you all are aware of the change in management that we announced 2 weeks ago where we mentioned that I will be assuming a new role as Executive Vice President and Regional CEO for Canada, Chile, Mexico and Central America. This will be my last quarter sharing Walmex quarterly results with you as CEO. So I would like to thank you all for your interest in our story through the years that I have been leading Walmex' transformation strategy. I'm sure that in Ignacio will continue strengthening our omnichannel strategy, and I trust that he and his team will leverage the Walmart ecosystem to provide even more solutions to serve our customers and continue helping them save money and live better. Thanks again for joining us today, and I leave you Paulo who will cover the financial results of the quarter.

Thanks, Gui, and good afternoon, everyone. Thank you for joining us today to review the results for the first quarter 2024. I'll start by covering Mexico results, and then I will cover Central America. So let's look at Mexico results. As we heard from Gui, total revenue grew 11.2% driven by 9.4% same-store sales growth and positive calendar impact of 250 basis points. In line with the P&L reshape we explained at Walmex Day, gross margin expanded by 40 basis points, offsetting SG&A increase of 40 basis points as a percentage of sales. We will review the gross margin and SG&A breakdown in just a moment. We are able to improve our gross margin whilst improving our price perception and our competitiveness in the market. Operating income grew 12% and EBITDA margin expanded by 10 bps to 11.1%, yet again, best-in-class levels. Now expanding first on gross margin. During the quarter, we had a benefit of 40 basis points driven mainly by improved omni commercial margin, supply chain benefits and contribution from new verticals. Improvements in commercial margins from our omnichannel business and benefits from supply chain provided 30 basis points expansion on gross margin. Our new businesses, such as Walmart Connect, Bait and financial services, which are contributing more and more to our P&L, provided 10 basis points improvement on gross margin. All these contributed to our gross margin expansion, reaching 23.9%. Now let's review SG&A. By managing expenses with discipline and fostering an everyday low cost mindset and helped by sales leverage, partially driven by calendar effect, we are able to reduce our run costs by 10 basis points, offsetting the increase in labor costs. In parallel, we invested behind strategic growth priorities, notably new stores, new business and e-comm, and we enhanced our associate value proposition. All the above-mentioned growth investments impacted expenses by 50 basis points. Now let's review Central America results. Please consider that on this slide, I will refer to figures on a constant currency basis. Total revenues increased 8.7% driven. By an 8% same-store sales growth and positive calendar effect of 230 basis points, with volume growth in all countries, three of them reaching double-digit sales growth. This quarter, gross margin remained flat at 24.4%, with commercial margin improvement in new businesses, Walmart Connect, contribution offsetting price investments in Costa Rica. SG&A represented 17.3% of revenues, increasing 10 basis points. Operational leverage and efficiencies were not enough to offset growth investments. With the above-mentioned results, operating income grew 9.3%, 60 basis points ahead of revenues, while EBITDA margin of 9.9%, best-in-class, contracted 20 basis points versus last year. At a consolidated level, total revenue increased by 9.8%, with new stores contributing 1.8% to total growth. Gross margin expanded by 30 basis points to 23.9% and SG&A grew 12.4%. Operating income grew 10.6% year-over-year with an 8.5% operating income margin. Finally, EBITDA margin expanded 10 basis points to 10.9% while consolidated net income grew 14.4%, resulting in a 5.8% net margin. And now moving to the balance sheet. Cash decreased 6.1% versus first quarter 2023 due to dividend paid and CapEx investment in high return projects. Inventories grew 4.9% below sales growth, driven by positive sales trend and strategic markdowns mail in General Merchandise. Our days on hand reduced 3 days versus last year. And finally, accounts payable grew above sales, reporting a 17.6% year-over-year growth. In the last 12 months, we generated MXN 85.9 billion in cash and MXN 8.1 billion through working capital. We returned MXN 46.3 billion to our shareholders as dividends, including the special one-off dividend paid in April 2023. We invested MXN 29.5 billion in high-return projects, reflecting our commitment to accelerate our growth story. We paid MXN 18.3 billion in taxes and our associate share plan required MXN 1.5 billion. Finally, operating our share buyback program, we repurchased shares worth close to MXN 1 billion. All in all, our cash position finished the first quarter at MXN 43.8 billion. In summary, I would like to emphasize the three key messages of the quarter. One, our top line growth momentum continues. This quarter, we had the broadest gap versus ANTAD in 11 quarters. Two, our operating income and EBITDA outpacing sales growth helped by sales leverage. And three, our ecosystem continues to develop, and our new businesses are increasing their contribution to the overall business. Our focus remains in accelerating growth ahead of the market with improved ROI returns. We remain committed to create value to all our stakeholders: customers, associates and shareholders. Thanks again for your interest in our company. We'll make ourselves available to answer the questions you may have tomorrow at 7:15 a.m. on our live Q&A. You can reach our IR team if you have any doubt concerning how to connect to the call.

Good morning, everyone. I'm Salvador Villasenor responsible for IR at Walmex. And I want to thank you for joining us today on our live Q&A session following our first quarter 2024 results that were published yesterday evening. Today with me is Guilherme Loureiro, President and Chief Executive Officer of Walmart de México y Centroamérica; Dolores Fernández Lobbe, Chief Merchandising Officer in Mexico; and Paulo Garcia, our Chief Financial Officer. Now we can open with the first question, please.

The first question is from Mr. Ben Theurer from Barclays.

