Alsea, S.A.B. de C.V. (OTCPK:ALSSF) Q2 2022 Earnings Conference Call July 29, 2022 10:00 AM ET
Company Participants
Salvador Barragán – Investor Relations
Armando Torrado – Chief Executive Officer
Rafael Contreras – Chief Financial Officer
Alberto Torrado – Chairman
Conference Call Participants
Alan Alanis – Santander
Vanessa Quiroga – Credit Suisse
Sergio Matsumoto – Citigroup
Antonio Hernandez – Barclays
Paulina Moreira – Compass Group
Ulises Argote – JPMorgan
Rodrigo Alcantara – UBS
Andres Ortiz – BTG Pactual
Bernardo Gonzalez Ahedo – SURA Investment Management
Joao Andrade – Bradesco BBI
Thiago Bortoluci – Goldman Sachs
Jorge Izquierdo – BTG Pactual
Salvador Barragán
Good morning, everyone and welcome to Alsea’s Second Quarter Earnings Video Conference. Today, we will have presentations from our Chief Executive Officer, Armando Torrado; our Chief Financial Officer, Rafael Contreras, and – who will give you an overview of Alsea’s second quarter results. Before starting our presentations, I would like to hand over now to our Chairman, Alberto Torrado, for some initial remarks. Please, Alberto.
Alberto Torrado
Thank you, Salvador and good morning everyone and thank you for joining us. I would like to briefly comment about our recent changes in management that I am sure you are all well aware of.
Starting on July 11, the Board of Directors has decided to appoint Armando Torrado as CEO of Alsea. Armando is an expert regarding every aspect of the business since our origins. He has more than 30 years of experience with this company since operating the first Domino’s Pizza stores back in 1991. He was responsible for Domino’s corporate stores for more than 10 years and later served as CEO of the brand for 5 years, complementing his operational experience by later being appointed as the first director in-charge of the whole Casual Dining segment of Alsea. As a founding partner of Alsea, he play a very important role in the last acquisitions made and the incorporation of new brands to our portfolio. Likewise, he was in-charge of the real estate development department and assumed the role of Expansion Director for Mexico and Latin America. Subsequently, Armando took the position of Director of Alsea South America, to later occupy the most recent assignment as CEO of Alsea International, adding 3 years of experience in positions that have allowed our company to position itself in international markets. The bout of confidence from the Board today is furthering chance by asking Armando to occupy a position of influence at a top leadership with our organization. From now on, Armando will be in-charge of giving continuity to our plans and long-term strategy, but also boosting our results in the short-term. He perfectly knows the inside of Alsea. He knows his management team in every geography and in every brand. And even more important, our people know and trust him very much.
Now, I will pass over Armando for his first quarter presentation as a CEO. Thank you very much.
Armando Torrado
Good morning, everyone. Thanks once again one more time to joining Alsea second quarter 20202 earnings and videoconference. I am excited to discuss you with this quarter’s strong results, our regional and brand performance and developments on our strategy going forward and then Rafael will take you through the company’s financials.
First, I would like to thank the Board of Directors from the confidence they placed in me in this appointment as new CEO. In this role, I am building on my 30 years of experience of working in senior position at Alsea and will be totally focused on generating value for all of our stakeholders, from shareholders to bond investors, but as well to our collaborators, to our communities, and of course, to our clients, customers, always staying focused on our operations and customer needs.
And now looking at our results. We are pleased to report a 6 straight quarters of continued sales growth, and once again a positive EBITDA across all regions. Our strategy of investing in our key brands and strengthening in our digital channels, are proving customers’ top quality service, and our store has once again paid off. In the second quarter, net sales increased 35.8% to MXN16.9 billion year-over-year. EBITDA was MXN6.6 billion post IFRS 16 for the quarter. That’s up 27.4%. This leads of OUR EBITDA margins of 21.4% for the second quarter. Meanwhile, same-store sales posted an increase of 38.7% compared to the second quarter of 2021. Our key brands continued to gain market share, thanks to their superior product offering and customer experience. Operating cash generation in the quarter was a healthy position of MXN5 billion, enabling us to continue deleveraging.
Compared to the second quarter of last year, we have 132 more restaurants operating across all regions. Our main focus is to increase the number of our key brand restaurants in our most profitable markets. We ended the quarter with more than 4,300 stores and more than 3,000 collaborators. As I mentioned before, sales increased 36% over a year, and we continue to see a better performance compared to pre-pandemic levels, which had a 6.2% growth versus 2Q of 2019. That is excluding FX effects. That also sales increased 45% versus 2Q of ‘21. Also, our business model and the actions that we’ve been taking over the past couple of years have proven to be effective. And now we find ourselves in a privileged position to take advantage of our new market opportunities.
