Fomento Economico Mexicano SAB de CV

NYSE:FMX

Earnings Call Transcript 2018-Q2

[Operator]

Good morning, and welcome everyone to the FEMSA Second Quarter 2018 Financial Results Conference Call. [Operator Instructions] During this conference call, management may discuss certain forward-looking statements concerning FEMSA's future performance and should be considered a good-faith estimate made by the company. These forward-looking statements reflect management expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, which can materially impact the company's actual performance. At this time, I will now turn the conference call over to Eduardo Padilla, FEMSA's Chief Executive Officer. Please go ahead.

[Eduardo Padilla Silva, executive]

Hello, good morning, everyone, and welcome to FEMSA's second quarter 2018 results conference call. Juan Fonseca and Maria Dyla Castro are also with us today. As we usually do, we will focus the call on the consolidated figures for FEMSA and the results of FEMSA's commercial 3 divisions. Coca-Cola FEMSA published its own results and held its conference call yesterday. So most of you are likely up to speed on the numbers already. We hope this call will contribute to your understanding of our performance during the period. Our results for the second quarter were solid. FEMSA's Comercio Retail Division again showed healthy trends across its income statement, particularly considering the tough comparison base on the Holy Week in the shift as well as our record base of expansion. The Health Division delivered encouraging results across all its markets, reflecting improved commercial activity and more effective execution. For its part, the Fuel Division again faced a low comparison base and thus delivered another quarter of margin recovery, in spite of soft volumes as well as an improved rate of unit growth. At Coca-Cola FEMSA, we saw resilient top line performance in Mexico, driven by strong pricing as well as sustained positive volume strength in Brazil, despite the trucker strike in the month of May and the still challenging macro environment. Furthermore, during the quarter, we took proper important steps in our consolidation efforts in the region by announcing the expansion of our bottling operations in Guatemala and the addition of Uruguay to our platform.

Moving on to discuss FEMSA's consolidated quarterly numbers. Total revenue during the second quarter increased 8.6%, and income from operations increased 3%. On an organic basis, total revenues increased 8.9% and income from operations decreased 1.2%. Net income grew 67.9% in the second quarter, mainly driven by the noncash foreign exchange gains related to transfer of significant U.S. dollar-denominated cash position, as impacted by the depreciation of the Mexican peso during the quarter.

To a lesser extent, this growth also reflects lower interest expense and increasing income from operations. Our effective tax rate was 32.3%, very much in line with our expected levels below 30. Next part, our consolidated net debt position MXN 73 billion at the end of June.

Moving on to discuss our operations and beginning with FEMSA's Comercio Retail Division. We opened 483 net new OXXO stores in the second quarter, reaching 1,472 net store openings for the last 12 months and representing a new milestone achieved by our team. This number of openings represents an increase of 30% over the second quarter of last year, which puts us on track for a record number of openings for the full year 2018.

Now let me comment on this a bit further. As you know, we have historically tried to flatten the growth of store opening so that the second half of a given year, and particularly the fourth quarter, are not so heavy with openings. The purpose is to have as many new stores as possible during the lower sales months at the start of the year. Therefore, having those stores generate more months of sales and to allow the team to focus on selling in the month of December, which is by far the biggest month of the year for OXXO. During the year, we have been successful with our efforts. So the number of openings reported for the first half of the year includes some openings that will otherwise have taken place later in the year. Therefore, you should expect a slight deceleration in the pace of openings towards the end of the year. So this will likely be a record year for our new store openings but a delta versus year 2017 would probably be moderate. Income -- the revenues for the Retail Division increased 9.7%. OXXO same-store sales were up 3%, driven by 2.1% increase in average cost of a ticket and a 1% increase in-store traffic. These numbers reflect the resilient consumer demand as well as the negative effect from the Holy Week calendar shift, because the way the Holy Week changes from year-to-year is always useful to look at the growth rate for the very -- for the first complete 6 months of the year, which this time reached 5.1%, right in line with our long-term expectations. Moving down to the P&L. For the second quarter, gross margin expanded 130 basis points on top of a demanding comparison base of 150 basis points in the previous year, reflecting the same drivers that we have come to expect, sustained growth of service capability, including income from financial services, healthy trends in our commercial income activity, and number three, increase and more efficient promotional programs with our key supply partners.

Operating income increased 7.7% and operating margin contracted by 10 basis points, reflecting our continued initiative to strengthen our compensation structure of key store personnel in a tightening labor market. #2, increased secure cash transportation costs driven by incremental volume and higher fuel costs, and #3, the accelerated pace of store openings in the quarter, which put pressure on our operating leverage. On the subject of operating margin, it is important to note that for the first 6 months it is stable, in line with our expectations.

Moving on to FEMSA's Comercio Health Division. We added 16 drugstores to reach 2,251 units across our territories at the end of June. Revenues increased 17.1%, following an increase of 11.8% in same-store sales, which include a positive currency translation effect and strong Chilean and Colombian peso exchange rate versus the Mexican currency for the quarter. Gross margin expanded by 140 basis points in the second quarter, reflecting commercial activity driving positive margin mix and more effective execution across markets. Benefits from the incipient leverage of our recently integrated operating platform in Mexico for drugstores, and #3, a favorable comparison base from last year. Operating margin expanded 180 basis points, reflecting the sales growth and gross margins expansion as I just described. The currency benefits from Chile and Columbia have increased operating leverage generated by tight expense control and our recently integrated platform in Mexico.

