Alsea, S.A.B. de C.V. (OTCPK:ALSSF) Q1 2024 Earnings Conference Call April 24, 2024 9:30 AM ET
Company Participants
Gerardo Lozoya – Head, Investor Relations & Corporate Affairs
Armando Torrado – Chief Executive Officer
Federico Rodríguez – Chief Financial Officer
Conference Call Participants
Ben Theurer – Barclays
Hector Maya – Scotiabank
Rodrigo Alcantara – UBS
Renata Cabral – Citi
Felipe Cassimiro – Bradesco
Thiago Bortoluci – Goldman Sachs
Louise Willard – GBM
Fernando Herrera – Compass Group
Jorge Izquierdo – BTG Pactual
Gerardo Lozoya
Good morning, everyone, and welcome to Alsea’s First Quarter 2024 Earnings Video Conference. My name is Gerardo Lozoya, Head of Investor Relations and Corporate Affairs. And today our Chief Executive Officer, Armando Torrado; and our Chief Financial Officer, Federico Rodríguez will be presenting the results.
Before we continue, a friendly reminder that some of our comments today will contain forward-looking statements based on our current view of our business and that future results may differ materially from these statements.
Today’s call should be considered in conjunction with disclaimers contained in our earnings release and in our most recent Bolsa Mexicana de Valores report. The company does not have the obligation to update or revise any such forward-looking statements. It is important to note that earnings numbers referred to are based on pre-IFRS 16 standards unless specified otherwise.
I would now like to hand it over to Armando for his initial remarks. Please go ahead Armando.
Armando Torrado
Thank you, Gerardo and good morning everyone, and thank you for joining our first quarter 2024 earnings video conference. I am pleased to share with you our financial results, regional highlights and brand accomplishments for the quarter. Additionally, I will talk about the progress we have made on our digital strategy and ESG initiatives. I will first like to take an opportunity to thank our team members and other stakeholders for their continuity, dedication for Alsea.
Before joining the numbers, let me share with you our top priorities for this year. Regarding organic growth, we remain very commitment to grow organically, both by generating more traffic sales per store, and open new stores where we see attractive returns on capital.
As we highlighted in our recent survey, we sale plenty of white space ahead to continue to grow our main brands in our key markets. At the same time, we are constantly innovating to make our existing stores still more productive. And so you can see from our results today, we had been very successful.
Regarding operation efficiency, while sales growth gets most of our attention, our management team spends a lot of time finding new ways to be more efficient and improving our operational margins without affecting the customer experience. This is a product of rigorous attention to detail, deep knowledge of the company and its process and openness to share the best practice across the organization.
Digitalization of our company, Alsea started the digital channel journey a long way back, we were convinced about three things, our customers will want to order their food digitally. Second, data generated by the company could help improve frequency and sales. And three, the internal process could simplified and requires less manual work.
I am immensely proud of how we can – and we achieve this progress. Some 30.3% of our sales right from this quarter are digital, broadly defined, but we will still see huge opportunity ahead to improve his number.
Regarding our highlights 2024 results. As you will have seen, the year has started off well. In the first quarter, we posted at 2.7% year-over-year increase in total sales, reaching MXN18 billion or a 12.2% increase when excluding foreign exchange effects. Same-store sales grew by a robust 10.1% year-over-year.
EBITDA grow by 12.4%, reaching MXN2.6 billion for the quarter with a 14.3% margin for the quarter. These results demonstrate the robust demand for our brand even as a strength of the Mexican peso continues to affect our currency translations. We serve over 28.1 digital orders in the quarter coming to MXN5.5 billion, which accounts for 30.3% of our total sales.
Let me go deeply into quick overview of our brands. Regarding Starbucks, we reported a strong year-over-year same-store sales grow of 10.6% — sorry, of 8.6% as Starbucks same-store sales for Mexico were up 10.6% driving by promotions, like coffee worthy.
For Europe, they declined 5.7%, mainly affected by the boycott for American brands in France and Benelux. And in South America, the increase was 19.5% driven by inflationary pressures in Argentina with a better performance in terms of traffic than the rest of the staples market.
Regarding Domino’s Pizza, we posted a robust 12.5% store sales growth in Mexico, largely driving by initiatives such as Dominosmania. Some other carryout initiatives we’ve been doing and another successful promotions in the whole country. The success of the campaigns has strength our positions against another competitors, and also in Spain, same-store sales grew by 1.5% supported by campaigns like Garcia Silvia.
