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

I have 2 here. The first one about the private brands. I saw that in the quarter, the variation in private brands,was negative and also in the last 9 months. And I was expecting, especially in this quarter, that we are seeing economic slowdown across the board, not only for Walmex, that consumers might want more private events, not lower number. So can you give us a sense why that happened? It's something strategically from Walmex or it was from the part of the consumers? And the number 2 question would be in terms of the Walmart Express. I think Dolores already commented something about this format, but just to understand if the rollout was made for 100% of these stores already.

So Renata, let me just take the beginning part of one comment you made and I'll leave it to Dolores to give more the content of the response. So actually, I'm not sure what you're referring to it was negative on private brands, Renata. So actually, we kept on increasing penetration of private brands. So actually, this quarter increased 50 basis points, the penetration of private brands. We increased 100 basis points in Sam's and 30 basis points in self-service, in line with our strategy. We can always do more, but we definitely have been increasing. And I will pass the baton to Dolores so that she gives a little bit more on the content of the things we're doing and the things that we still want to do going forward.

Yes. Adding to what Paulo just mentioned and connected to your comment, yes, of course, the customer in this timing, they look for more private brands. So with everything, all the launches and the new products that we've done, we've seen that reaction from the consumers. We have increased 50 basis points overall. But when you go look at some key categories like milk or toilet paper and so on where private brands are really important in those categories, you might have seen like increases of 100 to 200 basis points. So we keep consistent with our ambition to reach mid-20s private brand penetration in our business. So we keep working on quality. We keep working on having the brand attractiveness with the consumers. We keep launching new products and innovation and renewing the image of our private brands. So we keep consistent growth. We always want to do more. We can do more, but we are growing and the customer is responding well to that.

Just a follow-up here now -- makes a lot of sense, and actually, I have not mentioned that I was referring to Central America, actually. So makes a lot of sense. Sorry.

And just connecting to Walmart Express and the second question you made, I mentioned some of the things that we've been doing and the initiatives we have planned. I could tell you that we have around 70% to 80% of the whole plan that we have in place for Walmart Express. So we're not there yet because of -- there are some changes that are related to people, associates in the stores or infrastructure. So those are the ones coming later on. But what we have seen is that all the new products and premium items that we have included in these clusters and some of the learnings we have done in Walmart Express, most probably, we will replicate to other stores and Walmart Supercenters because they have been really successful. So good news there, still 20% to 30% of the plan to be implemented regarding infrastructure and service in the stores.

And maybe, just because you mentioned Central America, if it's not a question, let me just say 2 words around that, Renata. So there, as you know, we have a higher penetration of private brands than we have overall in Mexico. We still want to increase the private penetration there as well. In this particular quarter and recently, you've seen a little bit of a reduction of participation because in this -- there's been promotional activity very strong, particularly in Costa Rica from A-brands, and that across the market. And of course, that's something that also we had to ensure that we had the lowest prices there. And therefore, there was a little bit of a change of trading between the private brands and A-brands. But strategically, the intention is the same and we're doing a lot of the same things in Central America that we've been doing in Mexico, and we have just slightly high penetration there.

Our next question is from Mr. Jorge Izquierdo from BTG Pactual.

A quick one from my side. Marketplace GMV grew 10%, but sellers increased 60% and SKUs 50%. Maybe you could provide some color on what explains the difference, please?

One of the things, we have mentioned the ambition that we have to keep accelerating the growth in our digital business and our marketplace. That's what we are doing with -- as you mentioned, we have increased a lot of our assortment. We have increased a lot our sellers. Part of what we've seen as a slowdown during this quarter in marketplace has to do with what Ignacio and Paulo mentioned at the beginning. We have over-indexed in tech categories. We have seen a slowdown during this quarter. But what I could say is that we have invested in the basic, we have invested in technology and in the platforms to make sure we have the right service for the sellers and for the consumers in the future, but the slowdown in the 10% that you see there has to do a lot with the categories where we over index. We know we have a depth where we have to grow in developing the rest of the softline categories and the long tail in order to have the -- to reach the growth and the ambition that we have. But that's the difference between assortment sellers and the growth that we see overall in the quarter.

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

I was curious with the implementation of the Project Glass now pretty much, I think, finalized during the final stages. I know there's more to do at the back end, and some exciting sort of system upgrades also from the Walmart technologies that you can leverage into 2025, but I was curious, when you sort of think about when we may start seeing sort of the benefits of that really materializing into growth, sort of to give us an idea of time line there? And also in terms of the grow expenses that have pretty consistently grown in the last couple of quarters, I would imagine that's mostly related to a number of different initiatives. You've always sort of pointed out 3. With Glass, Project Glass, now sort of pretty much completed, should we expect those grow expenses to be a little bit softer in terms of the pressure going forward? Or is that too far an extrapolation?