It sparked FEMSA's Comercio Fuel Division, adding 32 gas stations during the second quarter to reach 499 units at the end of June, and 109 net new services stations for the last 12 months. Revenues increased by 21.5%. Same-station sales grew 5% in the second quarter as the average price per liter increased by 13.6%, while average volume decreased 7.6% continuing to reflect demand elasticity. Gross margin recovered by 160 basis points and operating margin recovered by 90 basis points year-over-year, as was the case in the first quarter as you probably recall. The second quarter of 2017 represented quite a low comparable base for the fuel business, and this integrated to the gradual recovery in profitability we're reporting today. Finally, moving on briefly to Coca-Cola FEMSA, total revenues increased 3.9% during the second quarter. As I mentioned at the top of the call, we continue to achieve robust pricing in Mexico, where Brazil again delivered encouraging volume strength in spite of the trucker strike and a volatile macro environment. However, we saw margin pressure from higher raw material cost, particularly PET across most markets, particularly in the Philippines and concentrated in Mexico. If weren't able to participate in FEMSA's conference call here today, you can access a replay of the webcast for additional details and the results. Looking ahead we see a resilient consumer in Mexico, but that is mix. As inflation has come down, the global conditions seem to be tightening. Other variables such as the peso-dollar exchange rate have improved slightly in recent weeks, which is encouraging. But Mexico is nothing new to global concerns or international trade. And there are other macro questions to be answered in the near future. Here in Mexico, we also face challenges and uncertainties in several markets. So we remain vigilant as ever as we continue to execute our strategy across businesses. So with that, we can open the call for questions. Operator?

[Operator]

[Operator Instructions] And we will take our first question from Luca Cipiccia with Goldman Sachs.

[Luca Cipiccia, analyst]

I wanted to ask about the gross margin at OXXO. If I'm correct, for the first half of the year, this is probably between Q1 and Q2 is probably the highest we've seen in a long time and -- for the data that I can track going back. So my question is really how do you see this progress is being sustained going forward in the rest of the year, but also more challenging going forward? And also given the greater number of store opening, quite substantially higher number of store openings in the quarter, how much did this impact the flow-through from gross margin to the operating profitability? I don't know if you can quantify in peso terms in basis points or at least directionally as we look into the second half, where as you were saying, some of these stores will start contributing and the number of openings should be, I would assume, relatively less compared to last year?

[Eduardo Padilla Silva, executive]

Well, let me start with the last -- last part of the question, which is the store openings. Yes, increasing 30% of the store openings during this period of time affects the results because the sales growth really comes into -- strong like the eighth or ninth month. So that will affect, without a doubt, the quarter results. But on the other hand, I think we very much are well positioned for the second and -- for the third and the fourth quarter of the year with a much better store base. I don't know if you want to quantify the gross margin.

[Juan Fonseca, executive]

I mean, I think I will go with this one. I think the behavior this quarter is not substantially different directionally from what we usually see. Obviously, the gross margin, the drivers as Eduardo mentioned in the remarks, are not that different from what you've heard us talk about in recent quarters and even maybe a couple of years in the sense that you have the services category continuing to grow very strongly, well into the double digits, which is very accretive to margins. You have kind of the virtuous circle of scale and execution, making us even more attractive to suppliers who then, in turn, are willing to deploy more of their budget to advertising within the store and positioning the products inside the store. And then on the operating income side of the story, in addition to the pressure that comes from very accelerated expansion and the fact that you have so many stores that are not selling what they eventually are expected to sell, we did mention the secure cash transportation has become an issue now for a number of quarters. This is kind of a -- it's a high-quality problem, obviously, because it means we're generating even more cash at the stores and looking for ways to "get rid" of the cash partly by having the withdrawals from bank customers, from the remittance businesses, having people be able to take some of the money in larger amounts of cash. But there is no question that we've seen some inflation on that front. We mentioned a tightening labor market. As you know, compensation has been part of it in terms of our efforts to improve the structure and the gradual evolution or migration from commission-based stores into more employee-staffed stores across different parts of the country. And those, I think -- the way that I think about it is, this is not a very different quarter from what we usually see. Maybe the amounts were larger in terms of, as you mentioned, a very big margin expansion and the growth level and a very big number of new stores. But directionally and more importantly, going forward, I don't expect a big departure from this in the coming quarters.

[Luca Cipiccia, analyst]

And just to clarify for the number of stores, the run rates on an annual basis shouldn't change dramatically, just the shifting of timing of openings. Is that correct?

[Juan Fonseca, executive]

I mean, you should expect maybe a few more stores than last year. But right now we are a lot higher than last year. And so we're going to give our guys the chance to slow down towards the end of the year so that we still probably exceed our targets, but not by as much as the run rate would indicate today.