Regarding Burger King, our quarterly results were mixed with same-store sales increase in our biggest markets, Mexico and Argentina and a modest contraction in other markets. In Mexico, the successful rollout of digital kiosks continued to lead a double-digit growth in the average ticket.
Regarding the Full Service Restaurant segment, we had a trended positive same-store sales of 8% and orders ticket frequency — sorry frequency traffic grew by 3.6%. The strong results were driven by successful innovations with the launch of nine new burgers in Foster Hollywood, sandwich platform in this Mexico and a breakfast and a new breakfast menu in Spain. Additionally, we opened a new Cheesecake Factory restaurant in the city of character of Mexico with a great success.
Regarding our expansion strategy, during the first quarter, we target the most profit opportunities available to us. We opened 27 corporate units and nine franchisees, so we did a total of 36 openings in the quarter. Most of these new locations were at Starbucks and Domino’s outlets. They’re strategically positioned in high traffic areas and regions, particularly in Mexico and in Spain.
While we often see a slower start to expansion in the first quarter due to seasonal variation, we expect to increase the pace of openings through the year, aligned with our strategic growth goals and guidance. Another important pillar of our strategy is the re-modeling of our units. And once, we do work traffic and that we do the work, the traffic increased by 6% on average with paybacks aligned to the minimum returns set to the openings of the stores.
During the first quarter, we have remodeled 13 units globally. Regarding our loyalty programs, we supported by our digital transformation strategy, and at the end of the quarter, our loyalty sales grew 21.7%, reaching MXN 3.7 billion, and representing 20.3 million orders and 20.6% of our total sales.
By the end of the first quarter, we had more than 7.8 million active users in the different loyal programs. Programs such as Starbucks Rewards and Club By play a crucial role in driving sales and growth. At the end of the first quarter, just a few months following its launch in Spain, Club By already had 1.5 million users.
Regarding ESG, in the first quarter, Alsea advancing its ESG initiatives. Some of the highlights include all the new opens of Starbucks in Iberia and Mexico we’ll consider as green stores in 2024. Also, we have certified 44 Starbucks stores as greener stores, reaching 129 in Latin America.
In Mexico and in Europe, we use 70% and 50% respectively of clean energy to cover our electricity needs. Fundación Alsea has donated over MXN 25 million to one institutions committed to food, education and employability in Mexico. These contributions have benefit more than 8,000 people, thereby demonstrating a significant commitment to the well-being and development of our communities.
Also, Fundación Alsea, together with World Vision Mexico, launched the third edition of the Alsea Award in March with the aim of promoting the dissemination and creation and innovation initiative-rich research projects in the field of food and nutrition. It contributes to the development of public policies.
I will now pass you to Federico, so he can give you a more detailed overview of our financial information. Please, Federico.
Federico Rodríguez
Thank you, Armando. Good morning, everyone. We are pleased with Alsea’s first quarter performance as quarterly sales increased 2.7%, driven by positive consumption trends in most of the regions, brand preference, and effective commercial strategies. Excluding foreign exchange effects, sales increased 12.2% for the quarter. In Mexico, sales were up 13.1% to MXN 10.1 billion for the quarter. Sales in Europe decreased by 2.4% to MXN 5.4 billion, but in Euro terms sales increased by 6%.
Finally, in South America, we post an 18.4% decrease in sales for the quarter to MXN 2.5 billion, mainly driven by the devaluation in Argentina and a lower consumer trends in the region.
In Mexico, adjusted EBITDA increased 23.3% to MXN 2.4 billion for the quarter. This improvement was driven by positive consumption trends, better portfolio mix, and lower raw material prices. Also, the 10.1% growth in same-store sales boosted operating leverage, and the appreciation of the Mexican peso helped cut dollar-denominated costs.
In Europe, adjusted EBITDA increased by 1.8% to MXN 739 million for the quarter, and 10.9% in euros, driven by growth in same-store sales, as well as a reduction in energy prices, food costs and other inputs. In South America, adjusted EBITDA decreased by 18% to MXN 413 million, driven by the devaluation of the Argentinian pesos in more than 400% year-over-year, as well as by pressures on the operational leverage stemming from the decrease in regional consumption.
In the net income for the first quarter, we had a decrease of 22% to MXN 440 million year-over-year. This was mainly driven by the purchase of US dollars in Argentina and the lower appreciation of the Mexican peso in comparison to the same period of the last year. For the first quarters, the earnings per share were MXN 3.08, post-IFRS earnings per share rose to MXN 3.36, an increase of 58% year-over-year.
