Fomento Economico Mexicano SAB de CV

NYSE:FMX

Earnings Call Analysis

FEMSA Shows Growth Amid Challenges with Optimistic Future Outlook

In the third quarter, FEMSA reported an 8.3% revenue growth and a 14.6% rise in operating income, signaling robust performance despite a 27.5% drop in net income due to higher interest expenses. Proximity America faced challenges with flat same-store sales affected by a 5.7% decrease in traffic, though average ticket size grew by 6.1%. The company plans to add approximately 1,100 new OXXO stores in Mexico by 2025 while enhancing its value-proposition through strategic initiatives. Optimism abounds around the health segment's growth in Colombia, alongside expansion opportunities in Brazil and digital services, including a strong performance from the Spin Premia loyalty program.

A Promising Performance Amid Challenges

In the third quarter of the fiscal year, FEMSA reported total revenue growth of 8.3%, driven by strong performance across its business units. However, net consolidated income took a hit, decreasing by 27.5% to MXN 9.2 billion, primarily due to increased interest expenses and lower noncash foreign exchange gains. Despite these challenges, management remains optimistic about the company's long-term trajectory, highlighting ample opportunities for growth.

Operational Metrics Highlighting Resilience

The OXXO store chain, a significant contributor to FEMSA's revenue, expanded its store base with the addition of 367 net new locations in the third quarter, bringing the total for the year to 1,266 stores. OXXO's gross margin improved significantly by 300 basis points to 44.2%, thanks to enhanced commercial income and a positive impact from financial services. Operating income rose by 5.9%, with the operating margin slightly increasing to 10%.

Navigating Market Headwinds

While FEMSA's overall performance was solid, OXXO experienced a flat same-store sales growth due to various factors, including a 5.7% decline in average traffic, stemming from a cooler-than-average quarter affecting consumption. Nonetheless, average ticket size increased by 6.1%, reflecting successful revenue management strategies. The company is confident that with easing comparison bases and expected economic recovery in Mexico, improvements are on the horizon.

Strategic Focus on Value Creation

Management emphasized its commitment to maximizing long-term returns by strategically allocating resources to high-potential projects. A renewed focus on return on invested capital by business line and region is being prioritized, and the management team is actively adjusting business strategies to better navigate competitive environments.

Health Division Shows Robust Growth

Within FEMSA's Health Division, total revenues showed a promising 12.5% growth, particularly boosted by a strong performance in Colombia, where same-store sales increased by 7.4%. The team is focused on expanding market share and enhancing operational efficiencies while facing competitive challenges in regions like Mexico.

Expanded Digital Footprint and Financial Services

FEMSA is leveraging its digital platforms effectively, evidenced by an impressive 28% year-on-year growth in active users on its Spin platform, now totaling 8.2 million. The Spin Premia loyalty program similarly saw a remarkable 35% increase in active users. The integration of these technologies indicates a focus on driving customer engagement and recurring revenues.

Investment and Shareholder Returns

FEMSA invested MXN 12.1 billion in CapEx, reflecting a 26.4% year-over-year increase, underscoring its commitment to growing operational capabilities. In aligning with shareholder interests, the company has committed to returning MXN 50 billion in capital over the next 2 to 3 years, which includes extraordinary dividends and share buybacks aimed at enhancing overall shareholder value.

Looking Ahead: Guidance and Expectations

FEMSA's management anticipates a return to more favorable same-store sales growth in the fourth quarter, driven by strategic promotional efforts and adaptations to changing market needs. For 2025, OXXO is expecting to add approximately 1,100 net new stores, maintaining a growth trajectory while adjusting value propositions as necessary to cater to evolving consumer demands.

Earnings Call Transcript 2024-Q3

[Operator]

Hello, and welcome to FEMSA's Third Quarter 2024 Results Conference Call. My name is Melissa, and I will be your coordinator for today's event. Please note this conference is being recorded. [Operator Instructions] I'll now turn the call over to Juan Fonseca, Director of Investor Relations. Please go ahead.

[Juan Fonseca, executive]

Good morning, everyone. Welcome to FEMSA's Third Quarter 2024 Results Conference Call. Today, we are joined by Jose Antonio Fernandez Carbajal, CEO of our Proximity and Health Division; Martin Arias, our CFO; and [ Juan Fonseca ], Investor Relations team. The plan for today is for Jose to open the conversation with some comments on the performance of Proximity and Health during the third quarter. And then to move on to a more strategic set of topics that follows and provides an update to some of the messages he shared with you 6 months ago during the first quarter call, including some preliminary views on our expectation for 2025. After Jose's remarks, Martin will provide more detail on the broader business and our quarterly results. Finally, we will open the call for your questions. Jose, please go ahead.

[Jose Antonio Fern?ndez, executive]

Thank you, Juan. Good morning, everyone. During the third quarter, Proximity and Health delivered a solid set of results. As you look at our financials, you see growth almost everywhere and margin expansion in all the right places. This is certainly positive and a testament to the strength of our business platforms, the skill of our teams and a permanent effort to grow and improve quarter after quarter, year after year. Martin will go over the results in some detail in a few minutes. I want to focus particularly on what did not go that well. Particularly the dynamics of same-store sales at Proximity America, which came in flat for the quarter.

First, let's discuss average traffic which contracted 5.7%, reflecting a [ weather ] and cooler third quarter with its negative effect on some of our most important consumption occasions, first and gathering. The greatest contraction was in key categories such as beer, soft drinks and water. Beyond weather, in the third quarter, we faced a demanding comparison base, as same-store sales grew over 15%, and traffic increased a remarkable 8% in the same quarter of last year.

Finally, as low in consumer environment in Mexico also contributed to the weakness. This environment is typical for the second half of an electoral year. Offsetting the falling traffic, average ticket grew 6.1%, reflecting revenue management initiatives while having a favorable effect on gross margin. A careful review of pricing and market share data lead us to the conviction that these revenue management initiatives have been implemented without losing price competitiveness or market share in the relevant category, relative to the traditional trade as well as supermarket.

It goes without saying that we will continue to monitor the data to ensure that we maintain our competitiveness. As we look ahead, our comparison base gets easier, and we look forward to an improvement in the Mexican economy in general and the consumer environment in particular.

Let me walk you through our longer-term plans for Proximity and Health. My team and I have taken the first year of my time as Head of the division to carefully review the portfolio and to start adjusting our long-range plan with a renewed emphasis on return on invested capital by format, line of business and country.