Gui, all the best in your new role, definitely going to miss you. It was pleasure working with you. So all the best from my side and I'm pretty sure you will be very successful in the new responsibility. Now back to the possibility of asking questions. First of all, thanks for that and my very first one is really around the performance in the quarter. And what's been different compared to the prior quarters as to the outperformance? You've laid this out yesterday in the prepared remarks, the same-store sales growth, almost 200 basis points ahead of ANTAD and it was a very broad-based one in different segments. So I just wanted to understand, what have you done different? What are the strategies that you're seeing coming through and coming to fruition as to delivering that outperformance? And how sustainable do you think this is going to be?

Let me start, Ben. So thanks for the question. Yesterday we had our Board, so I had similar questions on the Board. But at the beginning or end of last year, we had discussions about it in addition to our long-term plan, in addition to the targets we had for this year, what was on my mind. And I said 3 or 4 things that were on my mind. The first one was I think we never stopped managing this company based on our long-term ambitions and long-term goal. However, COVID, then inflation, et cetera, sometimes which has more to do short-term things because they just require you to act and to think about tomorrow. But I think that we managed to keep our strategy. But this time, one of the things that was on my mind that let's go back to, to do everything guided by our structures and guided by long term. And I think the inflation slowing down, the end of COVID and all the things allowed us to do things more. And when you do this and you have a good strategy, which we believe we have, I think things start to improve and you put your attention on the right place. So that is one thing. I am going to tell you what, was that not necessarily in the order of importance. The second thing is that I'm a firm believer that one of the things we did that contributed to our performance in the last few years is as we changed the way we work. So we became more digital, we adopted the agile methodology. We started to think and to implement things more end-to-end and the company works better when you do those things. But there are ways of that. When people believe they have learned how to the new way of working and they think they are good at it they start to take short cuts. So within -- since last year we started retraining people, we have turnover and putting more attention to the way of working. I'm a firm believer that this helps a lot. And I think that we are in good shape, again on being fully, let's say, loyal to the way of working that we decided. Then there were 2 other things, accelerate things where we're doing well. And I always tell people that I'm not paid to do well and to deliver my targets, I'm paid to take the company to its maximum potential. And I had this perception that some of the things we're doing well, we could do better. And we try, we are doing -- taking actions just to enable that [indiscernible] to accelerate Bait and do other stuff that we are doing well. And we have some issues that I mentioned it last time. Frankly, I think it's -- we are known for -- we will always have issues. This business is too big and too complex. But we've been able in the past to fix those issues faster. So Walmart Express some stuff in general merchandise. I understand the reasons why we're not performing as well as we should but we need to fix those things faster. And so there was also another set of actions. And I think in all those things, the company responded well. It's not that something that's starting first of January, we've been working on those things. So I firmly believe that. The last 2 years, unfortunately, we had lost to ANTAD in the first quarter. And our business, especially when you have a huge salary increase, the way it's going in Mexico, we can produce savings and we have savings, should do. I think that the new business are going to contribute to us to offset those cost increase but you need to grow. We need to beat the market in order to do well. And this quarter, we managed to beat the market. A quarter results and I don't count -- count down a little bit because we need to be very clear that this quarter has been a quarter helped by 1 extra day, helped by Easter, helped by the money the government put into the economy, that I'm not going to repeat. But at the end, the ultimate measure, exclude all those things, how have you taken the opportunities of those things versus your competitors. So the highlight for the quarter from my perspective is that we did better than our competitors and that is what we need to continue to do.

Our next question is from Mr. Felipe Cassimiro from Bradesco BBI.

Gui, I wanted to say the same as Ben. Good luck on your next role. It has been a pleasure working with you these last few years. And I mean, I just wanted to hear a bit more on a strategic sense, how has been this transition period for Ignacio. And I'm curious to hear a bit more like just -- there was just 1 paragraph in the presentation about Ignacio being like -- having this role of continuing this strategy. But I just wanted to hear more. I have my theories but I wanted to hear your thoughts on why is Ignacio the right executive to lead the company at this moment.

Bonjour, Felipe. Okay. I'm going to answer your question just if you promise me to tell your [indiscernible]. This is not necessarily public here but let's do a deal here. So first of all, I'm very glad -- let me go back last year or the previous year, in one of the meetings we had with one of our top investors, I received this question. Look, you've been here for some time. What -- who's going to replace you? What's going to happen? And I said, look, don't look only at my replacement, look at the whole team, look at the executive team. And I think we've been reinforcing the change with me. We have from my perspective, a first-class team and that is the first thing that makes me accept that moving was the right time because we have a strong team. Having a good, strong, well-prepared CEO, will add to that strong team. So we start from that. We have prepared Ignacio and we have prepared all the leaders during this time because it is not easy to get a CEO for Mexico. The company is very big. So you get very successful CEOs in other companies, to bring them to retail, to live in Mexico and it's not easy. So the best thing for us is to bring people from outside, do a right mix between veterans in our company and people from outside and groom them towards a situation where they can become CEOs of this. And we have many people that could have taken it. And you saw last year we -- Cristian moved to Chile. So Cristian is also very, very, very seasonal manager. Dolores this time is taking e-commerce. We have done other changes in our team and they are all prepared to do big things and to help. And the fact that we managed to -- we have candidates and we managed to promote somebody from within, I think is a great thing. If you look at our strategy and the business is in very decent shape but we have a strategy to take us -- we have to be very, very, very consistent at our store level. It's the base of everything and we have great operators within the company at all level -- all levels. We have them to move and grow e-commerce and omni fast and we have to continue to develop the ecosystem. In this sense, Ignacio is more digital than I am, more experience than I had on this. And I think that he's surrounded by great operators. And we moved him to COO last year, so he could have a good experience running stores and seeing how our operations but also looking and understanding how those stores being well operated can help us to develop even faster e-commerce and the ecosystem. And I think he's a fast learner. He did it pretty well. So we came to the conclusion that this combination of I could be closer, mentoring, I am not going to do his job. He's well prepared to do that and I can tell you I'm good of turning the page. So -- but he has a mentor close to him. And we think it's a good move. I think the company is prepared for that change and I think he's going to do well. I'll -- I'm a firm believer that we should stay longer in the job and I did. But I'm also a firm believer that stay too much longer is not good for the company. And it was time to change and I think we bring a great team and a great manager, a great leader should do it.

