Femsa Earnings: Solid Convenience Store Sales on Robust Traffic Trend and Strong Merchandising

We plan to raise our $97 fair value estimate on narrow-moat Femsa FMX by a mid-single-digit percentage to incorporate better-than-expected third-quarter results, a stronger Mexican peso against the U.S. dollar and time value. Revenues grew 12% (excluding the Valora acquisition), and operating profits rose 10%, outpacing our estimates of 10% and 9%, respectively. Results were thanks to solid same-store sales at Oxxo and resilient beverage volume at subsidiary Coke Femsa. We plan to nudge up our 2023 profit projection by a low-single-digit percentage, but our 10-year forecasts for annual sales growth and average operating margins both in the high single digits remain in place. Shares trade in a range we’d consider fairly valued.

The Oxxo convenience format continues to resonate with consumers in Mexico and neighboring countries such as Colombia, delivering 21% sales expansion on 15% same-store sales growth and a 7% store base expansion. Notably, more than half of the same-store sales expansion came from higher traffic, which reaffirmed our confidence in the Oxxo franchisee, with strong merchandising and deft execution helping the chain activate and retain young urban shoppers. Other growth initiatives, including Femsa’s Spin loyalty and digital wallet programs (already serving 6 million active users) and new store formats such as Bara (small-box grocer with limited assortment) and Grupo Nos should further add to Femsa’s retail sales expansion.

Performance was equally strong at the bottling operation, where sales and operating profits rose 10% and 15% during the quarter, respectively, driven by strong brands, innovation, and prudent in-market execution—tailoring affordability initiatives and premium offerings to local economic conditions and preferences. Digital investments to connect traditional trade retailer clients also started to pay off, with the omnichannel platform Juntos serving a million monthly active clients and generating 17% of total sales for the bottler.