Regarding the CapEx, in terms of the investments, our first quarter CapEx amounted to 940 million pesos. We allocated 23% of this amount to maintenance activities, 62% to store openings and remodelings, and 15% to other strategic projects like digitalization or change of the digital platforms. We have made prudent and responsible investments throughout the year, focusing on profitability. For the debt, our pre-IFRS gross debt increased 1.7 billion pesos year-over-year, closing at MXN 28.1 billion at the end of the quarter. This increase resulted from a bank loan to finance the exercise of the option to buy out the minority shareholders in Europe.
Finally, the financial ratios. Looking at the total debt-to-EBITDA ratio, we closed the quarter at 2.5x and the net debt-to-EBITDA ratio at 2x. The debt structure at the end of the quarter was 88% long-term with 67% in Mexican pesos and 33% in euros. We expect to continue with the strong balance sheet going forward and meet all our debt covenants thanks to the healthy ongoing cash generation. At the end of the quarter, we posted a cash position of MXN 5.4 billion.
Before going to the Q&A, Gerardo will remind us of the 2024 guidance. Please go ahead, Gerardo.
Gerardo Lozoya
Thank you, Fede. I would like to briefly review the guidance we provided in March at the ALSEA Day. We anticipate opening between 250 and 300 stores this year, primarily corporate, with the minority being franchises. We expect CapEx at MXN 6 billion with the majority directed towards store openings, maintenance, remodeling and digitalization. We project growth in same-store sales to be around 7% to 9% and in revenues above 10%.
We forecast EBITDA pre-IFRS to increase by more than 11% with a margin of 14.2% or higher. This will lead to a gross debt-to-EBITDA ratio of about 2.5 times and return on equity of 28% to 29%. These quarter’s results have set the foundation for meeting our full-year guidance.
Operator, we’re ready to take questions. Please go ahead.
Question-and-Answer Session
Operator
We will now start the Q&A session [Operator Instructions] The first question is from Mr. Ben Theurer from Barclays. Please go ahead.
Ben Theurer
Yes. Good morning, everyone. And thanks for taking my question. Just two quick ones. So number one, very detail on the presentation on some of the impacts in the different regions, but wanted to follow-up as to some of the strategies you’ve been working on to mitigate some of the negative impact from the boycott over in Europe, against the brands. Have you done anything on the marketing side? Have you been trying to kind of overcome some of these headwinds? And how do you feel this is going to play out over the next one to two quarters, particularly with the Olympics coming up? That will be my first question. And I have a quick follow-up on Mexico.
Armando Torrado
Thank you, Ben. And Ben, yes, since we saw this decrease in sales starting the middle of October, more or less of course, we – this is not only us. It’s also happening a little bit more in the Middle East. So we sit down with EMEA with Starbucks Corporation. And we’ve been doing two or three studies to see how, why, and when this can be over. Thanks, we’ve been seeing a less complicated environment now. Traffic is a little – a lot better than we started and the first of the year and the end of the year now, after Ramadan finished just two weeks ago, things have just started to ramp-up again.
And you’re right I think that distraction of the goodwill of the Olympics will also help. This is only in a particularly part of some regions of France and another on Holland. We don’t have any other brands, it just Starbucks the one, but yes, we are creating with Starbucks Rewards some plans. We are seeing that the younger crowd is the one that is making that switching of a local stores or switching to other brands and not the [indiscernible] into US brands.
So, we are working with a plan yet consistently plan with Starbucks Rewards. This also is created only in the mornings, not in the evenings. So at the end, we have a very well and a clear where is it and we are creating some commercial programs for region for store in order to mitigate that.
I think we have to see in the next two weeks this align and we expect to be made really same-store sales, a slightly positive, no, but this is not going to have any effect in the deferral [ph] share of our numbers. And this continue at the same guidance. And we are looking how we’re going to mitigate all this impact. And we already do with a conversation with Starbucks another day and with another vendors and only our teams.
Ben Theurer
Okay, and then just following up on Mexico, obviously, you had a very strong performance in the quarter with double-digit same-store sales growth, which probably was on the higher end. And I guess a lot of was driven by somewhat of the shift of the Easter week from April into March.
Armando Torrado
Yes
Ben Theurer
And now, just thinking about this, we’re at the end of April — last year this whole thing was in April, have you any preliminary data as to the performance on a year-over-year basis for April? So just that we can kind of potentially quantify what the shift impact was from 2Q into 1Q and would always keep with them being negative than 2Q?