[Eduardo Padilla Silva, executive]

We are patterning the growth, and it makes us very efficient because the raw material is working for us all the year. Whereas before, we were skewed to the third and fourth quarter, and that has been affecting results in the store performance. So I think it's a good thing, that having flattened out the curve and being able to improve the store openings during these first 2 quarters, I think is very good for us.

[Juan Fonseca, executive]

And I may say, we've been trying this for a while, and this is the most successful that I have seen us be at this ever, probably.

[Luca Cipiccia, analyst]

And out of curiosity, just logically, why was that the case? I mean, intuitively one would think that it's better to open earlier and then leverage the stores in the seasonally more important quarter. Why in the past it was not possible?

[Eduardo Padilla Silva, executive]

Because we are not talking about doing things, we tend to the first things and then it's like a -- I don't know it's like, oh, my goodness, the year is [indiscernible], that's correct.

[Juan Fonseca, executive]

All of a sudden you're in July, and you're behind your target. There is no big answer. It's just...

[Eduardo Padilla Silva, executive]

It's human nature at work.

[Juan Fonseca, executive]

And then you play a little bit with incentives so that people are -- they have a reason to focus on the first half of the year, and it seems to be working.

[Eduardo Padilla Silva, executive]

In a way the -- before the machinery was exhausted by the end of the year. And then the next -- so -- and it was the peak season. So I think the way that we were trying to do is really is -- I'm very happy they've been able to succeed on that.

[Operator]

Your next question comes from the line of Antonio Gonzalez with Crédit Suisse.

[Antonio Gonzalez, analyst]

My question is on the fine-tuning strategies that you've been doing on the compensation side for some time now. I wanted to ask if you can give us any order of magnitude here of how has the turnover actually improved? I know that perhaps sharing the absolute number of the annual turnover might be problematic, perhaps what -- again, just -- I'm trying to understand if you lowered turnover by 5%, 10%? Or was it something more meaningful than that? And I'd like...

[Eduardo Padilla Silva, executive]

No.

[Antonio Gonzalez, analyst]

Sorry.

[Eduardo Padilla Silva, executive]

Sorry.

[Antonio Gonzalez, analyst]

I guess what I'm trying to get is, I'd like to see your bigger picture perspective of where are you in the journey of that improvement? Who are you benchmarking with, because I presume obviously there's a little bit of tweaking the compensation structure, but then, again, you do not have that many peers in Latin America directly? So I just want to see how do you think of who the best -- about who the best-in-class benchmarks for you would be as you are doing this process? Where are you in the journey? Is there more to come? And just finally, if you can share whether any of these best practices that you are capturing at OXXO, specifically, can be sort of exported to the rest of the formats at FEMSA Comercio?

[Eduardo Padilla Silva, executive]

Thanks for all the question. Basically, we would -- let me give you -- we are divided in the stores -- are either run by the commission leaders or employee leaders. We tend to have -- we've been able to help the commissionist to structure their workforce very much. So we've been able to enable them with systems, with processes so they can manage the workforce the same way and also will manage the store employees. But saying that -- in spite of that effort, we still have higher retention in-store in commissionists and in-store store employees than we have in our own employees in OXXO. Before I think -- that lack of structure probably didn't give the store employees better understanding of how the payment was made and how performance was measured. So the reparation that we have in our own store leaders and the store employees, the ones that are employed by OXXO is less. So little by little, I think we are saying that we have to -- the beauty of the store leader and the commissionist is like he's an entrepreneur. He's a real entrepreneur with teamwork, and we would love to have the best of both worlds. To have that entrepreneurial spirit and have this structured discipline of having our own employees. And we've been trying to pursue both and that is, unfortunately, the vocation in the stores -- and the commissionist is higher than in our own base. We've been able -- we've been mixing our own strong base of store employees day by day. And that is changing the -- probably, I will say, 55, 45.

[Juan Fonseca, executive]

Something like that...

[Eduardo Padilla Silva, executive]

That will be around 50-50 and it's good the -- how the company is structured. When we compare our peers, we know that our competitors -- direct competitors and community stores have a much higher retention. We also compete in that particular profile with people who work for the QSR people. They also will take [indiscernible] and also for supermarkets. So it's a very systematic thing because sometimes we have not been able to deploy just -- in the store employee, instead of -- to arrive to the store takes 1 bus or 2 buses or urban transportation to arrive to the store [indiscernible]. So we've been trying to just not -- by increasing the payment, but also be more wise how to locate people depending where they live, depending on their own conditions. And even though we have a new labor reform here in Mexico, I think we have been able to use it well to have probably people that will be working just very few hours instead of the whole shift. So I think, Antonio, we still have a very -- a lot to learn, and we will love to have -- the more the store is becoming more sophisticated in terms of services and everything, I will -- the more we think we would love to have a more stable workforce. And that's why we're aiming to control that in a better way. Compared with the industry, we are better, but we are not satisfied. And do you want to add anything?