This has led us to sharpen our focus on the investments that we are making by accelerating, decelerating or eliminating initiatives. A significant portion of my presentation to the Board in the coming weeks will be focused on an in-depth review of the entire portfolio with a specific focus on OXXO LatAm. This will complement the deep dives we undertook earlier in the year in the Health and Valora businesses.

We expect from this session to finalize our medium and long-term plans. Although we must receive comments and final approvals from the Board, I want to take the opportunity today to share some of the initial thoughts I have as to where we need to focus in the next few years.

First and foremost, OXXO Mexico, where we believe the opportunity exists to continue to create significant value for the foreseeable future. The business has structural momentum and a very high ROI wide spread. The 3 core drivers of OXXO Mexico are sustained growth in same-store sales, sustained gross margin at the current level and sustained high-quality store base expansion.

On that note, our preliminary store expansion target for 2025 is in line with the current trend of about 1,100 net new stores in Mexico or more than 4% of the base. We will also continue to evolve OXXO's value proposition by developing and integrating additional value layers with a current purpose on 3 projects: food service, price and store segmentation and cash management initiatives to strengthen our service business.

Beyond Mexico, we have several compelling opportunities and as discussed 6 months ago, we have the benefit of being able to modulate the pace of investment given the organic nature of the growth process and according to the stage of development of each format. Let me briefly go over the various opportunities and where we are with our plan for each.

In the U.S., we just closed our acquisition of the Delek retail assets. These are very early days, but we're excited to finally get to work in this attractive market. So we expect more information regarding markets around El Paso and the broader strategic path we expect to take.

At Bara, we continue to optimize our discount value proposition, while we meaningfully accelerate store buildup. With a preliminary target for 2025 of approximately 40% growth rate in the store base, we have also undertaken the decision to administratively and operationally segregate Bara from OXXO Mexico to ensure that it has the resources and focus it requires from what we expect to be a new stage of higher growth. This segregation may have a short-term impact on certain costs and expansion, but it will provide a solid foundation for the future.

At OXXO Colombia, our mature stores are already EBIT positive even after allocating overhead to them. And we are confident that we have a winning format with [ food business ] reaching approximately 15% of revenues and average sales per store matching those in Mexico.

We are excited with the evolution of this market, especially as we continue to develop specific capabilities and fine-tune our value proposition. Therefore, our preliminary target for 2025 is approximately 15% to 20% growth in store base, while we also build out our supply chain infrastructure and improve our processes in assortment, price segmentation, services and food.

For certain other LatAm proximity operations, such as OXXO, Chile and Peru, we are deemphasizing expansion, and we focus on improving their profitability drivers. This strategy will also help us reduce overhead in both markets. As a result of these initiatives, we expect to improve the results of OXXO LatAm generally and reduce the level of investment required in the short term.

In Europe, Valora continues to perform well, particularly retail and B2B food service, and we are working to improve traffic to B2C food service which will depend in part on an improvement in German economic growth. We expect this improvement in the next 12 to 24 months.

We are also making progress with our organic growth initiatives, particularly in German retail, but we have chosen to take a cautious approach in recognition of the complexities of that market. We're also driving continued capability sharing with the rest of Proximity by Valora for example, in foodservice and from Proximity to Valora such as the use of data for price and promotion optimization and leveraging our scale to increase commercial income opportunities.

At OXXO Gas, we're continuing to drive growth by increasing volume at our retail stations as well as pursuing incremental growth with institutional clients, cautiously optimistic on our ability to obtain permits to increase our station base organically and pursuing small bolt-on acquisitions in a very disciplined manner. We have also launched a pilot truck stop concept, which combines an OXXO store with FEMSA and third-party food offerings as well as specialized facilities for truck drivers such as showers, rest area and mechanical services.

These stops could be located in key highway areas, offering a compelling new value proposition that better addresses the needs of Mexican truck drivers. Regarding the traditional trade after a careful analysis, we will recommend to the Board suspending our Pronto initiative, both the franchise model and wholesale distribution. We may revisit this in the future, but given the many priorities in front of us, we have concluded that renouncing certain initiatives is as essential as identifying which ones we want to accelerate.

Obviously, we will continue to leverage the proximity and cost capability to pursue the opportunities to provide the traditional trade with businesses and payment platforms through our digital division.

Finally, as FEMSA health, each of our 4 country operations are in different situations and require deeper strategy. For now, let me focus on 2 countries, the one that presents the most dynamic opportunity and the one that needs the most work.

In Colombia, we are achieving rapid growth in retail as we deemphasize exposure to the challenging institutional segment. We expect to continue growing our leadership position by expanding rapidly with a unique value proposition for Colombia in pharma and health and beauty. We have also identified an opportunity in the wholesale distribution business, where we will use our scale and logistics capabilities to serve the independent pharmacies, which still represent close to 50% of the market.

In Mexico, we will continue rolling out our new flagship drug stores with an important component of health and beauty as we navigate an intense competitive environment. It is early to determine the results of the new flagship stores, but we're optimistic that the dual format strategy will work as well in Mexico as it has elsewhere for us.

Wrapping up, hopefully, the message we leave you today is one of ample opportunities for profitable growth in the short, medium and long term of an organization that is highly focused on a management team that is determined to prioritize and allocate resources according to each project's potential to deliver the healthiest spread between ROIC and WACC in the long term. And with that, I will now turn the call over to Martin to talk about FEMSA's third quarter results. Martin, please go ahead.

[Martin Arias Yaniz, executive]

Thank you, Jose. Good morning, everyone, and thank you for joining us today. Let's begin with FEMSA's consolidated second quarter results.

In the third quarter, we achieved total revenue growth of 8.3%, while operating income rose 14.6% compared to the same period last year reflecting a strong performance across business units. Net consolidated income decreased 27.5% to MXN 9.2 billion. Driven by a higher interest expense of MXN 4.4 net of interest gains, reflecting a tough comparison based from gains on derivative instruments in the third quarter of '23.

A lower noncash foreign exchange gain of MXN 4.2 billion compared to last year related to FEMSA's U.S. dollar-denominated cash position positively impacted by the depreciation of the Mexican peso which was more than offset by a foreign exchange loss due to our debt positions in all of our currencies. And finally, a higher loss in net income from discontinued operations which includes an impairment of MXN 3.9 billion from our divestment in Solistica.