Our next question is from Mr. Bob Ford from Bank of America.

Gui, congratulations on the promotion in the quarter and thank you for taking my question. E-commerce seems exceptionally strong in the quarter. But when I take a look at the traffic data, it seems particularly weak, especially Bodega [indiscernible]. I was wondering if you could help us reconcile that. And then can you also comment on the incremental profitability from Walmart Connect in Bait, please?

Yes. So let me start on the last question and then probably -- Walmart Connect has a huge potential, huge potential. And we said in Walmex Day it is going to grow exponentially. And I think that we are building more than the numbers that you see there. It's the feedback we are getting from the people that are investing with us on Walmart Connect. So it's everything. In the past, we used to wait to be very sure everything would work. That was a fantasy, it's never like that. This is when we think we have a, what we call, minimum viable product, we launch it, we learn, we learn our partners and they help us to improve it. The feedback we are getting today from the people that are investing their money into Connect is much better. So I like this thing more than 30-something percentage growth. It is helping our -- the customers, most of them our suppliers as well, to get better return for the value of the money they invest. If still remember when I was in CPG, there was a famous phrase. I can credit it because I heard so many times that phrase and people credit to different people that the CPG companies knew that half of the money they invested in advertising was wasted. The only point they didn't know what was the half that was wasted. And I think we are providing to them good data to show the effectiveness of the money that they're investing with -- for us. And I think we are also proving that the money invested in advertising in retail, gives better returns and they're helping us to build all the data, everything they are feeding back to us what else they need and I think this is very promising and it's very profitable. It is very profitable. So in our strategy, what you get is that we know that the cost of doing business in Mexico and in Central America will continue to be there. We have to create new sources of profit that will allow us to pay for this cost increase and to stay even more ahead in terms of price gap. And there are certain things that we are doing for our verticals that you may not yet see -- Connect, you are now seeing the P&L. But there are other things that are going to contribute to that, that are not yet very visible in the P&L because we are now spending money instead of getting more but they will be very soon. And they will help us to offset those expenses and to generate the increment of ROIC that we promised in our Walmex Day. And I don't see our traditional brick-and-mortar competitors doing similar things. So I think this is going to put us into advantage. So I'm very -- I know that what we are trying to do is very difficult. We need to grow e-commerce even faster because the next stage of growth in terms of Connect is going to come from visitors, not going to come from stores. And the tech is improving a lot. Everything that we're getting. If you look at -- we look at the future of our business, is we look at what Connect is doing in the U.S. because what they are doing there in terms of target sales, is going to come with the change, which is going to come even faster to Mexico and Central America. So I'm very positive about Connect. And this is going to contribute for us to be able to save our customers from carrying the whole impact of the cost of doing business in those countries. But I'll let [indiscernible] Paulo to give you more details.

Bob, just to build -- on the first one, I think Gui said it mostly everything. But just to say, Bob, when we think Walmart Connect or Bait, as you referenced to that -- it's just reflecting the growth that we're seeing in the -- quite frankly, in the last year, the last quarter. So the contribution that you see is not different than what we've seen in different quarters. Walmart Connect growing constantly above the 30% and also the expansion on Bait. To your question on the e-commerce, you're spot on, Bob. So what you see in Bodega just in terms of what you're reconciling the numbers, in the case of Bodega, we're still continuing to expanding the number of stores that we enable for on-demand or grocery fulfilled from store. And therefore, there's a growth there as well that also additional, that is not necessarily count, which the comp, therefore, is still very healthy. But we see, in particular, also in Bodega the on-demand a bit reduction, a small 3% to 4% reduction in the average order items in Bodega and a bit of the frequency as well, were particularly a lot in this quarter, people has gone a lot to the stores. It's not yet a trend. We are monitoring but that goes in line with what you're saying, Bob. But the growth comes because, of course, we're also enabling more stores on demand in grocery, fulfill from stores for Bodega.

Our next question is from Ms. Irma Sgarz from Goldman Sachs.

Gui and Paulo and Dolores, congratulations again. I won't repeat the -- many of the good comments that were made beforehand. But yes, we just wish you also all the best from my end and congratulate Ignacio. Hope you can hear me well. Just in terms of questions, the [indiscernible] grow expenses that we've seen [indiscernible]. But those grow expenses are they going to be consistently there and weighing on the [indiscernible] ratio, how we should we think about so that the investment side there from [indiscernible] there's a couple of different components going into that. Is there something where we should see leverage in 2024? Is that farther out to even just beyond this current cycle?