Federico Rodríguez
Well, I am not going to give any kind of figures for the April month, but I can tell you that the calendar effect that we had in March from Easter was around 1%, or quantity [ph] in the same-store sales mix. But obviously, as our manager said, we maintain the guidance because we’ve had that into our projections for this year.
Ben Theurer
Okay. Yes, that’s all I needed. Thank you very much. Perfect.
Armando Torrado
Thank you.
Operator
Thank you very much for your question. Our next question is from Mr. Hector Maya from Scotiabank. Please go ahead.
Q – Hector Maya
Hi, Armando, Federico, Gerardo. Thank you for taking my questions. We have been seeing the favorable results that you’re getting from portfolio innovation menu architecture, and mix in Mexico. So just wondering if you believe that there are still learnings from Mexico that could be applied to either Europe or South America.
And also, if you could please share an update with more details on input costs in Europe, like, if there are specific items in Europe that could revert a bit from the positive trend in costs that we haven’t seen so far. Thank you.
Armando Torrado
I will head it as best practice and Federico we get the thing of the cost. I mean, we’re doing best practice for the time and to be honest with you in this quarter that we felt in week two a little bit weakness on — on the traffic on the stores, we got out together, we are aligning the whole 13 countries of the Starbucks struggles, how can we do some best practice to share and in commercial details. And that is not only how can we bring ideas from Mexico export it to the Europe or South America. We are — we did it the other way right now exactly in the Burger King. Some ideas that we did in Argentina, that really worked very fine.
And I think right now with the digital platform that we have, we are very — we are capable, and we are making some strategies only in those 32% of our customers that already are ordered by digital, we tender the way especially — I mean very personalized promotion strategy, like I said, to drive more traffic, to drive more frequency. And when we see the premix [ph] of our units, we are selling more items in every order that we sell. So I think that is the key of the game. We’re also doing in all that – in all our concepts, that the second bite that we call we go to the consumer that is in our store, saying if he wants another, another coffee or another item once they order their first order. So that is how we are capturing better consumers that we — and the customers that we already have in our stores. So, yeah.
Federico Rodríguez
Okay. I will take the second question, Hector. Thank you very much. And regarding the input costs, we are starting to see a decrease in all the raw materials, where we suffered in 2022 and 2023. And even when this is slightly, well, this is around 1% or point of decrease. We expect this trend to continue during the year. And additionally talking about Europe and not only about food cost, we have started to see the same historical prices from energy that we had a pre-COVID. So a good news not only in Europe, but for the whole portfolio of Alsea. Thank you very much.
Q – Hector Maya
Perfect. Thank you. Thank you very much.
Operator
Thank you very much for your question. Our next question is from Rodrigo Alcantara from UBS. Please go ahead.
Rodrigo Alcantara
Hi, guys. Hi Armando. Two questions here if I may. The first one will be for Armando, just to make sure on the competitive dynamics in Spain, while you mentioned that part of the deceleration that we saw there was this switch right from QSR to casual dining. Just wanted to make sure that that was actually be the case right that perhaps not some increasing competition, let’s say from the pizza or McDonald’s, right, that could have contributed to the deceleration in QSR in Spain?
And the other one would be very quickly for — on — very, very technical but some questions that we received from clients yesterday on the mismatch that we saw between the pre-IFRS 16 and post-IFRS 16 EBITDA margin, one we saw expansion — on the pre-IFRS 16 was some expansion came online with our forecast, but on the post, we see a contraction. Just curious if you can comment about that. It’s very technical, but what would help us to understand much better here [indiscernible]. Thank you very much.
Armando Torrado
Gracias Rodrigo. I think we had a — we don’t have very, very impressive sales momentum in Spain. I mean when you saw that when we see the numbers, all our cash flow, you remember two years ago was struggling a little bit of Forster Hollywood.
We did an impressive 10.2% in traffic. This is performing also great. We’d another 6.5% Genus 21%. So, I’m always counting just traffic. So, — I mean all our unit exception of our Burger King, because some differences between price and delivery. But all our units are doing great in the Iberia, I will say is just Iberia, but Iberia, including Portugal, the results were great in the whole atmosphere.
I mean, yes, we grew a little bit less in the Starbucks set — in the Starbucks segment, but all of the rest, I think very confident that thing is when we close by and put together the Benelux business that is a little bit affecting of Europe, but if we exclude just a Benelux business of a Starbucks, the rest of Europe really performed very well — very well. I think I’m very pleased with that and like Federico said, the context there in costs, it’s another story, that in energy, it’s another story than two years ago. So, I’m very pleased with the numbers.