Turning to our operational results. Jose already discussed the overall performance of Proximity America and the same-store sales figures. So let me take it from there. Total revenues grew by 4.8%, driven primarily by a steady growth in our store base.

Gross margin once again expanded above trend by 300 basis points to reach 44.2%. As has been the case recently, this was driven by healthy dynamics in commercial income and a positive contribution from Financial Services.

Operating income increased 5.9% while the operating margin expanded 10 basis points to 10% of sales, reflecting a modest reduction in the growth in operating expenses relative to the first half of the year. This includes initiatives to mitigate the impact of higher labor costs and lower variable costs due to the slowdown in sales, partially offset by ongoing investments in capability building, such as segmentation revenue management and data analytics.

On the store expansion front, in the third quarter, OXXO added 367 net new stores during the quarter with 273 openings in Mexico, and 94 in South America, including 39 new stores in Brazil. Year-to-date, OXXO added 1,266 net new stores during the quarter, with 961 openings in Mexico and 305 in South America, including 124 stores in Brazil. This puts us well on our way to meet our objectives for the year, allowing us to reduce the pace of opening and focus on maximizing sales during the peak fourth quarter.

Turning to Proximity Europe. Total revenues increased by 20.4% in pesos, driven by growth in our retail and B2B food service business, mitigated by still challenging traffic dynamics generally, particularly in our B2C food service, which is more exposed to German train service disruption and a weaker German economy. Valora's results also reflect the impact from positive currency dynamics of a weaker Mexican peso, which accounted for 3/4 of the total increase.

Gross profit rose by 20.5% as well in pesos, with gross margin remaining stable year-over-year with a solid contribution from commercial income offsetting the weakness in the higher-margin B2C food service segment.

At the operating income level, Valora delivered another strong performance with a 52.2% increase and a 100 basis point expansion in operating margin, reflecting solid cost containment.

Moving on to the Health division. Total revenues posted a 12.5% increase in pesos with same-store sales growth of 7.4%. This reflects a strong performance in Colombia's Retail segment complemented by steady results in achievement and with favorable currency dynamics, which contributed to approximately half of the overall result. Operating income increased by 7.2% while the operating margin contracted by 20 basis points, reaching 4.3%. Although these figures reflect the sequential improvement from the first and second quarters, this does not diminish the need for strategic adjustments to navigate ongoing challenges, particularly in Mexico, as Jose described a few minutes ago.

Turning to OXXO Gas. We continue to perform strongly, posting 7.6% increase in same-station sales and 8.2% in total revenues. During the quarter, the gross margin was stable at 12.4%, while the operating margin expanded by 40 basis points and stood at 4.9%, reflecting effective cost management and operational efficiency. Income from operations grew a strong 17% relative to the same quarter in the prior year.

Turning to Digital at FEMSA. We continue to work on our strategic initiatives to drive growth and capitalize on the large customer base we have captured in our platforms. The number of active users for Spin by OXXO reached 8.2 million, marking a 28% year-on-year growth and indicating still solid customer adoption trends.

Our Spin Premia loyalty program also showed robust growth with a 35% year-on-year increase, reaching 23.8 million active users. Approximately 38.5% of OXXO Mexico sales are now linked to Spin Premia. While year-over-year growth -- user growth has been impressive. Sequentially, we are seeing a moderation in the pace of growth partly due to the scale we have achieved, but also as a result of a purposeful policy of reducing customer acquisition costs further, focusing more on driving engagement and usage from our existing base and thus generally increasing recurring revenues.

By leveraging data analytics, we are gaining valuable insights into consumer preferences, allowing us to better tailor our promotional offerings. We remain focused on building an omnichannel strategy that ensures we provide a seamless experience across platforms.

Finally, Coca-Cola FEMSA reported a strong set of results with a 10.7% increase in the top line, reflecting a solid revenue management strategy, our income from operations improved by 13.9% expanding the margin and reflecting operational efficiencies across territories. A replay of Coke's quarterly call, which was held last Friday, is available on their website.

In terms of our capital allocation strategy, we remain committed to sustainable growth and shareholder value creation. Our approach involves strategically deploying capital across our business units while prioritizing return on invested capital in each initiative. This quarter, we allocated MXN 12.1 billion in CapEx representing 6.2% of total revenues and a 26.4% increase compared to the same period last year.

These investments are critical to keep growing our installed capacity and footprint driving operational efficiency and maintaining our competitive advantage in the industries we serve. Earlier this year, we announced our plan to return to shareholders' capital in excess of our ordinary dividend totaling MXN 50 billion over a 2- to 3-year period.

In the first year, we allocated MXN 30.7 billion and a combination of approximately MXN 10.3 billion in extraordinary dividends and 20.4 billion in share buybacks. In this process, we repurchased 102.2 million shares, equivalent to approximately 3% of our total shares outstanding leading to an increase in our earnings per share of 2.8% to MXN 6.14 year-to-date.

As you know, we have set a leverage objective of 2x net debt to EBITDA ex-KOF FEMSA by the end of 2026. At the end of the quarter, that ratio stood at 0.68x basically flat to where it stood 3 months before. So it is clear we have more work to do.

As we move forward, our focus remains on prioritizing investments that can deliver the best risk-adjusted returns within our 3 core verticals. We aim to balance our expenditures with prudent cash management, ensuring we retain the flexibility to seize growth opportunities including potential acquisitions.

Our ongoing capital allocation strategy exemplifies our dedication to driving long-term value for our shareholders.

[Jose Antonio Fern?ndez, executive]

Martin, before we head out for questions, let me add just some comments on our joint venture in Brazil. In Brazil, we're expanding the store base in the state of São Paulo at a steady state. We continue to grow same-store sales for the almost fifth quarter in a row on double digits. And while we continue to fine-tune the value proposition and refine certain processes to reduce shrinkage and employee turnover.

While this has yet to be presented to the Board of Group and us in terms of store base, expansion, we will recommend to our partner an increase of approximately 20% during the next year. And with that, we can open for questions.

[Operator]

[Operator Instructions]. Our first question is from Ricardo Alves with Morgan Stanley.

[Ricardo Alves, analyst]

My first question on the OXXO same-store sales kind of the hiccup that you saw in the third quarter. Can you elaborate on that from a couple of different angles, maybe prospects for OXXO getting back to the mid-single-digit expansion? Is that something that we can expect already for the fourth quarter. If you have any expectations with regards to December, for example, a very key month? Or if you see some of the headwinds that we saw in the third quarter, the weather improving in a better same-store sales direction?