I will give you the general view , Irma. Thanks for the question and I'll let Paulo give you more details. There is no answer that we will respond to, depends on the level of maturity of the new business that we are growing and depends on other things. So let me start. So the minimum salary impacts us. And when you have a 20%, I'm going to have a sequence of years with minimum salary, you have to begin to work not on a minimum salary but you -- all the other levels of the company are affected. So the cost comes immediately, the solution to reduce this cost is not something that we're going to see fully implemented in 2024. I know we haven't started only now but there is -- we have done things, for example, the multi -- obviously, the multifunctionals, which brings more [indiscernible] to store successfully. So that helps. We have -- we are working on things to reduce our inventory. The main cost we have is about moving merchandise. We have to move less merchandise and the U.S. has progressed a lot. We had in our supply chain, something that has been very good but for the future is less but which is, most of our supply chain was cross docking and we need to have more staple stock, having a better balance between staple stock and cross docking will help us to reduce the inventory at stores and this take years. But we started -- we didn't start it today. We started it 7 years ago, it is progressing. Few years ago, there was no business case for automation. And automation has many great things because first of all, it takes out tasks that nobody wants to do and automates, thus become more efficient, more productive. So we just announced a huge investment on 1 distribution center that we told you, it's $500 million, I never saw another so big one, distribution center. But that distribution center will bring to our stores pallets that serve that 2 or 3 meters of shelf. So can you imagine how much the sales -- the sale are at the stores. So there are lots of things. We are doing further work to optimize in various areas. So it's going to take time. It's going to take time but they are being well constructed. And it's -- some things -- some we are going to see during this year. The other thing is that we have to grow fast. The best productivity we can have in our business is to grow fast. That's why we've been building plans and delivering growth faster than before. Part of that growing fast, we see opportunity to accelerate a number of new stores. And when you accelerate the number of new stores, you create a little bit more cost in the short term. But the new stores are delivering good results but in some of the -- so we are going to build more stores than we built last year. And last year, we built more stores than the previous year. So I think even showing to you numbers that are the comp stores and the new stores, then you understand better this thing, they need to be separate. When you're growing 1% from your stores it's one thing. When you're moving more towards 2%, we have said 1.4% to 1.6% but I think we have room to increase even more the number of new stores and we are happy with the way they are building. And then they are consistent. They don't cost a lot to build because we are just becoming a platform where it's a learning curve. The big cost is that we don't know how to sell -- we didn't know how to sell Bait, we learn. We did not know how to sell health membership, we learn them. But now we need to learn how that people more automatically renew it. So we spent some money at the beginning but we decided to start doing those things at a level we were comfortable but we don't know everything. So they bring a little bit more but they will pay back. That's why in our financials, we mentioned to you that in the short term, we would increase gross margin in order to pay for that. The plans that we have, in the long term, I can give that gross margin back because it will be much more efficient. And that will create a competitive advantage because I think that what we are doing that you don't see in the P&L today, my main competitors are now doing. So hopefully, most of those new businesses will work, if they work and they will, I am very -- I trust it very much, they will contribute to the return of our investment and they will contribute to increase our competitive advantage. Despite a favorable increase in our gross margin and again, I hope it's for a couple of years or so, we are protecting Bodega. And because in retail, all over the world, when there was a situation similar to Mexico, that costs increased very fast. Everybody including -- if you look at our competitor, everybody is happily increasing gross margin and then you open the door. So most of our increase in margin is not from increasing price and losing price gap. It is from mix, from further negotiations and from growth. We are trying -- so Dolores has a big task this year of incremental price -- the margin without increasing the prices further than what's needed because our suppliers have increased it.

Just to build that because Gui, I think Gui said it, all the story, just a bit specifically. Just to build on, Gui, you said it, all the story. I think you will see volatility during the quarters in terms of our results, Irma. As Gui said it, I don't think you should expect in the short term that SG&A, the levers, sometimes with volatility that can happen and Gui said, we will improve in gross margin but not at expenses of pricing or price perception. You've seen it this quarter, we have a significant expansion of price perception. We will continue to do so and working on initiatives to deliver operational efficiencies in the midterm and the long term, Irma.

I hope that at the end of this cycle, cost of doing business in Mexico increasing. We benefit from it because our customers will have more money, more than it cost to us. And our plans indicate that we are in good shape to get there.

Our next question is from Mr. Alejandro Fuchs from Itau.

So I have 2 very quick questions. The first one to Gui on the new verticals and how they're adding to the business, which one is contributing more today, to the overall business is it Connect or Bait. And when you look at Bait, 1.5 million new active users quarter-over-quarter, which is quite impressive. What is the end goal for Bait? And how do you see this business developing for the future? And then the second one to Paulo, very quickly. I was surprised to see the tax rate being 21%. How sustainable do you see this? And could you give us some color on what is explaining 21% development, Gui?