Delivery continues to have a strong performance, accounting for 18.5% of our sales with 11.6 million orders. That’s for the second quarter. The digital channel is a fundamental pillar for our long-term growth strategy, and I’m pleased to announce that WOW+ reached 1 million active users milestone in this quarter. Globally, we now have more than 6 million active users between all our digital platforms.
EBITDA on a pre-IFRS basis grew at 44.7% for the quarter and an impressive 83.4% for the first half of 2022. That is compared to the period of 2021. Our costs increased 100 basis points as a percentage of sales year-over-year, reflecting the impact of our cost control strategies, I mean, the inflationary pressures across several of our regions. That cost represents 32% of our sales. We are implementing very carefully a designing pricing strategy and overstocking strategy to mitigate the effects of inflation without affecting the demand.
Looking at our geographies, Mexico sales increased by 29% year-over-year, and adjusted EBITDA increased by MXN449 million to MXN0.5 billion. Sales in Europe grew by 27% with adjusted EBITDA of MXN131 million that is higher MXN1.5 billion. And South America posted a very strong 83% increase in sales, while adjusted EBITDA grew MXN335 million to MXN679 million. The contraction on our adjusted EBITDA margins in all regions, are impacted by the non-recurring benefits that we had for the previous years. That is related to government support program and an agreement with labor units, as well as some discounts negotiated rents with our tenants. It’s worth to mention that on a pre-IFRS basis, the adjusted EBITDA margins of Alsea Europe reported a 30 basis expansion instead of a 100 basis contraction report with IFRS 16. Same as a higher expansion of 370 basis points represented in South America operations versus the 160 basis expansion report from IFRS 16.
Regarding our core brands, same-store sales for Starbucks, Domino’s and Burger King, grow in our key markets year-over-year. Starbucks in Chile, Spain, France and Mexico, also had an outstanding result with respect increasing same-store sub-sales of 75%, 52%, 42% and 35%, respectively. Domino’s Pizza, both in Mexico and Spain had a 15% comparable store sales growth versus 2 quarters of 2021. And Burger King had increased in Chile, Spain and Mexico, over 40%, 23% and 90%, respectively. As you know, that this Mexico turnaround strategy is underway, and we are happy with the same-store results posted by the brand during the quarter, with a 34% increase compared to the second quarter of 2021. Also, Vips Spain has been overperforming with a 42% growth in same-store sales and 9% above 2Q ‘19 figures.
As a result of our continued work on ISG towards achieving our 2030 goals announced last March, I’d like to share that, even tough – to the – some geographies are just beginning to scope and define their baseline to set their own action plans to our goals. Other countries are improving their KPIs, and send the internal benchmark and best practices. In June, we received a certification of the first Greener Store in Latin America for our Starbucks Unit located in Paseo Los Dominicos in Santiago, Chile. This store was designed to use 50% less water and produce 20% less carbon emissions.
Regarding our actions to minimize food waste and contribute to ending hunger, as of today, Mexico, we have donated more than 34 tons of food that have benefit from – more than 125,000 people in food poverty, in addition to those 374,000 meals, which are through the Va por mi Cuenta movement. During the first semester, the 12 corporate openings of Domino’s Pizza, Ginos and Vips brands in Spain, have been part of the openings with cause program, that we have actively donate to different NGOs with 100% of the sales achieved on the opening day of these stores, generating a very positive impact on around 14,000 beneficiaries.
I also would like to highlight that to this date, we are managing to achieve a reduction of 12% electricity usage in Mexico. And in our European operation, we certified 90% of our suppliers which ACCP and 74% of the suppliers are GFSI certified. Today, 21% of our top level positions are led by women. We still have a long way to go, but we are committed to bring an example of substantiability in this industry.
In terms of our key management changes, I would like to thank our going – our Sales Europe CEO, Miguel Ibarrola, who is retiring from more than 20 years of service at Alsea and Grupo Zena. We wish him the best in his new endeavors. From now on, Jose Luis Portela will serve as the Starbucks Mexico CEO, will replace Miguel and Francisco Tosso, former Alsea Colombia Country Manager, will now serve as CEO of Starbucks Mexico.
I would like now to hand the call over Rafael to give you a more detailed overview of our financial results. Rafael, please thank you and go ahead.
Rafael Contreras
Thanks. That just as we did in previous quarters, in order to present a comparable analysis versus the financials of the previous year, all the explanations and notes reported in our earnings release includes effects related to hyperinflation in Argentina as well as IFRS 16. These 2 factors are also included in the financial statements issued to the corresponding authorities.