Affordably the exchange rate does not help us. We had it at 19-point something budget. It’s coming at 18.4 for peso, Europe or pestle. So, that is an affection, but I think in local currency, Europe is doing a good job.
Federico Rodríguez
And to complement Armando’s answer for Rio, even with the competitors who are earning market share, not only in the casual dining segment, where we are the leaders with the different brands that we compete, both in the pizza segment, we are gaining market share in the last year in comparison with the two players that we’ve added in there.
And additionally, regarding the second question, a technical question, like you said, they are both relevant. The difference between the EBITDA margin pre-IFRS and post-IFRS is driven mainly by the devaluation of the Argentinean pesos, affecting the leases. That is around a 60% to 70% of the deviation of the margin, and additionally, is the acquisition of the Mexican pesos in comparison with the rest of the currencies. And it’s 100% lease effect, the meek say of the variable and fixed leases is pretty much the same. So it’s only FX impact.
Rodrigo Alcantara
Also, thank you very much for that. Just very important to highlight there. So you said you gain market share in QSR in Spain, that’s not correct. It’s just bits are just…
Armando Torrado
In pizza and in casual dining.
Rodrigo Alcantara
Awesome. Okay, Thank you very much Fed and Armando.
Operator
Thank you very much for your question. Our next question is from Ms. Renata Cabral from Citi. Please go ahead.
Renata Cabral
Hi, Armando, Federico and Gerardo. Thanks so much for taking my question. I have two here. The first one is about Starbucks. If you can comment a little bit about the profitability, especially if you can give a comparison between Mexico and in Europe as right now at least in the first quarter. The brand is facing some boycotts there. How has this impacted and how we can think about that? And the second question is about the loyalty programs. You make some commentaries and also they release. And I understand that this is at least right now must focus on the Starbucks. Just to understand, if this has been rolling out also for Domino’s. And also if you can comment something about the Domino’s money and as we know that had good performance in the first quarter of the year and what is the strategy for the rest of the year. It is punctual program or it should be rolled out throughout the 2024. Thank you.
Armando Torrado
Thank you, Renata. Regarding the difference between the profitability in Mexico and Europe, well, a usual way of business, the profitability is pretty much the same. The paybacks that we require to the brands and the EBITDA margins that we require on a normal way, are pretty much the same. Obviously, when you are facing a decrease so relevant like the one way or so suffering in France, obviously, I cannot give you [indiscernible]. We are losing significant percentile points in the EBITDA for a while.
Having said that, we are not a quarantine the pace to open new stores because the profitability of the stores and the whitespace in plants is huge. So, we are we’re having a slump in the way hopefully, for the second quarter, by the end of the second quarter, we are going to have better fields or better [indiscernible] in terms of traffic for France. Additionally, we are not only taking actions in the top line for France, and for Netherlands, we are doing the job in the productivity in the store say to preserve all the expenses to have your way.
Federico Rodríguez
Hello, Renata. Gracias, thank you. Let me tell you what we’re doing in the whole digital platform regarding. As you know, we mentioned here in March when we saw you guys, we are in the implementation of SDS Steel. And this is going to be all the way longer to the whole year and to the year end. We are starting with LatAm, Chile, Argentina, Uruguay, Paraguay already have that. Of course, in France and Benelux, we already have the SDS, the POS installed, and we are advanced regarding Starbucks rewards, tax for everyone, and we are right now utilizing CRM for really personalizing the consumer.
Regarding Latin America, we don’t have the Starbucks program, for example, in Colombia that we have 70 plus stores that’s a little bit that’s achievement that’s going to be starting in March in a third quarter. So I think that’s going to give us another robust and all the I think by the end of that third quarter starting the fourth quarter, we will have to have that roll out completely for that SDS platform ready. So we can, I mean, even says that we are working right now with Starbucks in Mexico, it’s working. We are personally customers, but the platform is not as robust as it can be.
We are working right now with MOP, more of a road and pay in two countries. We started a long, long way to go with that channel that can give us a lot of sales. But also the delivery, 9 point something percent of our sales in Starbucks are delivery. So that’s a great channel that we didn’t have three years ago. It’s increasing for us.
Our category is not increasing, I will tell you. Our category is not increasing in all the regions, but we are. When we see the numbers with our aggregators, we are facing a good increase. So that’s for Starbucks.