Okay. So let me, each, each of the verticals that we are launching have a purpose. And we start from Connect, which is probably the easy one to explain. So Connect is -- we do believe and there is data that proves it not only in Mexico but other places and the U.S. has done it before. Before, we used to have allergy to earning money on advertising because we thought this was against every day low price and that suppliers that would invest on advertising would require benefits on the commercial side. So I think that the work we did in the U.S. and the work we did here allowed us to create a business that's independent from the commercial in the sense that we are now going to give to our customers merchandise, curate merchandise influenced by the amount of money people spend on your title [indiscernible]. Well, that's the rule #1. The second thing is that our competitors, especially the digital ones, they were making a lot of money out of advertising and that becomes a rule in the future of this business. So we had to develop, it is not so simple. You need a lot of stack. You need diversity within, they understand it. I think now we have a strong team. And I see, I think we are just starting, when you measure the potential of this thing, that's why we mentioned to you guys, we think this can grow fourfold. And it delivers to us a lot of funds to grow the business, to offset the impacts of the cost of doing business and it gives to our -- the people that invest in it a better return on their investment and we can easily prove it. So it requires tech investment, it requires salespeople investment and we are building it. But if you look at Bait, it's going to be -- if you look at Connect, it's going to be even more profitable. But today, the SG&A of that business, is higher than what it's going to be in the future because we are still in the investment phase. But what even today, when you look at the numbers, they are fantastic and they're contributing a lot to our business and there's a lot more room to be there. And it plays the role of helping our commercial partners to put their product in front of the customer, helps the customer to have more access to more information, to innovation and helps us to produce, in our case, it helps us to produce money to help to deliver our P&L in a environment that's always more competitive, competition grows all the time and the cost of doing business. So that's the role, different role than the others. If you go to the verticals, what we have in our mind was that there are many unmet needs that our customers have and that nobody was trying to help them to solve those unmet needs. And the digital world show us that they can be met, not in a perfect way but in a very good way through the digital world. The only way that you can serve the customers on those unmet needs is through the digital world. And we started to develop this thing and many people that are trying to solve it in the digital world, they start to come to us and say, "Look, can we do things together." And then we realized that we had everything that the customers need available already in the market through digital. And we have this digital company suffering because their main cost is to acquire customers. And we said, well, we can negotiate on behalf of our customers even better prices than digital can offer and act on behalf of them to have great deals. And from the other side, they can solve the main problem that suppliers have because they need to drastically reduce the acquisition cost of customers, which we can do for them. And they need millions of customers to make a chip. So we said we can become a platform that connects the 2 and the cost of building a platform is negligible. At the beginning, when we were not yet selling, we started to sell Bait. And Bait came as a great addition because how can I go -- my strategy to offer a lot of their unmet needs for digital and my customers don't have Internet available because it costs too much. But the harder we work, the luckier we get, so Bait opportunity appear. We started to sell it. In the first 1.5 years, we sold 1.5 million Bait and then it grows exponentially because we learned how to sell. But the first -- at the beginning, when you look at the cost of new business, the cost of building Bait was high than sales. But if you look at long term, the cost of building Bait is very small for the business we are gating. And the customers are responsible. But let me take the opportunity just to -- as we're talking to Bait, there's a lot of talk about what are the right numbers for Bait? What are the right numbers for the market? There is a lack of consistency on the way people measure. Some of our competitors consider active customers who have did some transactions in the last year. Some consider 9 months. We consider 6 months. There is also a big discussion about if part of the sales we do and orders do is through distributors. When do I consider that an active customer, is when I sell to the distributor or when the distributor sells to a customer. And the way we measure today, Bait, the Altan measures is different. So we are working very hard with Altan and with the IFT to create one measure that everybody has the same. So we tend to be more conservative than most of our competitors in the way we measure it because we use 6 months. But Altan is even more conservative and that creates confusion. And we're only going to change when we reach consensus about what's the way -- there is no right or wrong way. It's just you need to be clear on the methodology. Until I get the consensus, we're going to continue to measure the way we have measured before because then you can see the trend using the same methodology. It will probably move to a more restricted time of what is to 3 months of active users, which probably is going to reduce our number and reduce even further the rest of the market because they use even more months than we do. But it's going to be much easier for you guys to judge. But I'm pretty confident that the measures we are showing you, from our criteria show exponential growth of Bait. What's the limit? I don't know because I keep asking our people and keep pushing them. And every time we increase that number. We bet -- I'm not going to repeat what President Duma said for the Brazilian people here that when we achieve the target, we are going to double it. We don't have a target but when we achieve the target we need to double it. Now we have a target but we've been beating our target, so we've been increasing it. The potential of this thing is much bigger than what we are today, much bigger, simply because our prices -- our service is good. There were recent -- there were some issues with Altan, but the issues have happened because just because Altan is increasing much of their capacity. And when they implement, they had some issues, unfortunate but that's not going to cause a huge drop in the medium or long term in terms of growth. And I see a tremendous potential. Every single quarter I increase the target that the Bait team has. Then Bait was needed. Without Bait, we could not offer the rest. This whole strategy would be planned in my customers being able to buy Internet. Then you go to health, it's a huge need for our customers. They don't have access to doctors. They don't have discounting pharmacy that my customers that the wealthy have. So we are providing them access to the same prices that wealthy customers have because they have a health insurance and they get discounts. So now my customer has the same price that others have. We are providing them access to telemedicine and we are providing them the opportunity to come to a clinic and to our office. We are trying the clinic and so far, the results are very encouraging but we are going to be slow in the way we implement clinics because there is a lot to learn there. But I think it's doing well. And again, tremendous opportunity. We are also learning how to measure it because if you measure it saying, look, you give 5% discount in pharmacy and you sell the health membership for MXN 30, looks like a illogical decision. When the average ticket goes up, so Paulo have been -- have done a great job in the last few quarters to explain to us the verticals, not based on the traditional P&L that see things isolated but more an end to end. So we see both things and has a huge potential, huge potential. Then we go to education and this is the one that the Board has more difficult to understand. And I think that, yes, we had a very good discussion. First of all, halfway of this strategy, we said, doesn't matter how cheap we offer things, my customer still doesn't have the money. So we said, is there a way that we can influence the amount of money our customers have. And it looked like a crazy question, end up giving us good ideas. So if we give them more pesos, their journey to shop with us, it starts with the remittance that they receive. If we manage to do -- to find a way to give them more pesos for their dollars, tick, they will spend with us. And that's what we are trying hard. There is a well-established way of doing business remittance that is difficult to fight but we are fighting. And if we can't find a way to beat the system, we then create alternative things, where you can buy in the U.S., in our Bodega here and I can deliver to your family. So we have pilots. We're expanding it. It is still very small. We don't see that. But then we skip remittance. And you also have an emotional thing and a certainty that your family is going to buy food, is going to buy the fragrance soap. This is very, very promising and increases the amount of money the customer have. Fighting for share of wallets is expensive. Increasing the size of the wallet in a way that most probably they are going to spend with you is much cheaper and much more effective. If we -- nobody offers credit to our people. Well, if they offer, they offer a very -- let's call it paradox way of chasing the payment. We can't and we'll never do that. So we are building intelligence in order to be more effective and we are finding new partners because credit at a decent interest rate, it's another way of increasing the size of the wallets that our customers have. But we have to do that through technology, through data and we will be able, over time, to have the best with partners, to have the best credible information for our type of customers. Because they store with the launch of where it's a connected program, we are going to have data about the whole relationship of our customers and if we have data about what they shop with us in the supermarket, Internet and telephone data, even past credit data, remittances, the frequency that they receive, the certainty about the future remittance they have, we will be able to do a good -- a better job than today, we are able to lend money and then we are going to help to increase the amount of money they have. When we sell Bait at a -- at least 7 times better when you compare the data that we offer and the price. For the ones that were already spending money with our competitors, they're going to spend less and the rest are going to buy things with us. For the ones that didn't have access to it, they will have access to the benefits. So I visited a customer's house and some of them saying, "Look, I couldn't work because I need to look at my kids, I need to go and pick up for safety reasons my kid at school. Now I'm buying and selling things in the Internet and I am making money." So we are giving the possibility that our customers increase, are you going to see that next month, no. But we are starting to see it. So the combination that we have in our verticals is help them to have more funds and then helping them to spend wisely that money, acting on behalf of them to negotiate a very good price for the education. When you can get education, so your high school, for even $100 now you can get, depending on the package you get and depending on the assistance you get from the school, we are now having good discussions with the government because to get the official certification costs more than to take the course that we're offering. [indiscernible] and you need to reduce the price of the certification. If we get more educated customers that will increase the size of their wallet. So some of the verticals are giving results immediately, some will be more long term. But we have the luxury that our business allow us to do those long-term things. And that's what I was talking at the beginning. It's very important that despite all the short-term issues our business always has, we do think long term and it creates things that we will show they're long term. All of that will make -- will go back to the core business. And hopefully, we are going to increase our price differentiation with all of those things and generate the flywheel. Easy job for Ignacio to do now.