The impact of IFRS 16 in our financial results for the quarter were as follows: MXN1.4 billion increase in EBITDA and an additional MXN10 million in net income. Our IFRS EBITDA was up an impressive 44.7% when compared to the second quarter of 2021. Excluding FX effects, consolidated EBITDA increased 53% versus second quarter ‘21. All 3 regions, as Armando mentioned, posted solid results and growth trends, surpassing 2 quarter – second quarter 2019, EBITDA figures by 14% and 45% in Mexico and South America, respectively, and increasing and presenting a 6% growth in our European operation, excluding FX impact. We were able to counter inflationary pressures through our stocking strategy in key products such as Mozzarella cheese, where we have already been able to cover until the end of the first quarter next year, and commercial strategies reducing aggressive promotions and benefiting from the preference of our customers for our brands, and leveraging through digital strategy and product innovation as well as efficiencies implemented during the quarter related to labor as we were able to improve the average profitability per collaborator. It’s worth noting that even with the 100 basis pressure on costs, we were able to report a 90 basis point expansion on the consolidated pre-IFRS EBITDA margin.
Additionally, the results of the quarter consider the provision in Alsea Mexico regarding the profit sharing scheme for the year 2022, for approximately MXN70 million. In 2021, this effect for the full year was provisioned on the fourth – last month of the year. As Armando mentioned before, the contraction in the post-IFRS 16 EBITDA margin is mainly related to non-recurring benefits in the previous year related to the government support programs and agreements with labor units, as well as discounts negotiated with tenants.
Net income for the second quarter increased by MXN180 million to MXN237 million. This increase was mainly due to a MXN821 million growth in operating income resulting from the recovery in sales, commercial strategies, product innovation, developments in digital application, as well as improved cost and expense control efficiencies. We have been able to keep the recovery trend since the first quarter of 2021, achieving an earnings per share above MXN2.0.
Regarding our debt profile, as of June 30, 2022, our gross debt, including leases under IFRS 16, decreased by MXN4.5 billion, closing at MXN51.4 billion. This reduction in debt corresponds mainly to the revaluation of the euro exchange rate against the Mexican peso and the debt amortization of MXN1.1 billion during the first 6 months of the year. We feel comfortable with a current maturity curve and the current debt ratios that we are achieving. The debt structure at the end of the quarter was 96% long term with 64% in Mexican pesos, 36% in euros and less than 1% in Chilean pesos. We expect to deleverage going forward and meet all of our debt covenants, thanks to our healthy and ongoing cash generation.
Regarding our waivers and covenants, we were comfortably compliant during the quarter. On the gross debt-to-EBITDA ratio, we ended the quarter with 3.4x, and EBITDA-to-interest paid in 3.7x. The minimum liquidity covenant is set at MXN2.2 billion, with us posting MXN5 billion for the quarter. In line with our CapEx plan without sacrificing needed investment, led to MXN1.6 billion being spent during the first 6 months of 2022, of which 43% was allocated to maintenance, as we needed to catch up following the pandemic. 45% went to store openings and remodelings, and 12% for other projects. Out of the 61 stores openings that we achieved in the first 6 months of the year, 57% are Starbucks and 18% Domino’s Pizza units.
During the quarter, we carried out a stock buyback of 7.5 million Alsea shares for MXN313 million. Given our liquidity, the current share price and recent low trading volume, we consider that it’s an attractive opportunity. At the moment, we have close to 10 million repurchase shares. And depending on the market environment, we will decide whether to cancel the shares or provide liquidity to the market at the right time. Regarding the current legal dispute with the Mexican tax administration services related to our purchase of the Vips restaurant division from Walmart to Mexico on July 1 – on July 1, 2022, the Federal Court of administrative justice lift the temporary freezing on some of our bank accounts at a holding level. Our operations were not affected by this temporary freeze. We will keep you update on this matter via relevant event, press release, but remain confident that we will prevail in our case based on advice from our legal and tax teams.
Given that the positive results reported in the first 6 months of the year position us above our initial forecast, we are confident that we will be able to maintain our guidance published to our Investor Day back in March. However, it is important to note that this guidance was based on an euro-peso exchange rate of MXN23.5 versus the current MXN20.8. So, we may have an external variation due to this FX effect versus our guidance. We also have to take into account that the second half of the year has a growing comparative base, both top line and EBITDA, added to the expected cost and energy pressures. Nevertheless, we will keep working on what’s on our hands to mitigate this effect in order to meet our guidance.