And second, still related to OXXO, while the same-store sales came below what market expected, the 6% increase in average ticket was certainly a very positive highlight. Can you expand on that? We suspect that Financial Services is still there, but the preliminary remarks were quite interesting in terms of the management reiterating the new revenue management initiatives, revenue segmentation strategies. Can you talk about that, those pricing initiatives, revenue management? Can you give us some examples of the good stuff that you're implementing within OXXO still meeting so forth, that is probably maybe misunderstood by the market point?

[Jose Antonio Fern?ndez, executive]

Thank you, Ricardo. Let me start. So first, on the -- obviously, the third quarter had very disappointing traffic numbers, in particular, it does come -- it was our most -- our toughest quarter in terms of comparison. So in the fourth quarter, we do have a better comparison numbers. But to me, to make a prediction on how the market is going to behave given so how uncertain the weather and how volatile the weather has been all this year. It's hard for me to say. I do expect a better end of the year same-store sales comparison. But I'm not ready to give a prediction.

I would say the team is working very hard on doing the very smart promotions activating the stores the most for the December month, which always is a key -- is obviously a key month, and there's lot of plans to enhance promotions, offerings and special offers using Spin Premia. So I think that will give us hopefully, a better quarter, but without me expecting or being able to predict much better in terms of sales.

As you know, we are in the midst of the end of a presidential calendar and the start of another, and that's always the shift between the new team getting in and budgets approved, et cetera, always there's some expectations of softer economic environment. It has always been the case after every [indiscernible]. So I'm still expecting it will be a softer economic development. Hopefully, with better weather for the rest of the year and especially next year.

And with -- in terms of the pricing initiatives and what we've been able to say there's been some price taking for certain big categories, I think tobacco and beer in particularly have done some pricing initiatives, which helped a little bit on the pricing. And obviously, we are extremely excited about what we are seeing with our promotional or price and segmentation capabilities, it's giving us very good results. And that's coupled with an expansion in vendor by doing all these special promotions and flagship stores decorated with -- have been a good source of revenue, and we expect that revenue to keep going forward.

On business level, we continue to add -- it's still a source of growth. All this years has been a remarkable growth in financial services, and we expect that to continue as we expand our infrastructure in cash services so we can start playing in the remittances market. And as we add other banks that are coming back into the [ corresponsalía ] or cash out and cash in capabilities. So I expect that financial services will continue to help us and be a tailwind. Does that answer you, Ricardo?

[Ricardo Alves, analyst]

That does answer. Super helpful. I just had a final follow-up on the digital side. When we look at the others, I think that the negative contribution on EBITDA was actually lower than expected, so meaning the number was better. I suspect that some of that could be driven by lower cash consumption at digital. I just wanted to confirm if that's the case if digital is already turning the corner?

I think that will take a little bit longer. But given how much we've been talking about digital, the loyalty program new fintech capabilities. We have been talking about credit, for example. There's a lot going on at digital that we analysts in the market, we don't have enough visibility. I just wanted to understand if there is a relevant new update that you care to share with the market? Or if maybe indeed, it's consuming less cash.

[Martin Arias Yaniz, executive]

Thanks for your question, Ricardo. Yes, in fact, on a sequential basis, the cash burn from digital has been lower. As I mentioned in my statement, there's a renewed focus on the part of digital on leveraging and taking advantage of the scale we already have and focusing a little bit less on simply customer acquisitions, particularly on some of the more expensive digital channels that have been used last year and at the beginning of this year.

So generally, digital hasn't had a better improvement in terms of its cash burn. And again, one of the challenges of measuring digital is that there are a lot of the benefits from digital that are hard to measure, for example, despite our clear conviction that the loyalty program hasn't had a significant improvement in sales at both OXXO Gas and at OXXO, reality is it's very difficult to measure in a scientific precise way.

Obviously, we do measure it, but a little bit hard to publish those numbers because of the lack of sort of accounting standard to them. And so what you see in digital and its burn rate really is just the cost of all the initiatives that they're doing. There are some revenues that they charge OXXO and so on, but it does not reflect the increase in sales at both OXXO Gas. And if you calculate the breakeven point of what you would have to believe in terms of improved sales it's actually quite low. So we're highly confident that digital is doing its job and it's quite productive and that it's making progress.

You still don't see these numbers any big numbers associated with the credit opportunity. We're still at the very early stages of that. And our expectation is that, that be included within the total cash burn and that be rolled out as we make progress on some of the other initiatives. I hope that answers your question.

[Operator]

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

[Robert Ford, analyst]

How do you feel about your activation capabilities within Premia? And how does Premia change the way you're thinking about further upside to commercial revenue? And Martin, you were talking a little bit about focus on expenses in digital. But in the press release, you also mentioned greater focus on transaction based -- or I should say, on greater profitability, right, on recurring revenue?

And how do you think about the balance between fee and transaction-based revenue over the coming year? And where do you think the monetization opportunities will be over the next 12 months?

[Martin Arias Yaniz, executive]

So I got your first -- your first part on Premia, I didn't get your second. Can you repeat that?

[Robert Ford, analyst]

Sure. I apologize for that, Jose. I'll say it's -- it was long. In the press release, there was a reference to a greater focus on digital or the hit out nonrecurring revenue. And I was wondering how we should think about standing and the balance between fee and transaction-based revenue over the coming year. And you mentioned remittances in your comments, but I was wondering how you're thinking about the monetization opportunities are there within the financial services over the next 12 months?

[Martin Arias Yaniz, executive]

That's a great question. Thank you. I would start with -- so for Spin Premia, I would say we're still in very early days on understanding the amount of power that data that is delivering us. We are shifting our capability of understanding elasticity by SKU with our analytics in a very dramatic way on a store-by-store basis. With in Premia, we will be able to do it on a personal basis. And that really keeps me excited about the ability to tailor promotions that and really bring the best of OXXO to each consumer.

And so we have a lot of work to do yet, but the early promise -- is very promising. Already this year, it's still a small fraction of our retail media efforts. Most of it is still the digital screens that we're putting in OXXO, but already almost a 10% or so of the revenues is coming from Spin Premia initiatives and that should take a much bigger share in the next 2 years.