Alejandro, let me go to your second question, which I'm pretty sure a lot of people on the line will be happy that you asked it. As you all know, normally you don't get a lot of guidance and sharing light on that particular topic from us. And for the sole reason because at the end of the day, our tax line reflects tax agreements with the tax authorities. We ultimately don't have the control. We are exposed to interpretations of the law, changes in regulations. You may remember last year, we had a tax one-off in terms of different interpretation the way we actually looked at that in one of the countries in Central America. This year as well, we also had one tax. It was a lower amount. Hence, we didn't disclose that. We didn't see it. So at the end of the day, it stayed at levels where it then reflects agreements with tax authorities but we always expose the changes and we don't shed more light than that.

We can't -- we don't know what governments are going to do. They all need more money. But what I can tell you is that we are always going to be very competitive because of the things we build.

Thank you very much for your question. Our next question is from Ms. Renata Cabral from Citi.

And first of all, congrats Gui on your promotion and mostly because of the legacy, you are leading over for the Walmex, I wish you all the best. So I have 2 questions here. One, about the price perception. I think you commented a little bit about it but if you can give some color on how you could get this achievement in this quarter? What was the measures you took to get there? And if this was one of the reasons or the main reasons for the improvement in general merchandising performance. And my second question is regarding the increase of store openings along the year. What do you expect if, I don't know, in the second half of the year will be stronger in terms of store openings and how you're thinking about that.

[indiscernible] on price perception. We've been operating for more than 60 years and we know that one implement every day low price very well. And consistently, you tend to have a price perception that is bigger than your actual price gap difference. And that is tremendous benefit because it's cheaper to get. We -- the way we measure it, we will -- similar price perception and price gap. So we said, there is opportunity for us to further strengthen every day low price and then to increase and to get a free benefit because the price perception is going to be bigger than what we actually create the price. We are at a good level in terms of real price gap. We need to make some adjustments that Dolores is going to explain to get more benefit from that big investment we do. I don't think, Dolores, may even have a different -- I don't think that what happened in quarter 1 in GM is because of this. We do have good prices, but quarter 1 GM, I think we are improving our business in GM. But part of what happened in quarter one was helped by the extra money, the government in Mexico before elections, 3 months before, you cannot distribute the money. So the government -- some of the benefits, the money that the government distributed, they gave it in quarter 1 twice and it will only come back after elections. And I think once our customers, they've been refraining from buying general merchandise for a while. Once they saw a little bit more money, they spend it. But it is, when we measured it, they didn't spend their whole money. I don't know, if things are going to collapse from now on. But they went back and they went back to stores. And we have a bigger market share in GMV stores than we have. We are building the conditions to get our fair share online. So I think its improvement. We also had to do some liquidations of inventory. So we managed to clean inventory faster than we do in other years. You always start the year with a little bit more inventory than we like because of Christmas, et cetera and those are paying. But the fact that people have more money and I think we did the right liquidation strategy helped us to get a much healthier inventory and made our customers happy as well. So those are other things that happen but you can explain a little bit more, the price perception.