So thank you for your interest in Alsea and we’ll now hand the call back to the operator to open the Q&A session.
Question-and-Answer Session
Operator
We will now start the Q&A session. [Operator Instructions] The first question is from Mr. Alan Alanis from Santander. Please go ahead.
Alan Alanis
Thank you so much for taking my question and congratulations. Very impressive results. Armando, best of wishes for the – and a lot of success on the new role. I am sure the company is in good hands with you. My question has to do with – I mean, it’s very impressive when you have the same-store sales above 2019 levels in all of your formats and geographies except Vips in Mexico. But I want to understand better how much of that is traffic and how much of that is ticket? And what trends are you seeing post the quarter? In other words, are we in levels of traffic already that are comparable to 2019 or are we still below those levels across your different geographies? That would be my question. Thank you so much.
Armando Torrado
Rafael, do you want to take that question?
Rafael Contreras
Yes. In terms of same-store sales growth, we are versus 2019 around 8% lower in terms of orders. And in terms of the increasing ticket, around 60% came in with the increase in price and the other part came from a mixed – in terms of products and also innovation – and innovation, mix of products, mix also in terms of the percentage of participation of each of our brands in each geography, but only 60% – between 50% to 60% came in terms of price increase.
Alan Alanis
That’s very clear. Are you still seeing a trend, a positive trend in traffic or is it more stable right now?
Rafael Contreras
I will say that it’s more positive trend in terms of traffic. We have some brands that are above 2019, like Domino’s, Starbucks, Burger King, in Mexico. Some of our casual dining brands also achieved higher traffic than 2019. And in some parts also in the South America, Colombia, it’s higher than 2019. Some brands like Burger King in Chile and some brands also in Europe, are in terms of orders higher than 2019.
Alan Alanis
Correct. Okay, very, very clear. And last question, I mean – Armando, it’s your first conference call. Do you want to talk a little bit about what are your strategic priorities as the new CEO of the company, just briefly? Thank you so much.
Armando Torrado
Yes, it’s my first conference call probably in the screen, but I’ve been back in my last 30 years in this company with a good knowledge, I mean, traveling around the world or geographies. And I live in Mexico too, so I – it’s very hard to – for me not to be involved in the operations day by day since 30 years ago in this company. But of course, first of all, it will be the team. I think we have a strong team. The leadership team is going very well. I mean, we are very optimistic about what can we achieve as a team. The second thing, of course, will be the growth. I mean, growth – we have a lot of opportunity in every market, in every geography, with all the brands. We just mean – I was in France, and it’s amazing how the results were going, the openings. Spain is suffering a complicated economy, their expansion. It’s also been driven very well. So, we need to push the accelerator of – to growth with – in good geographies and with the good brands. And of course, it’s going to be a complicated second semester, but I think with the inflation, we had that over control. You can see in our food cost. So, I think I have a short – right now, I can tell you, a really short-term projection for these 6 months. I probably can give you a little bit more guidance in October or in the conference call about what can be the strategy for our long-term. But I – we need to focus in these terms right now for the second semester. But at year-end, I mean, we are already closing July and that the result looks as strong as the last quarter. So – and then there is some commodities also going a little bit down in price as – so I’m confident that we want to achieve good results again in the next two quarters to close a strong year of 2022. Thanks for the wishes, Alan.
Alan Alanis
You’re very welcome. That makes a lot of sense. Focusing on the team and the growth, I think that’s very – that’s the right thing to do.
Armando Torrado
In order – of course, as you said – and it’s all – I’ve been seeing and reading the reports of other companies, and we are all complicating in tickets, in traffic for the stores. But that’s how the big goals that we need to get back. The traffic will go. We will be back. We get back. I mean, I’m confident of that.
Alan Alanis
Well, congratulations again for the results and best wishes, thank you so much for taking my question. Thanks, gracious.
Operator
Thank you very much for your question. Our next question is from Ms. Vanessa Quiroga from Credit Suisse. Please go ahead.
Vanessa Quiroga
Hi, thank you for taking the question. And Armando, welcome in your new position. Congrats. So, let me start with the first question. I want to ask the team about the competitive landscape in Mexico, especially in the pizza segment where we’ve seen more appetite from competitor brands to grow in Mexico. So just some color on what you are seeing on the ground. And the other one is about maybe more in-depth details regarding raw materials, when do you think this decline that you just mentioned, Armando, in some commodities, could help – could start helping in the results of Alsea? I’m thinking maybe for the second half, we will still see some headwinds in terms of the commodities’ prices, especially with the cheese. I’m not sure what’s going to happen with the coffee. So, if you can provide some insight on the second half regarding cost inflation? That would be very helpful.