So I'm very excited about that. On Spin and obviously, Juan Carlos, my colleague could comment much more, and hopefully, he'll be here in another call, but I do see and what we've been talking together about the evolution of Spin and Spin by OXXO a big chunk of this recurring revenue comes with more financial services. A big chunk of it would be remittances. But there's many other things that we see in the pipeline. Obviously, credit being one regardless, I mean, still, I think Juan Carlos is analyzing many alternatives of how to start credit within Spin by OXXO. So it's still early to comment on a specific route, but I do know it's part of the plan for him in the next medium term or 12 to 18 months, I would say.

[Operator]

Our next question is from Antonio Hernandez with [indiscernible].

[Unknown Analyst]

My question is regarding the healthy vision, same-store sales outperformed our estimate. So if you could please provide some light on the drivers, also maybe a little bit on the same-store sales trend in Mexico, that would be really helpful.

[Jose Antonio Fern?ndez, executive]

Yes. So Antonio, as you know, health, it's a business that operates in 4 markets, and each market has very different dynamics. I would say, first of all, there are some currency dynamics that really help the division this quarter. So some of that revenue growth comes from currency dynamics. Although there are some interesting things that are coming in.

One is Colombia. Colombia, the health sector the government health sector is going through some tough issues and the private sector is taking a much bigger share of the market. And with that, we are the, I would say, the best pharmacy chain in terms of the amount of growth in same-store sales, the amount of expansion of stores that we are overseeing all over the country and the results have been outstanding. That, coupled with our business in wholesale distribution, which we've done it in Chile, very successfully. That is really helping us offset or struggles with the institutional business.

Chile is seeing some moderate growth. We're stable in share. We're already by far the largest players, and we haven't lost share in Chile, and we are still growing same-store sales. We're growing in some store expansion as we begin to see more competition, but we are confident that Chile will continue to be a very healthy source of profits.

Ecuador is doing well. Unfortunately, the country is going through some issues. We have some energy disruptions that were not only for us all through the country, and that affected some of our last few weeks sales. Other than that, Ecuador has been performing well. We have a small chain business or SanaSana chain, which we are converting to franchise to lower our capital invested in Ecuador as much as possible.

And as we've been very upfront, Mexico has been a struggle for us. It's been a very intense competition. And I think we needed to have a much stronger value proposition. And I'm optimistic of what we're doing with our new flagship stores. We have some in Mexico City and we're doing in our core regions in the Southeast and in the Pacific region. And the results so far have been -- it's too early. We've opened maybe 40, and we are set to open a few hundred but the results so far are promising. I would say cautiously optimistic. Does that answer you, Antonio?

[Operator]

Our next question is from Rodrigo Alcantara with UBS. Mr. Alcantara, your line is open. Please go ahead.

[Jose Antonio Fern?ndez, executive]

I think we can move on and maybe Rodrigo can get back in the queue.

[Operator]

Our next question is from Ben Theurer of Barclays.

[Benjamin Theurer, analyst]

Can you hear me now?

[Jose Antonio Fern?ndez, executive]

Yes. Who is this? Is it Ben?

[Benjamin Theurer, analyst]

Yes. Usually they say don't use the speaker, but in this case, speaker works. No. My question is related to the plans of breaking out some of the other formats, particularly Bara in Mexico. Help us understand a little bit the size of the business right now. How many stores within that 20-plus thousand OXXO stores is actually already a Bara format. And what's the value proposition? What's the differentiating factor of Bara versus OXXO. And how should we think about like the drivers, the consumer drivers into those stores? What's different in particular to kind of understand as we think about how to model it going forward?

[Jose Antonio Fern?ndez, executive]

So I wish I -- we try to hide Bara as a secret for longer, but the honest answer is Bara has been performing incredibly well in the last 2 or 3 years, I would say, for the last at least 6 quarters, we've been out growing other players in the space in terms of same-store sales.

Today, Bara is a 420 store count. It's not counted in Proximity Americas. We don't count it when we give you the number of OXXOs, that's not in the number. And Bara, it's really transforming into a -- going from a soft to a hard there. I wouldn't say it's still a hard, hard discount, but going to a harder discount type of format. And we are very pleased with the evolution of Bara so far.

We've been bringing talent from the hard discount place into the concept and we've been slowly adapting the concept very, very well. So far, it has grown mainly in the Bajio region with some expansion in Jalisco.

And I would say, Bara has the help of that still about 25% of its revenue comes from convenience categories. And that gives it an extra set of margin that compensates the hard discount gross margin that we tend to have in the rest of the categories, especially grocery and frozen foods and et cetera.

It's been a very pleasant surprise of big is, how fast it's growing, how fast it's growing same-store sales. And we are planning to accelerate the store expansion of Bara, but being very careful, as you know, as we go out of the Bajio region, the stores are less well known. So we need to prove ourselves that we can expand geographically outside of that region with very good results so far in Jalisco. But I expect the Pacific and the North eventually to be a very good source of growth.

The big challenge for Bara in the next couple of years, it's still the same POS as OXXO the same [indiscernible] or it's still the whole infrastructure of OXXO operationally and not in talent, it has its own CEO, but we need to be able to separate all the systems and the processes out of Bara.

That will cost us a little bit the next -- especially in costs in extra layer of costs. But I'm very excited about the future of Bara in the coming years.

[Juan Fonseca, executive]

Perhaps just to add, Ben, this is Juan. Some of the differences that drive this decision to segregate the organization is having to do with supply chain. The SKUs are not the same as OXXO, the mix of products that comes from DAV suppliers that go to the store versus people that go through distribution centers is different. And to your -- part of your question about kind of headroom or size or potential size of this business, we definitely think that it will be measured in the thousands. So early days still. But as Jose said, it's looking very promising.

[Operator]

Our next question is from Thiago Bortoluci with Goldman Sachs.

[Jose Antonio Fern?ndez, executive]

Yes. No, there seems to be some issue. I don't know if -- there you are, Thiago.

[Thiago Bortoluci, analyst]

We have 2 here. The first one operationally regarding traffic at OXXO, right? We understand there is some seasonality and all the election stuff, but this is the second quarter in a row that we're delivering negative traffic, right? Obviously, there is this ongoing tailwinds from all these changes and improvements you have done in the operation.

But my question is, assuming your traffic base remains where it is low, do you see any risks of having more challenges to drive operating leverage going forward on a 12-month horizon? This is the first one.

And the second one on capital allocation. You just completed your second year, your leverage is below 1x EBITDA. When should we expect more news regarding capital allocation? Is there a chance you could do something prior to the Annual Shareholders Meeting? Or should we expect this to be a milestone to define what you do next?