[Juan Fonseca, executive]

I would say, Antonio, in terms of -- if you are to see the data series for turnover, improvements have probably been in the neighborhood that you mentioned, right, something like 5% or 10%. But the situation, when we look at it right now, as you know, unemployment in Mexico is at historically low levels. There are a lot of opportunities out there. There has been some inflation, at least it's coming down, but it has been higher the last 12 months than it had been for a while. And so it's turned out to be challenging to maintain the gaps that we aim to have versus the competition or other alternatives that people have for jobs. So it's definitely become a kind of a permanent exercise, where you're trying to keep those gaps, then other people raise their own wages, and we need to react. So I would say, and that's why we mentioned it in a couple of different points in the remarks, we do think the labor conditions are in a bit of a tightening cycle. We're obviously vigilant. We will have to see what happens to minimum wages and things like that. Very few people at FEMSA, almost no one, makes minimum wage. Everybody makes more than that. So there would be a buffer of sorts in that scenario. But obviously, if the minimum wage goes ups, then that puts pressure on the whole structure.

[Eduardo Padilla Silva, executive]

And let me briefly describe how the workforce of the store is. As a store leader, the patience is very low compared with the store employee. And you know, we -- store employees, we don't want them to stay 5 years, of course not, because we know that we will be training them, and they want to improve their position. And because of training of OXXO, they are better to be -- they're more able to work somewhere else because the training is very good and they -- now they are enabled to do more things.

[Antonio Gonzalez, analyst]

So store leaders turn around 20%.

[Eduardo Padilla Silva, executive]

More or less, yes, 16%.

[Antonio Gonzalez, analyst]

16%.

[Eduardo Padilla Silva, executive]

And the store employees, that's very high. That's very high. But also we have the ladies that work in O'Sabor. O'Sabor is that -- the taco venture that we're having in already now more than 1,000 stores, I think they're on 1,200 stores. And you know, the way we have been able to recruit people, these are basically older ladies around their 50s and that's very stable. And they're very stable. I mean, they -- the retention is very low. I think they are, I don't know, low 20s. And my understanding is that how to -- sometimes the workload at the store is heavy. And sometimes that is also something that we have to bear in mind. So also how to make things easier at the store in order to move things around, and that is also some of things that we have to work on.

[Antonio Gonzalez, analyst]

If I may just super quickly, have you quantified if there is an increase in 10% in minimum wages in Mexico? How much would that impact your overall OXXO structure? Or are you still...

[Eduardo Padilla Silva, executive]

Well, we are -- since our total compensation is well ahead -- well above that, we don't know really how much we will be have to increase because if minimum wages increase in Mexico, that will be -- probably in one hand that will put some pressure on us, but there will be more consumption. So it will be a double sword.

[Juan Fonseca, executive]

And it plays both ways. But I think the fact that we do have a good buffer, I think means that on day one, in our -- the impact would be very limited. And then you need to kind of figure out how it's trickling up our -- kind of up the wage ladder if you will. So we are not super worried at this point.

[Operator]

Your next question comes from the line of Benjamin Theurer with Barclays.

[Benjamin Theurer, analyst]

Just to switch gears a little bit, I wanted to focus on the Health Division, if you let me. So the question is, we're seeing a pretty decent improvement from income from operations, margins are up almost 200 basis points. And you've mentioned a couple of things so clearly the level of contribution from Chile and Colombia helped, but that you've also seen already some of the benefits from the recently integrated operating platform in Mexico. So on that, could you give us an update where you are in terms of the integration process? And what you've been seeing on Mexico specific on the health business in terms of margin expansion if you would have to isolate that to basically take away a little bit of that currency implication in that segment what we've seen during the second quarter? That will be my question.

[Eduardo Padilla Silva, executive]

Let me just give you the -- tell you that the efforts that we have in place in the OXXO platform in Mexico, we're very -- we're happy with it. We've been able to improve margins to negotiate better, to use better logistics systems, although still, we have a lot of room to grow and to improve. What we have -- what we still probably are stable, but we'd love to increase better in sales per store. And that will be probably our second stage. Once you have the levers to execute better, then probably you can start focusing on the consumer better, because that -- as I said, probably in some previous calls, the levers didn't work well. So this platform that we are mounting to have the whole chain in only one platform is something that we are learning, and we are -- it's stabilizing. And we're very happy with the results. In place of the exact numbers, why don't you give some description?

[Juan Fonseca, executive]

Just remembering that the difference in size between the South American operations and the Mexican operations, not in terms of number of units, but just in terms of revenues, and of course, profitability, it's very, very significant. So in order to have this magnitude of an improvement of the Health Division, you really need South America to be performing very, very well. Mexico alone doesn't really move the number anywhere near that much. So definitely there was a currency benefit, there was an easy comp in South America. There were -- certainly execution improvement across the board. But I think what's happening in Mexico is, I would say, directionally very encouraging. You begin to take pages of the playbook of OXXO in the sense of beginning to monetize the real estate at the store, beginning to get some logistics income from -- now that you have your single platform, you're taking care of some of the distributions, so you can charge for that to suppliers. Also, I think become smarter in terms of how we're growing the number of stores, which slowed down a little bit, the pace of opening. We are focusing more on territories where our brands are strong and well known, and we've moderated the pace in terms of conquering new markets. Obviously the -- we need to let the brand begin to kind of take hold and for people to know it and try it and generate repetition. So I do think that it's more than just the logistics platform or the fact that we are now running on the same SAP system. I think on a number of vectors, we are executing more wisely if you want. So I mean, I don't want to get into the nitty-gritty of base points, but certainly, directionally, we like how Mexico is performing.