Armando Torrado
First of all, thank you very much, and thank you, Vanessa. I mean inflation is – like I said, is top, but we have four or five items that are really complicated for us since then. So, one is cheese, of course. I think we mitigate that impact. We have a big inventory of cheese still in Mexico that we bought over a year. We have inventory to February or March of last year. We have a great relation with our supplier. So, I think that’s the more impact one that we have been taking care of. The good news is the flour. We use a lot of flour for pizza, and the flour is – it’s a little bit – is not going up again. I mean, there is good news on that. So that – and there is, of course, a meat and poultry that’s also – But I can – I mean, it’s a very [indiscernible] times to see what can be done. But our supply chain Director, Miguel Cavazza, is doing a tremendous job in purchase and procurement. And I’m very confident that we will go ahead with those headwinds. And like Rafael said, there is new place that we are doing for food. There is a new innovation that we can do. We did a great job in Argentina with our new product that we launched in the Burger King business, and it did super well. So, I think we have a lot – we can move in a lot of circumstances inside strategies to mitigate that role.
In the other hand, the pizza business, yes, it’s a competitive advantage, I mean, a competitive market, more – and the way – as you saw, our digital channels are very strong right now. We are right now moving to our new platform in digital. That is the one that the U.S.A. works with. We are in the process. We’re going to allow – we’re going to pilot test it September or October with a new technology for online ordering, that it will be just as great as the aggregators. So, that is a good advantage. And in Domino’s, we’ve been performing well the last 36 months. We’ve been having – that’s one of the brands that we are up in orders from ‘19, from ‘21. So that is a unit that we are doing well in the three geographies, not only in Mexico. Spain is doing well, and Colombia, it’s doing well. So, I’m very confident in the pizza sector.
Rafael Contreras
And I will say that also the strategy that we have to be wherever the client look for us, not just in Domino’s. Even though we have the Olo app, we have 10% of sales with aggregators. So that strategy also is pretty good that we start before the COVID.
Vanessa Quiroga
That’s great. That’s great. And just talking about aggregators, we saw that in a contract in Argentina, Mercado Libre will start delivering food. Is that something that you could consider maybe in the future, some of these other additional platforms function as your delivery platform as well?
Armando Torrado
As you know, we took that 36 months ago or more than that. We took the decision of not giving any exclusivity to aggregators. And I think that was a very good decision made by the company at that time. Now we work with all the formal aggregators, I will say. We have a great platform that they can integrate to our technology system, POS. Right away in 30 days, we can really do a complete integration, completely to the POS. So yes, they are in. I already have talks with them. I know [indiscernible] is super big in Uruguay and Argentina. But let’s see. I mean, we will talk with any aggregators. We don’t have any exclusivities with global ones. And the ones that we had, one or two, it’s already in the way of expiring that one. Yes. So, we will work with old one, the good ones that can drive us sales and, of course, best service to our consumers.
Vanessa Quiroga
Great. Thank you, Armando.
Armando Torrado
Thank you.
Operator
Thank you very much for your question. Our next question is from Mr. Sergio Matsumoto from Citigroup. Please go ahead.
Sergio Matsumoto
Yes. Hi, good mornign, everyone. Armando, welcome. Looking forward to working with you. I have a question on Europe, since you were leading that division for some time. And what would you say are a few of the aspects that’s most misunderstood by the market participants when it comes to that segment? Is it the – perhaps dependency on the tourist or the growth potential, perhaps some of the store development plan when it comes to Starbucks? It seems very exciting, but if you could shed some light as to where the growth could come from Europe, that will be very interesting. Thank you.
Armando Torrado
Thank you, Sergio. Regarding – if I – the – it wasn’t very clear your question, but are you asking about growing in Europe, right? Correct?
Sergio Matsumoto
Yes.
Armando Torrado
I just was in Europe last week. And, I mean we have just amazing concept there called Vips, as you know, with 150 stores, and it’s performing very above expectations and every opening has been quite successful, performing probably 30% above our plans for that one. So, there is a big line of opportunity in Spain for Vips and Vips Smart. Also in Starbucks, it’s performing very well. That’s our sector, like Rafael said, that you saw in the report with better traffic performing over 2019, 2020 and 2021. So, there is the market holding capacity there. It’s also very strong in Spain. So, those two brands and Domino’s – there is, I mean, a market that is a little bit more mature, what I will say, where we’re coming up with new models for Domino’s, so we can give the chance to really go ahead with that brand and open another 150 stores in the next, I don’t know, 24 months. I mean – but that’s going to be – that can be done.
