October 26, 2018 / 6:21 PM / 21 days ago

Oxxo stores drive revenue growth at Mexico's Femsa

MEXICO CITY (Reuters) - Mexican bottler and retailer Fomento Economico Mexicano said on Friday that third-quarter revenue grew nearly 8 percent from a year earlier, driven by higher traffic at its Oxxo convenience store chain.

Revenue was 118.4 billion pesos ($6.3 billion) compared with 109 billion pesos a year earlier.

However, net profit fell nearly 86 percent compared with the year-ago period, when the company sold a stake in Heineken, one of the world’s largest brewers. Net profit was 4.7 billion pesos, compared with 32.4 billion pesos a year earlier.

Shares in the company, known as Femsa (FMSAUBD.MX), were down around 1 percent in Friday afternoon trading.

Femsa sold a roughly 5 percent stake in Heineken (HEIN.AS) in September 2017 for about $3 billion.[nL2N1LZ154]

That provided a high comparison base for this year, Femsa said. Exchange-rate losses in the company’s cash holdings also contributed to the profit decline, the firm reported.

Chief Executive Eduardo Padilla said during a call with analysts that Femsa would consider putting earnings from the Heineken sale towards an acquisition of up to $1.5 billion, without providing further details.

At Oxxo stores, which generate about 35 percent of Femsa’s revenue, higher traffic helped sales increase about 12 percent. Growth at Oxxo, along with drugstores and gas stations, helped offset a weak third quarter at Femsa’s Coca-Cola bottling unit KOF.MX. The segment saw total revenues decline 0.7 percent compared with the year-earlier period.

Padilla said retail operating margins were constrained in Mexico due to tight labor conditions and higher costs. Cash transportation was among the biggest expenses, he said.

“It was a major surprise to learn how much cash we’re managing,” Padilla said.

Oxxo lets shoppers deposit cash for bills, online shopping, money transfers and a basic debit card, catering to more than 60 percent of Mexico’s population that lacks bank accounts.

The chain is ramping up its budding e-commerce initiatives, too. [nL2N1W00Z1]

The company is piloting a mobile delivery application in Monterrey, one of Mexico’s largest cities. It is also expanding its Amazon.com Inc. (AMZN.O) partnership, planning to offer package pick-ups for the e-commerce giant in about 4,000 stores by the end of the year, Padilla said, up from about 3,000.

Oxxo’s expansion in Colombia and Chile squeezed third-quarter margins, Padilla said, adding that Oxxo aims to grow in Peru, where it opened its first store on Friday.

Reporting by Daina Beth Solomon; Editing by Bernadette Baum

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