[Benjamin Theurer, analyst]

Okay. And then just one follow-up in terms of same-store sales performance in Mexico. Are you seeing positive trends with the stores? Or is that mainly, as well, driven by the South American business?

[Juan Fonseca, executive]

It's very -- I mean, positive, but just a little bit, right. So we're coming from few quarters where basically we were not performing well at all, and now we're improving. So I would say the best performer of the 3 countries was Colombia, then came Chile and then came Mexico.

[Eduardo Padilla Silva, executive]

But again, since we are changing the pitch of the drugs that we sell in the store to -- we are moving on to more generating. And that is affecting the price of the item, but it's benefiting our margins. So...

[Juan Fonseca, executive]

That's a very important point, because part of this -- I mean, part of what the single platform and the direct -- you rely a little bit less on the middlemen, which usually show how much generics you can have in your mix. So we're definitely trying to grow that because it helps profitability a lot. But it's going to be a little bit -- when you look at the same-store sales number, you need to keep that in mind, because the price point is significantly lower.

[Eduardo Padilla Silva, executive]

Yes.

[Operator]

Your next question comes from the line of Robert Ford from Bank of America.

[Robert Ford, analyst]

I just wanted to get some comfort with the same-store sales at OXXO. I think the 3% was a little bit worse than expected. We are anticipating some impact because of the seasonality. But could you go over the comps month by month and maybe touch on how you're coming out in July? And then also, given the acceleration in new store openings, where are you now in terms of your views of industry saturation? And was there a role of cannibalization in the period at all, right? And then, when -- could you also provide the same-store sales for the comps or the same-store sales comps for the Health Division in local currency for those 3 markets, please?

[Eduardo Padilla Silva, executive]

Let me start with the second part of the question about the saturation of Mexico. We are very positive that we are still very low of saturating the Mexican market. If you measure some of the markets divided by the number of people and also we can -- been able to improve our value proposition to grab more locations of consumption. I think there's still -- I don't know we think 10,000 stores as -- a potential for opening stores in Mexico. We still believe that. I don't know, Juan, did you want to answer the other part of the question?

[Juan Fonseca, executive]

Yes. I mean, certainly the amount of white space and the comfort level when we talk to the guys that are in charge of expansion, it's very, very high. I would say it's as high as I've ever seen it in terms of their -- how they measure the -- our internal metrics, dividing average, the performance of the new stores versus the old stores. There's a very high level of confidence that we're going to be able to keep this up for quite a while. Now in terms of our same-store sales number, certainly the month of April, we knew it was going to be a soft month because of the full shift of the manufacturing into the first quarter. May and June were actually pretty good months. And then we highlighted the fact that looking at the 6 months, we are right where we thought we would be, right. Obviously, there's a little bit of noise this time around because of the World Cup, because of numbers that are out there from retailers that have a very different mix from what we have in terms of big-ticket items, TVs and the like. But we feel good about the number, quite frankly, Bob. I mean, it's -- this is the fourth year where -- if you look at the past 3 years compounded, we're talking close to 25% same-store sales growth to be in the 5s in the first 6 months of the year, given the uncertainties, the -- how people -- with the election coming up and the uncertainties related to that, uncertainties related to NAFTA, especially in the north of the country. We don't think this is a number that disappoints internally, again, on top of what has been an amazing run over the last 3 years. So we don't think there's anything wrong really with the machine. We actually feel pretty...

[Eduardo Padilla Silva, executive]

Although we can improve it.

[Juan Fonseca, executive]

Of course, that's fair.

[Robert Ford, analyst]

And so is it fair to say May through July, you're in line or above the 6-month trend?

[Eduardo Padilla Silva, executive]

Yes. Yes.

[Robert Ford, analyst]

Great. And then just...

[Juan Fonseca, executive]

On the health side, I mean Colombia it's in the teens basically, and then both Chile and Mexico are in the low singles.

[Operator]

Your next question comes from the line of Ulises Argote from JPMorgan.

[Ulises Argote Bolio, analyst]

Just one quick here from my side. Can you provide an update on the Amazon click-and-collect rollout you told us about in the last call? And maybe give us some color on how this is driving sales. Maybe what kind of spending profile you're seeing from the customers that are walking into the OXXO stores to pick up their Amazon orders?

[Eduardo Padilla Silva, executive]

Well, Juan loves the [indiscernible].