And regarding just France and Benelux, what I said about – we are achieving a goal of 20 stores to 25 stores more or less opening in France. All the stores that we’ve been opening in the whole semester are completing with good expectations. So, the consumer is back. France also is lacking with problems of tourism still from Asia, but we are still having a good numbers. In all geographies, our sales Starbucks – whatever is complicated is the business traffic of downtowns in cities. But we are leveraging that with a very good results in neighborhoods and in commercial areas. So that is not really something that is – that we’re offering, but we divide the view of when we see the sales in five different sectors. And that is the only one that is causing a little bit of a problem to growth. But all the other five ones, airports, other channels, neighborhoods, commercial malls, shopping centers, we are above our orders from last year. So, I think in Europe, we have a great opportunity still. And as in other brands – as in other geographies – I would say that in all geographies – and you will see, the 61 stores that we opened in the semester, I mean, that is very diluted in all the markets with strategic brands for sure that is for now – right now with Starbucks and Domino’s we’re growing.
Sergio Matsumoto
Thanks. If I may, a question for Rafael. Rafael, could you please quantify the support anyway that you see from – that we used to have from the government and the unions and the landlords, just to kind of see what the impact was for 2Q and what to expect as a headwind, if you will, like a margin headwind for – until the 12-month lap of this support? Thanks.
Rafael Contreras
Yes. Last year benefits that we had in the second quarter 2021 in terms of rents were close to MXN200 million, benefits in terms of rents. And in terms of government support, in Europe, we have around MXN200 million, so close to €4.7 million. And in LatAm, because we have some government support in Argentina, was close to MXN60 million.
Sergio Matsumoto
And would you say that’s kind of uniform from quarter-to-quarter?
Rafael Contreras
Yes. That’s probably going to pretty much dilute already. But for the second half of the year, we’re no longer going to see these kind of impacts because 2021 second half was already off regarding…
Sergio Matsumoto
Thanks so much.
Operator
Thank you very much for your question. Our next question is from Mr. Antonio Hernandez from Barclays. Please go ahead.
Antonio Hernandez
Hi, good morning. Thanks for taking my question. Congrats on your results. You’ve already mentioned that July performance is trending quite well, similar to the previous quarter, but just wanted to get a little bit more granularity if possible, on the different formats and geographies. Is there any outperforming, underperforming geography? Or you’re seeing maybe a difference in the trend within the last weeks or the end of the second quarter versus the beginning of first – the second quarter, any geography or format trending differently? Thanks.
Armando Torrado
Rafael, please.
Rafael Contreras
I will say that we have a pretty good trend in all of our geographies and almost in all of our brands. The only brand that is not overperforming or has a trend – a growing trend, is Vips Mexico. Vips Mexico has almost the same amount of sales in the last – maybe in the last 6 weeks. So we don’t see this improvement in terms of sales. We think that – for the second half we think that people is going to be back to offices more than in the second quarter, and maybe we’re going to see a better trend. Some things that also happens is that when inflation is pretty high, the trade down that we see in our clients look for a cheaper alternative. And we think we want to capture that kind of clients also in Vips for the second half of the year. But all the other geographies and brands is still with the same trend in terms of growing, in terms of sales.
Antonio Hernandez
Okay, prefect. Thanks, Rafael, and welcome again Armando.
Armando Torrado
Gracious, Antonio.
Operator
Thank you very much for your question. Our next question is from Ms. Paulina Moreira from Compass Group. Please go ahead.
Paulina Moreira
Hi, and congrats on the results. I have a few questions. First one is related with the benefits that you mentioned. If I remember correctly, the last conference call, you said that there were no more like benefits, and that the reports were clean. So that – we also see more benefit this quarter and that’s it or, what’s happening with benefits?
Rafael Contreras
What we’re mentioning about the benefits is the comparative base, since in 2021 second quarter we still had some benefits.
Paulina Moreira
Okay, okay, clear. And another question is on margins. For the second half of the year, are you expecting like important margin pressures? And if so, in which of the regions it will be more like important is pressure?
Rafael Contreras
I will say Europe will be the one who has more pressure in terms of margins, because Europe has a higher inflation than the one that we are seeing in Mexico. And also, the energy cost is going to be also higher than the one that we are looking in Mexico. So, Europe will be the one who has a higher pressure in terms of margins. I will say that Mexico is going to be with the same pressure that we have this first semester. And then, LatAm has a pretty good performance in terms of margin, because of all of the things that we did over there in terms of expenses and in terms of innovation and also in terms of taking out some of these commercial promotions that we had there.