Yes. Renata complementing Gui on the price perception, there are different levels of price perception. And so the first one was the EDLP, every day low price as Gui mentioned. The second one is that we are becoming smarter and more customer-centric on how we invest the money and the price. So we are defining what are the most relevant items for the customer and we invest more there, so that builds price perception. And the other thing is private brands. We keep accelerating on our private brands. Those private brands build price perception, so that helps to the whole. And the third one is communication. So once you have the right price gap, the right items, the right affordable assortment for the customer, you communicate it in the right way and that builds on the price perception for the business. That will be on the first one. And maybe on the second one, we have been in the past year or so better on defining the assortment for general merchandise or on the turnaround of the customer value proposition on general merchandise. We accelerated on e-commerce, too, so that helps to build on the general merchandise business and when you have the right items, the right assortment and the right price and the customer has more disposable income, it's a good combination to accelerate our business.

Okay. Regarding the new stores, when you are accelerating and we are accelerating, it looks likely more acceleration but it means a lot of new stores because of the base of our number is big. You tend to build more stores towards the second half than we would like. We'd like to do it more. But when you accelerate it become more difficult to do. So there's a phenomenon that we -- because we accelerated last year and we build a lot of stores in quarter 3 and especially quarter 4, when you see our P&L, they are benefiting from those new stores in quarter 1 and quarter 2, then in quarter 3 and 4, they're going to benefit from the further acceleration we have taken this year with new stores. So I think that the numbers are going to be good. The good news is that the new stores are producing better numbers than what we had in our plan. So they're giving us more sales than what we had. The last few years have been confusing because you plan a store 2, 3 years in advance, you put numbers, then inflation would distort the numbers. So we need to recalculate what was the target of the new stores. Now it's more set, also we can see better the performance and I'm very happy with the performance of new stores.

Thank you, Renata. Just one thing because conscious of time. Let's make sure that ones that come, can only have 1 question. Hopefully, we have time for 2 or 3 questions more if we are able to answer them before we do the closing.

Thank you very much for your question. Our next question is from Mr. Andrew Ruben from Morgan Stanley. Please, go ahead.

Echoing the congratulations. Most of my questions have been answered. Maybe just a follow-up on the marketplace business. You talked about some of the drivers for growth, fulfillment, cross-border seller experience. I'm curious where you are in each of those as we think about the year, which of those are already kind of mostly unlocked versus where we could see incremental drivers for marketplace moving through the year?

Hi, Andrew, thanks for the questions. We keep working and developing all these areas. So if you think on the cross-border, as we've been saying, Andrew, you may remember, so far, we have pretty much more -- we have a lot of quite -- millions of SKUs on that token but it's mostly from sellers from China. We've been saying at the Walmex Day, if you may remember that we want to have lots of sellers this year and up to 10 million SKUs. A lot of that will come from sellers from the U.S. We're still working on that and that connects with the platform that we're now actually working together with all the countries in Walmart but in particular, U.S., Canada and in ourselves because being the biggest markets and where you can do more leverage. I think this is something that you can expect, as for the rest, for the second half of the year to actually to see a bit more on the stock and in terms of the cross-border sellers from the U.S. I think that will be one of the biggest levers that we were doing. We've been talking constantly another one element, important one is the continuous improvement in our search capabilities, with the Glass platform that we've implemented, was a starter. But of course, we need to get to the levels and we normally use the word, might not be sexy or not that parity what we have with our parent company in the U.S., which is -- so it's a Glass platform 2.0, if you will. And that will allow us, of course, to have a lot more sellers and detail because detail is actually important to increase the number of the SKUs, of course and the sales. But you can only do that with the algorithm behind the search capabilities that help the customer having the right experience, particularly if we start putting assortment on categories like apparel as well. So I think these are the 2 areas that we are focusing normally but maybe Dolores want to build on some thing.

This is not 1 thing. You have 3 main components, stack, which were behind. And I think this year and next year, there will be a tremendous improvement on that. And the U.S. has proven that we can improve stack and yes, that will allow you to have more sellers, that will allow you to have better service, better search. We're still not there but we are coming close. Then you have work to do on supply chain that we don't talk that much but you've seen that we've been increasingly spending money on supply chain. And again, we get huge support from our parent company because they are well advanced on that. So how to do -- to build a supply chain that's efficient that help us to have a good service level, consistent and good service level. And at the beginning, you only see the cost part of that supply chain. But I think we have done a lot in the last few years, more to come, the automation here that helps a lot the service, which was something, there was no payback, today there is payback. So you see gradually we're investing on automation that will not only reduce cost but improve the service. And then you have the merchandise strategy. The merchandise strategy is one of the reasons, we now think we are at the stage that Dolores could do a better job leading e-commerce for us. So that's why we changed it. And I think she will do a great job of improving that merchandise side and the whole decision about what's in store, what's in 1P, what's in marketplace. And she's not starting today. She has done a lot of job on this thing in the last 2 years where we talked that the other 2 are now -- we are doing it. So the merchandise we want to give more -- reinforce it more and Dolores can explain what is in her mind for that.