Yes. So as you know, migrating tech platforms is quite costly, it takes time, a lot of time and a lot of dedication. We're very happy that we finalize the front-end part of a migration with Glass, and we started already migrating the back-end part. Walmart is already migrated with what we call WCP, Walmart's Commerce Platform. And again, the vision with this is we're moving into exactly the same tech platform as in the U.S. So you would expect us, in the following quarters and during next year, to start seeing improvements in our -- and the usability and the functionalities of our technology. And basically, you can see the future if you go into the U.S. site or apps. So it's not a secret. That's our road map. Things like unifying our hallway, for example. Today, in our app, when you get into our app, we will ask if you want to do groceries or you want to do extended assortment. Those type of things will be eliminated, reducing one of the frictions we're having in our platforms right now. So we will keep investing in here. The job is not done yet, but we are much closer than before. And several milestones were completed during the third quarter. During fourth quarter, we turned to -- decelerate a little bit this, because we are focused on the season, and we don't want any disruption and lose of focus, and then Q1 we'll start again accelerating all the migrations that are pending. In terms of cost, I will let Paulo give you a little bit more color on this.

Yes. And I think just building on it, I think you'll see the full potential of all these things more towards the end of next year, Irma, to your point. I think on the expenses and the point you were making, yes, it's a relevant expense, Irma but what you're just saying, probably it's a little bit of a extrapolation. So you see you now that our SG&A is increasing by different areas that we've been investing, what it's been on AVP, whether that's actually just the results of minimum wage salaries that you know they have been increasing around 20% year-on-year. Also the acceleration that we're doing with new stores, investment and in new stores and remodeling of the stores, I think a lot of that is there to say. Because our strategy is a growth strategy and our strategy is a growth strategy and our 2 key promises to the market is about our growth to the market and the fact that over that period, the next 10 years, we want also to improve our returns. And that's also what we want to ensure that tends to happen. I think going forward, you should look for next year and going forward, where you probably can -- you will see a slowdown, and I alluded to that before but also in the webcast, tends to be with the labor costs. Labor costs are not expected to grow any longer around 20% year-on-year in terms of minimum wage salaries. They probably will be hovering around 10% or so. So I think that will help in terms of what we'll see in terms of growing the expenses. At the same time, because it goes connected with that, that we've been building an ecosystem that some of the -- you see part of that reflecting new expenses, but you see a lot more than that contributed to the improvement of the gross margin. And there is an important -- Irma and all of you, that you actually look at the gross margin improvements in 2 different ways. One is that the contribution that we are there to see permanently from the new businesses, whether it's Connect, Bait or others. And that -- which is an advantage that we do -- that we have versus the other competitors, certainly versus the brick-and-mortar competitors, which we can use to reinvest back in the business or put it back into the P&L. I think that's important also when we look at the gross margin improvement because I think we need to look at our P&L in a slightly different manner that we have done in the past. Hope that helps, Irma.

Our next question is from Mr. Andrew Ruben from Morgan Stanley.

Apologies for the technical difficulties. Thanks for letting me back in the queue. I was hoping to dig in a bit further on pricing. So we saw that the price perception gap narrowed. And I'd like to better understand, you've mentioned in the past how you see your price gaps. Is the price perception an issue of pricing? Or is it marketing? Is it how consumers view your pricing? Trying to better understand the lever for how that can improve again, and maybe it relates, Paulo, on the gross margin. We've seen the gross margin expand part of that is new business, but trying to understand how you think about just purely reinvesting back into price as a lever to drive gross profit.

Let me just make 1 or 2 statements, and I'll pass the baton to Dolores to actually give you guys, again, a bit more content on the price perception. I think it's important to say, we said that in the previous live Q&A, we said it as well in webcast script, our gross margin improvement is not done by jeopardizing our competitiveness in the market and our pricing competitive. It's not. Our DNA is clear everyday low pricing. We want always to be the lowest prices in the market, and we're, therefore, gaining share in the market as well. So I think that is important that you all get it, and that's why we already separated away the construction that we have in terms of the gross margin improvement, Andrew. And I think price perception, there's lots of different KPIs across the different banners. But I pass now the baton to the Dolores that can tell you a little bit more about that. And if needed, we all can build.

Yes. When we -- you were right. When we talked about price perception, price gap is only one of the levers that drives that price perception, and connecting to this quarter and what we mentioned before is like the highs and lows during this summer season and the length and the depth of the discounts and promotions that we've seen this year, we haven't seen that in the past, right? So if you ask me today, it doesn't have to be only price up, but the perception of the high and lows and the discounts. And you know that we don't usually play that. We are everyday low prices, and that's the way we like to compete. That's our DNA. So that, I think, impacted part of that price perception that you saw it reduced the gap, but we think we will pretty much recover that price perception back again. The way we want to play with everyday low prices, and we are not investing less in price. As I mentioned in a couple of questions back, we are investing more in price gap to win in proximity to win in digital too and to win with a unit price versus the high and lows that we see in the market. So our price keeps contact. We keep investing and improving our gross margin at the same time, and price perception has to do with the high-end lows and the high intense summer season that we've seen.

Thank you very much for your question. That was the last question. I will now hand over to Mr. Salvador Villaseñor for final comments.

Unless you have any other comment, we just want to thank you very much for attending the call, and we're open as always to any major request that you will have on your end. See you next quarter.

Thank you guys. Thank you very much for attending. Bye.

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