Paulina Moreira
And my last question is regarding online sales. I saw that you did pretty good in that segment. How much is from WOW delivery and how much is from the aggregators? Is WOW delivery increasing its participation?
Armando Torrado
Well, the participation of – in terms of home delivery, mostly came with aggregators. I will say that maybe higher than 90% come with aggregators, and the other parties with WOW in terms of home delivery.
Rafael Contreras
Slightly it’s still below 10%, probably the share that we have through WOW, but it’s increasing day-by-day.
Paulina Moreira
Okay, thank you for answering my questions.
Armando Torrado
Thank you, Paulina.
Operator
Thank you very much for your question. Our next question is from Mr. Ulises Argote from JPMorgan. Please go ahead.
Ulises Argote
Hi, guys. Thanks for the space for questions and welcome once again, Armando. I apologize once again I don’t what happens when my camera cannot get it to work here in the office. But I had one question here on the updates with the agreements with the banks. So, if I’m not mistaken, from last year’s announcement, you communicated that the agreements were in place until end of June of this year. So, I just wanted to get any updated thoughts there, or if we should consider like any changes there on the covenants, etcetera? And also kind of related to that topic, any changes in the expectations for dividends, how should we think of this, and how should we think ahead, like dividends versus buybacks on your guys, kind of cash back to shareholders? Thank you.
Armando Torrado
Yes. In terms of bank’s agreement, at the end of last year, after we issued the U.S. bond – we have an amendment and extend with banks an agreement with new covenants that it’s for a long-term period. It’s – we have the bank credits with a 5-year term. So, the new covenants are on to that period. And after we issue the Eurobond, we prepared more of the – that bank credits. So right now, the covenant that we have is on a long-term period, and we are very comfortable that we are achieving that covenant. There are in gross debt-to-EBITDA, liquidity and some restrictions in terms of CapEx, but this restriction in terms of CapEx allow us to grow between 170 to 200 new units in the next years.
Rafael Contreras
If I may add, regarding the interest coverage ratio right now, it’s at a minimum of 3x. Gross leverage ratio until September 30, 2022, it’s to be below 5.3x. Then after that, until September 23, 4.9x, then until September 24, 4x, and October 24 onwards goes back to initial 3.5x gross leverage ratio. And the minimum liquidity has to be $2.2 billion. Right now, we have $5 billion in cash, so we’re well above that.
Armando Torrado
Yes. And in terms of dividends, we will see if we achieve the gross debt-to-EBITDA lower than 3.5x. If we achieve that, we will see if we pay some dividends in 2023 or 2024. As you – if you remember, we paid around MXN0.80 per share in the last year that we’ve paid dividends. So it will be – if we achieve this ratio of gross debt-to-EBITDA, pay some dividends next year or in 2024.
Ulises Argote
Okay, that’s good news. Thank you so much for the color, guys.
Armando Torrado
Thanks, Ulises.
Operator
Thank you very much for your question. Our next question is from Mr. Rodrigo Alcantara from UBS. Please go ahead.
Rodrigo Alcantara
Hi. Hey. Thanks. Just have two questions here, Armando and perhaps Rafael. So, I mean you have a very impressive first half of 2022. I guess given that the share price clearly reflects concerns about your performance in a potential recessionary scenario, right? So, just curious about – perhaps one part of the question to Armando. I mean how do you foresee the performance of your brands, let’s focus on Mexico, the performance of your brands in a potential recessionary scenario? I mean how do you see perhaps Domino’s Pizza versus Little Caesars or the resiliency of a Starbucks? And to Rafael, so I mean, if you have somehow consider a recessionary scenario in your projections, I mean how resilient would you think our sales business model could be in this environment? And my second question would be related to the SAT. I mean we don’t understand, I mean I do agree that you have a very solid case there, right? But some of the questions that we have received from investors here is that, it would be better perhaps to, let’s say, perhaps reach a midpoint agreement with authorities and let’s move on to the same – to the next page. I mean just curious about your thoughts about this, as well, Armando, perhaps too. Some thoughts about this would be helpful. Thank you very much.