Yes, definitely, just to complement on the tech part and how do we progress on the different site sellers, platform and fulfillment services. Q3 and Q4 is where you're going to see some of this happening. We said we were going to increase 10 million SKUs in our assortment for the end of the year. So you're going to be able to see that enabled by the technology and the changes we're going to have this year. And the second part of what Gui just mentioned, I strongly believe that having this new structure, we had already started making some changes within the merchandising team. Disconnection and better synergies between e-commerce and their merchandising team in Walmex is going to help us accelerate the business and accelerate a seamless experience for our customers. So I'm convinced that you're going to start to see more acceleration and a better strategy on the assortment and the different channels that we have. It's going to be more efficient and more appealing for the customer.

Andrew, every quarter, we will report back on the numbers we put on Walmex Day so that you see the progression of what we promised, okay. Thank you very much, Andrew.

Our next question is from Mr. Rodrigo Alcantara from UBS.

So I guess I am just very curious here on your thoughts regarding, from 1 to 10, how well would you say that the areas for opportunity that Walmart has to improve the -- or to leverage more on the commercial and strategic relationship with Walmart U.S. Now as you move into -- you're being promoted to a different position. Do you think that there are still areas for -- to take this relationship to the next level? That would be my question, Gui to you.

Yes, thinking everything. So go back to our international strategy. So it said about strong local business powered by Walmart. But I think Walmart has done, let's start from tech. So Walmart has done huge investments in tech with good results. So who would say some years ago that we could be a good competitor to Amazon and I don't think that people now doubt about it. But the way we were structured will mean that not everything that was developed for the U.S. could be replicated in the countries. We have changed the structure. So some years ago, like my Head of Technology reports to the international Head of Technology, who reports to the global Head of Technology, and they have dotted lines with us. And international has woken to be much more present from the development part. So what Paulo called parity, is a decision that we took, which is going to be tough in the first year or so. But then, we would replicate things easily because we were prepared to receive and they will have developed things prepared to give to us. So the next couple of years are tougher. But also, they start to bring things that Dolores mentioned. So from quarter 3, we start to benefit. I have to give up on some of my Mexican projects in order to gain more by getting more from the global company. And that's fine. The fact that our strategies are very similar, helps because it doesn't help if you try to have parity on tech but our strategies are very different. So the strategy is very similar. Countries are at different stages on it. So I'm very, very, very positive. Supply chain. The amount of investment the U.S. has done, the amount of capabilities they have built, the professionals they have hired is tremendous. And to give you like, the new distribution center is just 1 example. It was built with a huge help from our U.S. supply, changing from our international. I don't need to have capability in every country about automation. But I need to have this capability within the company and I need them to be available to help. So another day, we were all touring with this Walmart U.S. CEO to see our automation work from the point of view of business. So they are available to help us. They are willing to help us and I think this is a huge progress. I would not be able to build plans on supply chain the way we are building without their help. And they're there, great, great help. Commercial side, Dolores is fully aligned. So you have the U.S. team. So she's in constant talk, you have international. So the global sourcing team, it works international. They serve the whole world, including the U.S., but Andrea, tremendous leader that we have, leads it. She sits international. So we have full help from them. So I think the company has better organization, better willingness and the fact that our U.S. business has progressed so much, also gives them more time to dedicate to the rest and they're willing to do so. S Dolores can give more color on the merchandising part.

Yes, 2 things. Yes. Now -- and maybe just -- yes, just to add there, Rodrigo, is today, after this meeting, we're having the Growth Summit which is a summit for many suppliers and the main goal of that summit for small and medium suppliers is to open the doors not only to sell to Mexico but also to sell to the rest of the Walmart market. So there's a lot of connection and interest, I would say, in the company as a whole to be better connected and leverage not only supplier base, technology and supply chain, as he mentioned, so this is a very relevant event for us to open opportunities for Mexico, to open them to the U.S. So there's huge help from the U.S. and from marketplace particularly coming to this event to see what Mexico has to offer and providing the marketplace all over the world.

Okay. Thanks, Rodrigo. I think we have time for one quick last question. Gracias, Rodrigo.

Our next question is from Mr. Héctor Maya from Scotia Bank.

Gui, congratulations on your new endeavor. We saw that 1.5 million new Bait users this quarter was basically 10x more of what other telecom companies like Tencel or AT&T are getting. So do you think that this could be the base growth for Bait? And considering that Bait users tend to go 20% more times to the store, I was wondering how much this could be boosting sales.

I think, as I mentioned before, this is a good growth. And I see no reason for us to continue to have good growth in the future for Bait. The potential is huge. It's there. Altan is making investments to their network. That's one of the reasons of some disruptions we had. We are fully aligned with Altan, customers are learning more about it. I think the Bait potential is much bigger than what it is today. So I expect that we will continue to grow fast in Bait. I have my own numbers in terms of what's the potential. I'm going to share with you because you're going to think I'm crazy. It's big.

Gracias, Héctor, so lots of potential we see there. So Gui, over to you. Gui over to you just to conclude the session.

So I don't want to finish this without thanking you, guys. So I must say it's not easy to sit here and have all of you that are very experienced and very knowledgeable about our company, challenging us and trying to understand us better. It's our job to make it -- to make things clear to you but it's not easy. But I want to finish this. This is my #34 quarter results, was yesterday my #34 Board as Walmart's CEO, I will continue to be on the Board. And at some stage, I will become the Chairman of the Board. But I want to finish just saying thank you and saying to you, you make us better, you make us better because you make us think from different angles. You make us be more transparent. And when you have more transparency, you can hear criticism and so I just want to leave a message of you do a very good job. Sometimes, we may get upset. But normally it's because you're right. So thank you for helping us to make a better -- to build a better business. Thank you very, very much.

See you guys. Thank you very much.