[Jose Antonio Fern?ndez, executive]

So I will answer the first, and I'll pass to Martin for the second one. Obviously, the traffic is a very big concern of mine. I do -- I mean as much as I hate that excuse from my team, it's been raining here. I don't have official numbers, and I don't want to use it, but it's been one of the most rainiest years in a long time, at least in the north of Mexico and that has really had a big impact on us. So I don't think structural and if you see most of our decline is in cold beverages, almost half of it.

However, obviously, I think there's a lot of things that we need to work in terms of making sure our stores are well staffed, shifts are open and that the team has been doing a fantastic job in making sure no corner of the region has an OXXO that is not servicing properly. But obviously, we will be fighting in terms of supply chain in operations to make sure it's not on us, but it's just on the consumer demand.

I don't see any structural. I do think it will be medium term because next year still part of the election and that the election aftermath always creates some softening of demand. But I'm convinced that certain of the -- some of the value levers that we're playing and putting in place will get us back to traffic growth.

[Juan Fonseca, executive]

I would add one thing, Thiago, this is Juan. Sometimes, it's hard to look at traffic, especially when you look at the long-term series and look at it in isolation from the number of stores that we've been adding every year, right? So you're adding close to 5% new store base every year, and that has to play a role in the equation. Because at the end of the day, consumers are satisfying their needs. If you would have gone 5 times to a store in a week, now maybe you go the same 5x or maybe you were 6x except you split it between the 2 stores, the old one and the new one. So we're going to start looking into ways to try to come up with an aggregate measure as well.

Because the part of your question that talks about operating leverage, I mean, at the end of the day, we are getting a lot bigger every day. From a transactional standpoint, the absolute traffic number gets bigger every day regardless of what happens at the average store level. So anyway, we'll keep talking about this going forward with you guys, and we love to pick your brains, but you can't just not bring into the equation the fact that the speed at which we add stores because it plays a role.

[Martin Arias Yaniz, executive]

As to your second question related to capital allocation, as I mentioned, of the MXN 50 billion that we committed to distributing in the form of extraordinary capital return to shareholders. We've done about 60% of that, about MXN 30 billion. Our expectation is as a matter of discipline, all I can speak to is as to our current plans and our current plans is not to launch another ASR in part because just discipline we'd tell you we should pace this out over time and not get ahead of ourselves. We have a U.S. election coming up. So if that were to cause volatility, we will reserve the right and the flexibility to move or to launch something.

That's not our current plan. We don't expect anything significant to happen associated with the elections other than as everyone, we're curious to what the result will be. And then I would expect towards the first quarter -- the end of the first quarter of next year, that we'll start thinking about what we need to do with regards to the shareholders' meeting to announce any additional extraordinary dividends.

And as we've said in the past, we're always -- we're agnostic as to whether we return capital through extraordinary dividends or through buyback of shares. It's really just a function of where we may see opportunities and for the most part, they are small opportunities, not like all of these questions are easy to answer at any given moment because you have to take into account a whole bunch of information. So I don't expect any announcements until then.

[Operator]

Our next question comes from Álvaro García with BTG Pactual.

[Alvaro Garcia, analyst]

2 questions. One, just a pretty easy follow-up on, you mentioned you want to deemphasize some OXXO LatAm markets, if you could just clarify which ones? I wasn't able to catch which ones?

And then the second question, a bigger picture question on your payments business, sort of in the context of [indiscernible] Fintech report from last week and your great banking correspondence business. What sort of pushback, if any, have you seen from banks that pay you for access to your platform? Given the growth of spin, given your aspirations there, how do you envision these agreements to evolve over time?

[Jose Antonio Fern?ndez, executive]

So yes, thank you for your question, Álvaro. I would say, first, on the LatAm market, we are -- we remain very excited on the region in general. But we are much closer to very -- to accelerated growth and very profitability in Colombia and we want to emphasize Colombia and Brazil. But till the evolution of the store and with same-store sales growth on the double digits over the last -- at least through the year, keep me excited that we're close to have a good plan.

Obviously, that has to be aligned with our partner. But I think continue to evolve the value proposition especially in Brazil, fix some operational stock in terms of filling out the stores well, reducing turnover in the stores, reducing shrinkage, so that will -- we will do it by not expanding outside of Sao Paulo and concentrating on expanding maybe 100 to 125 stores. Again, this has to be approved and agreed with my partner, with our partner. But Brazil and Colombia are the ones that keep us excited.

Chile and Peru are much behind in the curve towards profitability. And particularly Chile has been going to expect the whole country through some economic strain. So we are reducing the velocity of growth there, and by that, we will -- we may do some overhead adjustments as well to reduce the amount of cash burn and be able to concentrate much more on the ones that are very close to success. So that's Colombia and Brazil.

And in terms of the fintech evolution, I have no comments on the -- thing. Obviously, we're always monitoring and cautious on whatever recommendations from authorities provide. We provide a fantastic service throughout the country. Most banks that have leasers or lessors are coming ack. So we are very eager to provide services to all banks and to all communities.

And everywhere we go, we love and welcome to have much more players servicing the communities. We don't like being the only guy in a region or in a town. It's good for us that financial services are serviced by many, many people. We like to see other convenience store players in Oaxaca Chiapas. And I hope to see much more correspond -- players throughout the country. So I have no worries about that. I hope that, that will expand.

[Juan Fonseca, executive]

Yes. And I would just add that, I mean, people really underestimate the cost and complexity of what it involves for OXXO administering, transporting, counting, depositing the money, the complexity it adds to lines in the store and so on. So I would generally say and emphasizing what Jose said, we're providing an amazing service to the community. We're very proud of it and just check the return on equity of the financial institutions to see they're doing just fine.

[Operator]

Our next question is from Rodrigo Alcantara with UBS.

[Rodrigo Alcantara, analyst]

So my question would be here for Jose, if you can perhaps comment on the price and income elasticity of OXXO please and how comfortable you are with OXXO's price competitiveness relative to the mom and pops and the self-service formats in Mexico. That would be my first question on price competitiveness. And a second one very quickly. Also, if you can comment more on what you mentioned in the press release about commercial capabilities driving higher OpEx at OXXO. If you can add more about that would be also very helpful.