[Juan Fonseca, executive]

I mean, the objective we have I think is very much in line what we said 3 months ago. We are almost at 3,000 stores enabled for the click-and-collect. This is basically the metro area of Mexico City, Monterrey, Guadalajara, and then you can add Puebla, Queretaro, Merida, and some other medium-sized cities. Basically, the limiting factor at this point in terms of the deployment is the Amazon logistics. So whatever Amazon logistics can get, we can enable those stores very, very quickly. So the expectation continues to be that we're going to have -- I mean, we already have 2,000 right now. We expect this trend to continue in the second half. It's very early, I mean, when we were looking at the data in terms of how many transactions are happening per store, per week, I mean, the numbers are still low. I think there's obviously, a learning curve or an information curve, I guess, for the customer to know that they have the OXXO alternative, to adopt it, to try it. So I would say the data as of right now is probably not significant in terms of what this could potentially be. But it's definitely moving in the right direction. And as I said, we're almost at the 3,000-store mark. So it's somewhere -- something like 2,900.

[Operator]

Your next question comes from the line of Álvaro García from BTG.

[Alvaro Garcia, analyst]

I wanted to go back quickly to the tight labor market in Mexico. You mentioned it and it was quite interesting. Just to finish up on that point, which is sort of the discussion on where the system could go as a whole, in the context of where you think margins can go next year? That's my first question. My second question, just real quick housekeeping. When we look at your net debt at the essential level, so OXXO, it seems some of your cash went over to a, let's say, longer-term assets. I was wondering if you could just remind us what your plan is or what your strategy is with that cash at the FEMSA level and what you're investing in that cash in?

[Juan Fonseca, executive]

Let me start with the second part of the question first. I mean, basically the -- you're right. I mean, there's a portion of the cash that is now invested in slightly longer-term assets. Marginal -- in order to comply with the repatriation decree, there's a very clear set of guidelines in terms of what kind of assets we can invest in. These are still short-term assets, there're just a little bit more than the 12 months that you need to classify them as cash. The greater question, I think, continues to be how are we doing on the deployment of that in terms of growth and in terms of actual transactions in businesses that put us in a good position to create value. And I would say on that front, we're moving forward. There're a couple of things that we're working on, that are promising. And we've talked about this in the past in terms of what type of assets, obviously, the pharma, whether in Mexico or in other parts of the region, again, using not just the -- I mean, the process for mechanical sales have to be invested in Mexico, but we do have cash that comes from the operations and that can be deployed anywhere. So no change to the strategy in terms of the type of assets that we want to acquire. But right now, there's really been nothing to report on that front in the last 3 months. In terms of the first part of your question on the labor conditions, I think, generally, the comment I made a few minutes ago, very low unemployment, lots of opportunities for young people to have kind of short-term jobs, and we just have to remain competitive and not just competitive, but hopefully continue to be the best choice for many of these young men and women. I would say given that we are being able to expand the gross margin the way that we are puts us in a pretty good position to then manage the SG&A. Sometimes you're going to have electricity down there, sometimes you're not. Like this quarter, electricity was actually a bit of a tailwind as a -- or a headwind. I mentioned the secure cash transportation, that's something that we're probably going to keep talking about because it has become relevant and it moves in sync with the success of our service category. And that is going very strongly. And for short labor, I mean, again with low unemployment numbers, we'll probably continue to talk about how we're managing that and maybe putting in a little bit pressure on the SG&A. But overall, we are sticking -- definitely sticking with our expectation that we can continue the year and finish with stable margins at the operating level.

[Alvaro Garcia, analyst]

Great. That's great. Just one follow-up is sort of the net cash position, let's say, at FEMSA today would be somewhere around the range of a little over $2 billion. Is that ballpark?

[Eduardo Padilla Silva, executive]

The net cash, well, yes we tend to look at it OXXO FEMSA. You're looking at the [indiscernible] number, right.

[Alvaro Garcia, analyst]

Correct, OXXO.

[Juan Fonseca, executive]

3.2.

[Eduardo Padilla Silva, executive]

3.2 is the number we have here.

[Alvaro Garcia, analyst]

3.2. Okay.

[Operator]

We will take our next question from Alex Robarts from Citigroup.

[Alexander Robarts, analyst]

I was keen to actually inquire about the Comercio footprint and profitability in Colombia. I get the impression, at least on the OXXO side, right, that we've got some more store openings or at least the pace of openings is accelerating. And I'm wondering if you could kind of talk to that, what is perhaps -- if there is a change in the ability to open stores or how you're looking at that footprint? What could be a goal for store count over the medium term? And when we think about that growing over time, is it fair to think that today the OXXO Colombia EBIT margin is quite distant from where the reported OXXO margin? Is it close? And I guess, the last piece of this on Colombia is interested to hear what is driving this mid-teen same-store sales growth in the drugstores in Colombia. I'm just curious to see if that's a sustainable rate for now? And if you could give us some color around that, that would be great?