And regarding Domino’s, our friends from Domino’s were here two weeks ago. I’m also pleased to say that we were named Franchisee of the Year in Starbucks International, Domino’s Mexico, and Dominos Spain. So that’s a good news. And also we are regarding the loyalty program they have in the U.S. That is a loyalty program that is not based in points. No, it’s not a fidelity. It’s just a rewards program for every 10 orders that you buy. They give you products free, but you don’t have an accountability of the points and you run redeem and you don’t accumulate and you don’t redeem. We don’t have accountability here.
I think by the third — at the end of third quarter, let’s see, September, we can plan to launch that in Mexico. I think Domino’s Pizza is going to report in the next week or something. But I think that game of a loyalty program in Domino’s is working very well. And we are very bullish to just to jump in that program that is going to give us headwinds regarding fidelity for our customers that nobody else have in this category, that kind of rewards program.
Federico Rodríguez
I would say, Renata, just to complement what Armando was saying, in Domino’s Pizza, we have implemented Domino’s Cloud in Mexico and Colombia, and we’re planning to do the rollout in Mexico for EPS. So we are, again, kind of moving in the right direction, and we will have a much more robust app in Domino’s in our markets.
Renata Cabral
That’s great. So very complete answers. Thanks so much.
Armando Torrado
Gracias, Renata.
Operator
Thank you very much for your question. Our next question is from Mr. Felipe Cassimiro from Bradesco. Please go ahead.
Felipe Cassimiro
Good morning, Armando, Federico, Gerardo. Thanks for taking my questions. I have just a couple of questions.
So first, I wanted to follow up on the negative impact of the effects losses. For the convention, there was a purchase of USD in Argentina I imagine there’s something related to that. I’m just wondering, going forward the next quarters, are there any more major movements in this sense of the purchase of US dollars?
And the second one, if I may, hit other reinforced the guidance in the presentation Armando, as well. But I just wanted to double check with you because there seems to be a situation in Argentina is ongoing. And it’s impacting numbers. So I just wanted to assess what are what could be the risks in the Argentine operations that would make your change or guidance in 2024. Thanks?
Armando Torrado
I mean, I can take both, say the ethics laws, to be pretty clear. I’m going to explain it. A the effect losses we suffer from Argentina, became from the conversion in the cash position from the official rate, which was around 850 Argentinian pesos per dollar to the consolidated production rate, which is more than 50%, 56% a difference in the in the rate. And the suppose 170 million pesos in the consolidated fee usage we received yesterday.
So having said this, this is one of impact. Obviously, we will have cash position during the next quarter. But it is not going to be relevant. You have to think that this cash position became from the last two years. So it is not going to be relevant.
Additional, either is from Argentina, I would say, we haven’t considered in the in the budget and obviously in the guidance that we delivered to you in the Alsea Day. So we maintain the guidance. And we do not expect to have a any more risk from Argentina.
Do you want to compliment?
Federico Rodríguez
So I think, hi Felipe, I think in Argentina and you are closer than me from that country. Things are looking when I did the budget in November, I we did a very dramatic budget that is included in the forecast. But as soon as we are seeing the numbers right now, things are looking a lot better.
It look better in the in the exchange rate. That looks better in traffic. At the inflation, you know, there is a positive Ryan 3.2% report yesterday. So I’m a little and much more positive about Argentina future than I was three months ago.
Felipe Cassimiro
Great. That’s amazing. Thank you very much for your answers.
Armando Torrado
Thanks Felipe.
Operator
Thank you very much for your question. Our next question is from Mr. Fernando Herrera from Compass Group. Please go ahead. Our next question is from Thiago Bortoluci from Goldman Sachs. Please go ahead.
Thiago Bortoluci
Yes. Hi, good morning, everyone, Armando, Federico and thanks for the question and congrats on the results. I’ll just let you explore a little bit more SG&A dynamics particularly in Mexico, right.
When I tried to swing for this year against the SG&A range, it show that particular in the region, I’d say bright improvement year-over-year like 10 basis points improvement. And this is in a context when we’re seeing a significant increase in the minimum wage. So my question is, with all the efficiencies operating leverage that you expect going forward, couldn’t we see even room for slightly better profitability and lower expenses going forward, once you digest this new payroll structure? Thank you very much.
Armando Torrado
As we said, Thiago — hello, Thiago. As we said in the outset, obviously, it is not a good news to have increases in the minimum wage. But we think we have some kind of levers to increase the productivity into the store. I want only to remark, because some of the notes see [indiscernible] that is not a good news, we have around 60% of our employees link to the minimum wage, and obviously, we are accomplishing with the law. That’s the first part.