[Jose Antonio Fern?ndez, executive]

Yes. These are great questions. So I think on pricing, when we are proud of our pricing and using our AI model to optimize price, we are not talking about raising prices. It's actually a blended mix. We are reducing prices on certain categories that have high elasticity. We're reducing or increasing prices in others. So pricing is up and down. and we will continue to monitor that. We monitor the share on the other channels and we want to remain a significant portion of the fulfillment of the Mexican consumer.

And I would say we've been seeing very healthy growth in share for the traditional trade. A big chunk of it is recovering after COVID. I think a pre-COVID had a higher share and they lost a bunch of it during COVID and they are slowly recovering, and we welcome that. I think it's a very healthy channel. It's healthy for the FMCG. We like to have a healthy traditional credit.

In Mexico, we are not concerned. We have not been losing share on the measurements we've made. We've been seeing that evolution of the traditional rate growing competitiveness against supermarkets, mainly big supermarkets, especially. But -- so I'm still not concerned. Obviously, I monitor that very closely. And if that requires a change or we need to be more aggressive on pricing, we will do it. But so far, we see opportunities for us to raise some prices and to lower some prices, and we will continue to do that.

And then we are segmentation and or analytics in segmentation. It's a wide spectrum of projects that all -- that we're very -- being able to do it much more granular. One is a space segmentation and how we accommodate the store, but there's things in variety where we should put more SKUs, more high-end SKUs, more lower-end SKUs. Furniture, a lot of things we're starting, and we have more and more learning about in certain stores, you put on a big bench where people sit down and opinions grow dramatically. And so where is it worth to invest in bench for people to eat where it doesn't make sense because people have elsewhere options.

So that also plays into that and promotions. People in our stores love promotions and ask for it. And now with what we're learning with Spin Premia, we're being able to do them much more granular. I would say it's a complex them, but that requires some investment in people and capabilities, it's a big, big team and growing, but we will continue to do that because so far, it's been worth the investment.

Hopefully, we will offset that overhead with maybe other initiatives that can -- we can be more suffering overhead expansion and control that line item.

[Operator]

Our next question comes from Carlos Laboy with HSBC.

[Carlos Alberto Laboy, analyst]

Jose, maybe you can take a step back and give us some historic context on the strategy for bringing traffic into the OXXO stores over time, how has this evolved? And how much of a reacceleration that you see looking forward over the medium term can be digitally enabled? If you can help us with some granular examples that would help.

[Jose Antonio Fern?ndez, executive]

Thank you, Carlos. I'll try not to extend myself to many decades in the past. But as you know the story of OXXO, as well as me and obviously, also started as a beverage first channel, and that was the big value lever for many years. Then going into more and more value levers in grocery, tobacco expansion. And it has always been this fantastic machine of adding levers and extracting levers.

And some things have -- we used to sell the -- a big chunk of our business was selling [indiscernible] phone cards have that moved away and other services came. Then financial services started with municipal permits and paying your fines and then that evolves into a fantastic business. And that business, obviously, is evolving faster than other ones. I'm not too concerned about the financial services.

Obviously, a big chunk of them will eventually go digital. But we see a very interesting evolution of more services coming in and others. So maybe people are buying less airtime in OXXO but people are buying -- paying their online shopping with all these e-commerce, not only the Amazon and Mercado Libre but the Temu and SHEIN are growing dramatically and people love to go and pay at the OXXO, people that are banked and they just don't want to use their financial services and rather pay cash.

And I see there -- it's too early. But I've always been doing numbers on when we can really become a part of the fulfillment sector. And the OXXO team is starting that hard and we see an interesting evolution of becoming a much more omnichannel presence where we own, we can help on the first and the last mile of products.

We are already doing incredibly well with Amazon. We are starting to do some -- but I'm much more eager to be able to help the Facebook marketplaces and people use the OXXO for pick up or drop or pickup or for reverse logistics. I would say that's one that's too early to say if it's going to come, but I'm very eager on that.

And I would say the other one that's obviously a big one that we need to upgrade dramatically is food convenience. We've been playing a good role in Mexico with food, but I wouldn't say a fantastic role. We still have a much better role to play.

I'm very eager from what we've been able to do in Colombia, in Brazil and in Chile, I would say as well, but in Colombia, in particular, almost 15% of our business is food. We got a big share in the cities where we operate, especially in Bogota. We own the breakfast category. We own the launch for the office worker category and we'll continue to grow share on that. And I think in Mexico, obviously, Mexico has a full dynamic that's very different. People like to eat in the street and compete with that. It's a tough, tough market. We have street vendors winning Michelin stars. So that's the type of competition you face. But I do see an evolution to more food on the go, easy to carry to make.

And I think maybe evolving from the taco to the burrito or things that you can carry in your hand, start working with more other types of food is something we are beginning to try in OXXO with encouraging results with much less shrinkage. And I do hope that we can start winning in certain categories like breakfast, snacking, dinners. So that's something that are also exciting.

And the third one that we are just scratching the surface. We're in finally putting a lot of cash infrastructure that will allow us to pick cash out deposits. We were the kings of cashing but not so big on cash out in Oaxaca and Guanajuato where we installed all this cash infrastructure. We are beginning to try remittances and the results are -- it's too early, but encouraging.

And hopefully, with the U.S., we're also -- I mean, obviously, in El Paso, we can play a bigger role of connecting the twins and do Delek to OXXO or eventually OXXO to OXXO payments. But I would say we're also learning a lot about the remittances market on the other side and how we can gain share by convincing the easiness to send to the OXXO or to the Spin and then cash out in OXXO is something that could bring us some value of growth.

[Juan Fonseca, executive]

Yes. I would just add, Carlos, it's Juan, to Jose's reference to the cash infrastructure just for the benefit of everybody listening. We are rolling out these cash recycling machines that we've had the conversation with many of you, but these machines allow us to increase significantly the amount of cash that can be disbursed at the store without increasing the risk profile.

And that's how we can play in remittances where the average remittance is somewhere between $400, $500, which is way more than what we have in the till in traditional stores. So the cash machines so far looking really good in the places where we've rolled them out.

And I would also make just one kind of reflection on your question and everything that Jose just said. I think at the end of the day, what OXXO has done remarkably well over the decades is identifying consumer needs and finding a way to serve them, right? And obviously, in the past, all of them required physical exchange of cash or exchange of goods. Now obviously, there's -- some of those are spilling over to the digital realm.