[Eduardo Padilla Silva, executive]

Let me start with OXXO, OXXO in Colombia and OXXO in Chile. I think we're happy that our stores in OXXO finally are profitable. We lack scale. And we just have to build the number of stores to have scale in order to have a very profitable operation. And what is driving that, is driving the increase? Same-store sales. And there are now stores in Bogota that sell more than Mexico City stores. And there are some things still of the cost structure of the store that we have to be more efficient and tune it better. But I've been very happy with the results. In terms of OXXO in Chile, where we acquired Big John. Big John was not profitable. Big John lacked scale. Some of those stores were profitable. But they have these different views of what convenience means for the market. It's a very much -- it was very much in line with convenience for the gasoline market in South America or sometimes the convenience store pricing is 50%, 60%, 70%, more -- higher than the supermarket pricing. What we've been able to do is to -- out of the 50, 60 stores that we have in Chile, to transform close to 20. And what we've been trying to do is to improve our value proposition that convenience can -- doesn't have to be expensive, and convenience could be profitable to the shareholder and also be very -- be an extraordinary value proposition for the consumer. And what we've been doing to do is transforming those 20 operations from Big John to OXXO. And the way that we've been able with -- we are at the banner now in OXXO at the new stores. And the value proposition is different. And it takes like 6 months to really recuperate the margins because the store sell much more what Big John used to sell with lower margins. But at the bottom is -- basically the effect will be about the same. So in Chile, in both markets, we are hopeful, we are very happy. And I think the best is still to come. I don't know if you want to add anything, Juan.

[Juan Fonseca, executive]

I think the fact that in Colombia we are finally where we wanted to be, I think, in terms of the value proposition and the revenue per store. And it's really just a matter of having more numbers to dilute the overhead and to increasingly negotiate better with suppliers. I think Chile has been a little bit behind in that curve. What I would say in both cases you should expect to hear more from us in the coming months and quarters in terms of ramping up the phase of openings. In the case of Colombia, if you look at the whole country, you could certainly aspire to have several thousand stores eventually. Obviously, when you look at Chile, it's smaller and it's more -- much more concentrated around the Santiago Metro area. I mean, obviously, there are other places where we already have stores and where we could have stores. But in Chile, it's much more dependent on Metro Santiago, and the absolute number of stores is probably a little bit lower than we could eventually have in Colombia. But it's giving us confidence. The speed at which we are now being able to test things and get to conclusions and make those changes at the value proposition, we've been able to make those processes a lot faster. And the level of comfort that we can probably aspire to go to another country in the not too distant future is high. So as a percentage of overall OXXO, this is tiny, and it will continue to be small, because the benchmark is growing double-digit or very close to that, I mean, for sure, close to 9% in terms of new stores in Mexico, close to same-store stores gets you to the teens. So the benchmark is growing in the teens. So as I started, we grow in South America, it will continue to be slow. But the appetite and the confidence, and like I said, the frequency that you're going to hear us talk about international operations are definitely going to rise.

[Alexander Robarts, analyst]

Very helpful. But just to get it straight here in Colombia for OXXO. So what -- could you share with us what the store openings were so far this year or in the quarter? And just I was keen just to understand, if you could touch on why at drugstores we're seeing in Colombia this mid-teen same-store sales growth?

[Juan Fonseca, executive]

The new openings in Colombia have not really accelerated yet. So we haven't started this kind of second stage roll out, but we're getting ready to do that. In terms of the Colombia health same-store sales, it has been in that ballpark really for a couple of -- pretty much since we acquired Socofar. I think the guys have been doing a very good job. Remember that the Colombian market has a big institutional component. So I think we've done a good job of increasing the number of entities that we are associated with. It's a very fragmented market. There's a lot of room for improvement in terms of the traditional trade. And it's just a market where we expect to be able to continue to grow fast. Certainly of the 3 markets, it's probably the most compelling in that sense.

[Operator]

And we will now take our next question from Rodrigo Echagaray from Scotiabank.

[Rodrigo Echagaray, analyst]

Just a quick update on how OXXO if you may. I'm wondering if there is any option for that to be scaled at other businesses and geographies, meaning Mexico drugstores and potentially have American drugstores as well as all the OXXOs that you guys are now opening? And maybe bigger picture, if you can share any update on how is OXXO PAY in partnership with Conekta doing? I mean, that seems to be also very promising and -- I'm just wondering if there is anything new on that?

[Juan Fonseca, executive]

Well, I mean, let me just currently follow on the comments. In terms of Saldazo, we are about MXN 10.3 million.

[Eduardo Padilla Silva, executive]

That was the number [indiscernible]

[Juan Fonseca, executive]

10.3, which -- I mean, the run rate continues to be more than 200,000 per month. So that hasn't changed.

[Eduardo Padilla Silva, executive]

The balance that they keep in those cards -- or the use of the cards is higher than the industry is.

[Juan Fonseca, executive]

Yes, much higher, I think probably like 50% of utilization, right?

[Eduardo Padilla Silva, executive]

Utilization compared with the different number.

[Juan Fonseca, executive]

Which is about half.

[Eduardo Padilla Silva, executive]

Yes.