And the second part we’re trying to improve their productivity into our stores, we think we have room to do it. But this will have in case we have this perpetuity rate, this will impact the final customer, it is not happening right now, we are preserving the same kind of service. And we have excellent reviews from the customers but we are not seeing an impact on the P&L, as we said, on Analyst Day.
Federico Rodríguez
I would say Thiago to compliment on that one. We mentioned in the previous quarter that we were making some, let’s say rollouts in Burger King in Mexico, or flexible hour week for employees that work well, that is now amplified to other regions. So the experiment that we’re doing is a little bit bigger today. And we’re also looking for doing this at the Domino’s Pizza as well and the same for Starbucks.
So we’re adding a little bit more of analysis behind it. So we’re prepared for that. And as you know, we already have some labor markets, or intensive labor markets that we operate today such as in Spain or Chile. So we’re used to it. And we should adapt rapidly in Mexico hopefully.
Thiago Bortoluci
That’s clear. Thank you very much. And if I may, quick follow-up also in Mexico, the elections are just kicking in. And obviously we are seeing more incentives being deployed in the economy. To this point, are you seeing sequentially better demand, and even some store sales moving? I know the comps. But should we expect sequentially better momentum for traffic demand and consumption into the second quarter?
Armando Torrado
They were yesterday in Vancouver, Indiana, two weeks or a week ago, they bought a little bit upscale about 1.4 to 2.6 about growth in Mexico. We didn’t see anything, any movement yet. Right now, we are comparing with [Indiscernible] a year before. So of course, this is not a very well comparison.
But now we are going to go there’s, now next 15 days for us the week of read is very strong, Bulgaria New Year, then comes Mother’s Day, Father’s Day. So a lot of things are coming. And I think the economy, yeah, we see some resources and better resources. There’s 50 days for the elections. And in six years here, you know, there’s more resources and money in the pockets of consumers. But we need to wait and to be honest with you, we are seeing some other changes or MIMO, another change, we are not.
Federico Rodríguez
Yea, it’s favorable for the country and we think it favorable for us, yeah.
Thiago Bortoluci
Perfect. Thank you very much guys.
Armando Torrado
Sure. Thank you, Thiago.
Operator
Thank you very much for your question. Our next question is from Louise Willard from GBM. Please go ahead.
Louise Willard
Hi, guys. Good morning. Thanks for taking my question. And congratulations on another strong quarter. I wanted to go back to Renata‘s question about loyalty and you know, pick your brains about I mean, you’re already doing around one-third of sales on eCommerce or digital sales.
Let’s call it digital sales. And also a significant portion of it, especially in Starbucks is related or is attached to your to the loyalty program. So the question in particular is, as you’re allowed loyalty in Domino’s, and you continue to evolve loyalty in Starbucks. The — where do you see it? You know, moving forward in terms, not only penetration, but in terms of monetization, in terms of all the added value that you can extract from having successful loyalty programs. Basically, the question is, where do you see it now? And where do you see it going five years forward? Thank you.
Armando Torrado
Gosh, yes. Yeah. I mean, you’re very right. This is the key of the game, how we monetize that consumer in all the ecosystem of Alsea in CLUB-BY that is very — CLUB-BY with Fosteriana, [indiscernible] big, big platform in Europe better than the one that we have in Mexico. What are we doing the in the in the Dominos and what are we do? I mean, Domino’s has more than 30% of a quarter of digital sales. I mean, remember that we do their aggregators.
Also, we do — our app that is very strong. So I mean, the Starbucks – as Domino’s are strong as digital sales, and our Burger King with a digital kiosk are also going to be quite. So yes, we are right. One-third of our sales are there and I think by the end of the year, probably can be a 50% of our sales can will go by digital. And like I said that is also the cost of labor, like we said, that gave us a lot free spend for that, you know?
Right now what we need to do is, and we have – we will like to show you next quarter is how we are processing the heavy light and medium user, you know? And will how can we get the light the light users to change to medium? How the medium user can go to high user? What is the frequency in each level? What is the expenditure in each level? And how we can we can pass one level to the second level to the third level in order to have more frequency with those consumers, you know? All that stamps that we’ve been doing in the eyeglasses or in the new initiative of marriage with the Starbucks, we’ve been very successful. Now every time we do a stamp, we do a new promotion with all those a Stanley Cups or other cups is just an amazing a success that we have.