But the capillarity of the store base, the trust level, what the brand means now for people. Think about a lot of what Jose said, none of that will be happening if we weren't just everywhere, right, and kind of part of people's lives. And so it's really been a story of people doing more making -- from our side of the equation, it's making their lives easier. But it really is about finding other things.

Jose talked about Temu and SHEIN and those e-tailers that weren't present in Mexico a couple of years ago. And now they're everywhere, and we have found a way to play a role and make it easier for people to buy from them without increasing their risk, if you will. So I think that's part of the story as it's kind of a through line from beer to soft drinks to tobacco to snacks to services to e-commerce. It's just being everywhere and finding a way to make the life easier every day.

[Carlos Alberto Laboy, analyst]

Yes. And just to comment, Juan, Martin, Jose, the step-up in the quality and the inside of these calls is really phenomenal. Thank you for helping us with all the insights you're giving us.

[Operator]

Our next question is from Héctor Maya with Scotiabank.

[Héctor Maya López, analyst]

First, if you could please go deeper on details regarding the line of noncash charges at OXXO that helped to drive the EBITDA margin. Just to confirm what was the main change in the digital platform that resulted in the lower cash burn there? And how sustainable this could be going forward? And also, if you could give us more details on the decision to suspend the Pronto initiative? Would be interesting to know what plans remain in place to empower the traditional channels with the digital platform, particularly to understanding the company still thinking about being a superior of the channel or this is over and FEMSA will just focus on B2B payments.

[Juan Fonseca, executive]

Thank you. Thank you, Héctor. Give us just one minute. On the noncash charges, because of an automization process that we did with regards to the reporting from the different operations, we found that there were certain noncash charges that were being treated as cash expenses in the past. And so we tightened a little bit more in the definition from the classification and so on. And so what you're seeing really is just a more detailed and a better way of classifying cash versus noncash charges. And this happened not only in Proximity and Health, there was a little bit of that also in Coca-Cola FEMSA.

[Jose Antonio Fern?ndez, executive]

On Pronto, I could comment on that, Héctor. so I would say we had many initiatives to curb the traditional trade. The ones that are most exciting and we see much more promising are 2. One is the ones that are Coca-Cola FEMSA is doing using their Coca-Cola truck to supply other category. That's evolving from what I hear. Interestingly, coupled with their Juntos-plus program, which uses the loyalty infrastructure that digital FEMSA provides. So that will continue.

Secondly, digital FEMSA has very interesting projects still on pilot, I would say, but evolving interestingly of using their payment infrastructure, the Spin Premia initiative to create a network of -- it's working on a traditional trade, but more informed small restaurants, flower shops, et cetera. I think if I'm not mistaken, the trial is in Puebla, and it's evolving interestingly well.

The one where we were performing well or we had a good traction on that, but we saw the distance to profitability was so high that we thought we need to refocus what the Pronto initiative. I mean the Pronto initiative, the main business was creating routes where we would take certain OXXO products to the traditional trade.

And I would say the cost to serve of that business was too high, and this traditional trade are served by other wholesalers that have infrastructure and costs that are much different than the ones we would need to provide a good service. I do see a service where we could provide an interesting service, but I would see -- I don't want to get ahead of myself but eventually I think the cost to serve would need to be served on that cash and carry type of system where we leverage our distribution centers to create something different.

But so for now, we are so encouraged by the Bara evolution that we much rather concentrate our resources and where we see a good opportunity to become a significant player in the market. And that is Bara and our other avenues, Caffenio and et cetera. So we decided to put Pronto on hold, and we're stopping that business, reducing the cash burn of that proximity significantly through that. And so that, hopefully, in the future, we can come back with a business that's not so high cost to serve.

[Martin Arias Yaniz, executive]

And then you had, I believe, a question about the cash burn of digital and what was causing the improvements. And just to get a little bit more specific and I didn't in my statement, one, now the digital ecosystem is connecting directly to say, which is the Mexican payment system. That allows us -- has allowed us to save significantly on fees of third parties that we were using to make that connection.

Number two, we're negotiating better with credit card companies on some of the fees that we're charging us. And number three, we're using some of the more -- we're using less some of the more expensive customer acquisition channels where with the guidance from Juan Carlos here, the cost benefit analysis of some of those channels in terms of churn and the quality of customers you're acquiring wasn't as good. And so there was a decision made to deemphasize those channels. I would tell you those are the 3 biggest things that have helped reduce the cash burn.

[Operator]

And our next question is from Ulises Argote with Santander.

[Ulises Argote Bolio, analyst]

I just want to hear from my side to Jose Antonio. So on your remarks, you mentioned there the kind of organic growth reignition for Valora. I was wondering if you could give us a little bit more detail on what kind of potential are you seeing for openings and maybe on what formats or regions? You mentioned there something around Germany, but maybe if you could be a bit more specific on what the plans entail for this part of the business?

[Jose Antonio Fern?ndez, executive]

Thank you, Ulises. Yes, that's a good question. So we are very happy with the development of Valora and I think by now, it's not post-COVID recovery. The team has been doing a very solid set of results in the 3 businesses, but more importantly, obviously, the B2B business has been very healthy. And I would say, the Swiss convenience business as well.

We -- our long-range plan in Valora considers that we will expand in Germany. And we see an opportunity to serve to convenience stores outside of the high-traffic areas like airports and train stations. That is we see 2 avenues to do that. One is to partner with fuel providers that are -- that do not have a convenience platform or have an underserved convenience offering and there's a lot of them. I forget the number on top of my head, but a big chunk of fuel providers need to enhance the value.

And we're talking to 2 big ones, mid ones and small ones about selling convenience stores in their fuel stations. And hopefully, we will have some update soon, some relevant info there.

And the other one is in high street areas and we are taking a longer time to really evaluate where we put ourselves given the softening of the German consumer. We still, we believe, a big chunk of our projection to grow that business. We are opening certain stores in cities that are not as affected economically, especially in the south of Germany, but so far, we will -- we're opening much less than what we thought. But eventually, we hope we can be able to open maybe 50 to 100 stores a year and have positive momentum. But it's early, and we are more eager to see what we can do with fuel stations, which have proven demand and we know how to run them.

[Operator]

I would like to turn the call back over to Mr. Fonseca for any closing remarks.

[Juan Fonseca, executive]

Thank you. Obviously, we're around my team and I for follow-ups. You can -- you all know where to find us. Thanks for participating in the call, and have a great week.

[Operator]

Thank you very much. That concludes today's conference. You may now disconnect.