[Juan Fonseca, executive]

Normally at the debit card, we'll have about a 30% usage, where we are running at twice that. But yes, the comment I was going to make -- and expand on this, I think the part of the genesis for Saldazo was as a loyalty program. But the truth is that we've become a lot more ambitious in terms of what we want the loyalty program to be at OXXO. We have the loyalty program challenge, if you will, at the drugstores as well, and there's a lot of work being done on the digital side and this kind of links up to your question on Conekta. I mean, I think there is a lot of work being done and hopefully, there will be news down the road about improved loyalty programs in our different formats. I think on the Conekta front, I mean it is promising as you say. Right now, I think a lot of the benefit that we're seeing is kind of at the B2B level, basically the time. It used to be that if you paid your utility bill at OXXO, it would not be credited at the provider in real-time, it would be done more in batches. And now, the platform is enabling this to happen in real-time. Eventually, obviously, the benefit of this needs to be translated to the end consumer. So this aspiration that we have that people will pay through OXXO even sitting in the comfort of their living rooms, kind of taking the strength of the brand outside of the box and capitalizing on the fact that for a big chunk of the Mexican population, OXXO is now synonymous with payments that work as planned. You give OXXO your money, and the money gets to where it needs to get.

[Eduardo Padilla Silva, executive]

We've become very reliable.

[Juan Fonseca, executive]

We're very reliable, and the challenge is can we then do this outside of the box. And Conekta is one of the ways that we're working on that.

[Operator]

We will now take a follow-up question from Robert Ford from Bank of America.

[Robert Ford, analyst]

I had a question with respect to [ Logística ], and if I am looking at this stub correctly, it looks like the profitability or the EBITDA was down by about a third in the quarter. And given the trucker strike, that didn't seem to be too bad. Can you talk a little bit about how [ Logística ] is normalizing in Brazil after the trucker strike, if the disruption creates opportunities for you? And then given the rapidly growing demand for e-commerce-related logistics, can you touch on any -- at least a strategy when it comes to e-commerce if they're planning something?

[Eduardo Padilla Silva, executive]

So for me -- Juan will give you the precise numbers. And then he will give you the [indiscernible]. No, really, I think, [indiscernible] we are in -- we have 4 businesses. The health, the [indiscernible] business that we have is very profitable -- well, becoming now profitable in Brazil. Although this is the opportunity of the truckers' strike was -- really affected us dramatically. But again, we are very hopeful that we have an extraordinary base to the business in Brazil. The second business is direct carriers that we have for Heineken, for OXXO, for Coca-Cola FEMSA and some of other minor operations. And that is very stable. Although again, it's -- we are -- unless we understand how to do this business better, it's becoming more...

[Juan Fonseca, executive]

Commoditized.

[Eduardo Padilla Silva, executive]

Commoditized. The other thing is the warehousing. Warehousing is a business that we are learning. And we have some operation in Colombia and an operation here in Mexico. And again, we are learning the business. And the other one is transportation management. And that -- we're also very hopeful with that business. The thing is that we love to have -- it seems like these businesses have -- we have different views in different countries. We would love to have one platform with -- and this comes out to be useful in all the countries that we are. And again, that will be a very challenging thing to do, and it will take us time. And we are in the middle of making this business to work as one. And again, we are very convinced that this is going to be a profitable business, something that we should be investing in the future. And it goes very much in line with the know-how of things that the FEMSA businesses require. I don't know if you want to add anything Juan.

[Juan Fonseca, executive]

I think to Bob's point and by the way...

[Eduardo Padilla Silva, executive]

I forgot the last one, you may.

[Juan Fonseca, executive]

We'll talk a little bit about that. I mean, certainly, a big chunk of our logistics operations are now exposed to Brazil. We've been in other areas of -- small and medium acquisitions there in recent years. And so you're right that part of the reason for this subpar number has to do with that. But what happens there, when you have tough conditions, it usually kind of gets -- it hits the smaller players more. It probably drives some people out of business so it puts pressure on some less formal players. And so much -- like it happens in other industries, you sometimes come out of these disruptions with prices -- with better market share or in a stronger competitive position than you went in. And so that is our expectation. And you're right that, as Brazil continues to improve, which continues to be our base case, you should expect to see better numbers out of our logistics operation now. Basically, the bulk of our operation, I would say, 100% continues to be B2B. We're really not involved at this time in the last mile in terms of the kind of competing with the FedExes and the UPSs of the world and going to the home. With this cost of the OXXO front how -- in a way the click-and-collect, it's kind of a reverse last-mile. But certainly, the logistics business on [ Logística ] does not currently serve the last-mile.

[Eduardo Padilla Silva, executive]

And we have last-mile efforts being tried in a lot of places.

[Juan Fonseca, executive]

Right. That doesn't mean we are not looking at how we did on short-term sales there. But as of today, that's not the case.

[Operator]

Ladies and gentlemen, that is all the time we have for questions today. I will now turn the conference back to Mr. Padilla for closing or additional remarks.

[Eduardo Padilla Silva, executive]

Let me just clarify the number of the net -- the net debt that we have is 1.2. The 3.2 is the cash number, so just to clarify so we don't have misunderstanding here. Well, thank you very much all for your presence. Thanks for your participation. Have a great weekend, and we look forward for a better quarter next quarter.

[Unknown Executive]

Thank you, everyone.

[Eduardo Padilla Silva, executive]

Thank you.

[Operator]

Ladies and gentlemen, if you wish to replay the webcast for this call, you may do so at FEMSA's Investor Relations website. This concludes our conference for today. We thank you for your participation, and have a nice day. All participants may now disconnect.