So we are a partner also with Starbucks and other third parties to understand better how can we — how can we monetize those consumers in order to purchase a with more frequency better ticket. And also they have to have more incentives, you know. If you are a Gold member in Starbucks, you can have those Stanley Cups before other ones, you know? And that makes you be part of my team — of our loyalty program. So we are doing a big, big segmentation in order to gain more momentum for them, no? And a better, and being more loyalty to our brands.
Louise Willard
Yeah, that’s very interesting Armando. Thank you and looking forward for next quarter to see that. Bye-bye.
Operator
Thank you very much for your question. Our next question is from Mr. Fernando Herrera from Compass Group. Please go ahead.
Fernando Herrera
Hi, guys. Sorry, the last time I couldn’t unlock my micro. Here are just a couple of questions. First one is a quick follow-up on energy prices in Europe. As you mentioned, you’re seeing levels, pre-pandemic levels in terms of energy prices. So, just wondering if you have some plans to hedge at these prices? That will be the first one.
Armando Torrado
Okay. Usually, we have not hedged any kind of commodities, only the effects for the U.S. dollars raw materials. We are waiting for the best moment because we do not want to close a financial hedge. We want to have a fixed contract with some of the generators, but they are not willing to close a two-year contract. They want something like 10 years. And I think it’s too risky for the company. And honestly, with all the injection of renewable sources in Europe that it has been implementing since three years ago, we think the prices are going to improve in the next 6 to 12 months.
Fernando Herrera
Okay. Thanks. And the second one is related to the huge cash outflow we’re seeing, related to the minority, to the non-controlling stake. I suppose that this is related to the Europe acquisition of the rest of the parts of the business. So, I mean, I have in my mind that this operation will take place by the end of this year and a small part in the first part of 2025, right? So, yeah.
Armando Torrado
Okay. Fernando, the acquisition, as we mentioned in the previous video conference call, we bought the three minorities, being a ProA Capital and the Arango family, well, Analia Capital, partially with a bank loan and cash. We have closed the deal. In fact, Alsea, as of today, have the 100% of the European entity. The acquisition was, as we said, €238 million and we have paid around €150 million and we will pay the remaining part, the €90 million, in the last quarter and in the first quarter of 2025.
Fernando Herrera
Okay. Super, super clear. And here I’m just wondering, I mean you have the optionality to pay with a stake of Alsea, right? So, I mean you have plans to do that or will be more driven with cash and more debt?
Armando Torrado
No, as I said, we are paying with cash and debt. We do not see pay with shares as an option. I think, we think it is not a good option for the shareholders, and we will do with the mix I just commented.
Fernando Herrera
Perfect. Thanks.
Armando Torrado
Fernando.
Operator
Thank you very much for your question. Our next question is from Mr. Jorge Izquierdo from BTG Pactual. Please go ahead.
Jorge Izquierdo
Hi. Good morning, everyone. Thank you for the space for questions. My first question is on mozzarella in Mexico. Could you please share an update on where you are in terms of mozzarella needs for the future? And my second question is related to your guidance. Could you please remind us your implied FX assumption for the Mexican peso? Thank you very much and congrats on the results.
Armando Torrado
Thank you. I think in cheese, no, Federico, we have good news because the cheese, I mean, right now with exchange rate of 17 pesos, there’s great news. And then cheese’s prices are in the lowest ever. So we have a stock all the way to October, November. And actually last month ago where Bender was here, we’re going to see another opportunity to get there. So I think that is one of the most things that move the needle regarding our supply chain. So that is going in headwinds for us. We are not hedging, but we are controlling the future of the purchasing for the end of the year in order to have consistency in our platforms of value for Domino’s, no? And then…
Federico Rodríguez
Yeah. The second question, the guidance, well, when we prepared the budget and the guidance to you guys, we did it with different effects. Obviously, the appreciation of the peso at the end of the day is good for the company, but this is not having a crucial effect for the guidance we gave to you one month ago. So we will maintain the guidance. And honestly, the only way to change it is if the peso goes to MXN 13 per dollar, but we do not see that happening.
Armando Torrado
And I would say, Jorge, just to give you a little bit more details on the exchange rates, the ones that we were looking at the guidance were, let’s say, roughly 17.8 Mexican pesos to US dollars and in euros, roughly €19.5 per dollar, per peso, sorry.
Gerardo Lozoya
Great. Thank you very much. Thank you very much for your question. That was the last question. I will now hand over to Mr. Armando Torrado for final comments.
Armando Torrado
Once again, I would like to thank you. Thank you very much for joining our quarterly video conference. And as always, if you have any further questions, please contact us, our investor relations team. Have a great day and thanks for connecting today.