Armando Torrado
Well, Alberto will take the first one, and then I will let Rafael to take the second one, right. And Rodrigo, first, I mean recession – at the end, we – I think we are one of the few companies that have a great portfolio in our hands. I mean we are having the fast food with Burger King and with Domino’s. And every time there is complications in the economy, I think those brands delivered well. I mean as Rafael said, people are looking for value. And we have a brands, those two brands that had a very good value. And what about Vips, I mean Vips is as affordable as no other brand that can be that give you that value. We have a big presence of 230 restaurants, 240 restaurants, and another one in Mexico by the end, I think that is a great advantage you have those brands. And then, Starbucks, I mean it’s just been positioned as a third place. We been – we are right now having great performance in the five occasions of consuming very early morning, and that is coming back well. That with the pandemic went along. Now, it’s going well. Then we have the afternoon, and then it’s a great evening at night. So, at the end, I mean we always can focus on different kind of products. We have a different gap or the strategy of giving new things to the consumer. I mean I feel confident – the casual dining division also, that is more anchored in shopping centers. Shopping centers are in Mexico, at least, with positive traffic everywhere. We didn’t have the cinemas going on, the movies right now they are back. And as soon as they launch a good thing and people are launching again back to the shopping centers. That was a little bit of our more – a sector that wasn’t growing as fast. But now it’s positive in all segments, and in all brands in Mexico, we are positive. And I think we – I mean yes, I am worried, but I think I am more occupied of how we are going to make a strategy, a good – do other things to cause any recession, or bigger inflation that at the end is affect, what is affects our food cost. I will let Rafael to give you a little bit of the SAT.
Rafael Contreras
Yes. In terms of the claim that we have with the SAT, we try to have an agreement with them, knowing that Alsea has not – we don’t have to pay anything because we are – we were the ones who buy that. Walmex already paid the SAT, wants to gain 2x for the same transaction. So, we try to have an agreement with them, we couldn’t. So, we think that we have to go with a legal process with – the lawyers told that we have a pretty high opportunity to gain this legal procedure. So, it will take 2 years or 3 years, but we think we will be positive that we will succeed in this process here.
Alberto Torrado
Rodrigo, and I will say that any window that the government gives you to sit down in the table and do a good arrangement, we will do it. I mean I am exactly as you said. I mean here that doors are open. I will touch the windows that I can. And if we can arrange that, I will do that.
Rodrigo Alcantara
Okay. That’s great to hear. Very happy with the management.
Armando Torrado
Thank you very much.
Operator
Thank you very much for your questions, Our next question is from Mr. Andres Ortiz from BTG Pactual. Please go ahead.
Andres Ortiz
Hello. Good morning Armando, congratulations for being here, and we are happy to have you here. My question is looking into 2023. I think investors’ concerns are not focused in this year. We believe that you will reach your guidance. I don’t think that will give you strong results. But how are you – your initial thoughts for tackling 2023, how you are back to sense to perform, or how do you expect to offset the inflationary pressures that we have in Europe, that will have a great effect mostly in the winter and early next year? That will be my first question. Thank you.
Armando Torrado
I can take, I mean at the end, I am agreeing with you. We are now thinking in 2023. And at the end, we have to be very – we have very good discipline, still discipline in costs, in wages, in all the P&L of the company. At the end, we are not over first up and then this thing of inflationary. Next, I don’t know what’s going to be in next year. But we are doing a very good discipline in all the costs of the company. Our G&A is better than ever. You can see it in the numbers. We are going to still do that. We are going to just close the window to more – less hirings in the G&A costs in all the performance. I mean energy, it affects us, Andres. There is a big thing in energy that we don’t control, but we are talking with third-parties to have new negotiations with – in Spain, especially that we used to have a big support of a deal with one of the private distributors of energy. Now that is off. We are trying to do another one also in Mexico. But at the end, I mean just costs and expenses, we need to have a big discipline there. And then, there is a big momentum and there is innovation that is coming. I think people are not going to – they are going to go still to our restaurant. We have a good footprint, a good presence. We are still – they are asking for more stores to open, and anywhere we open a store, it’s performing well. So, at the end – and then in the stores that we have, the same-store sales are also performing well. So, I think we need to adapt to the market any time that circumstances move and change. And we already, like I said to my team, we already know that in Alsea, that we need to do in order to gain this after all these three tough years that we had. There is not any circumstance that we cannot surpass with our new energy of this company and the great people that we have. So, I am very positive on the future that we are going to have.
Andres Ortiz
Thank you. Very clear. And the next question is, given your deleverage process that is extremely strong, when would you expect to reach investment grade? And when you do it, what will you do with your debt in that space? Thank you.
Rafael Contreras
I don’t know if we are going to achieve in a couple of years an investment rate. But for sure, we are going to have a better rate than the one that we have right now. One of the main things that the rating agency has, was the leverage of the company at that time. Now, we proved that we can deleverage really fast. We are looking to be lower than 3x gross debt-to-EBITDA in 2024. So, I don’t know how it’s going to be also at the bond market in a couple of years. But our view is to – if the market is open and with a good rates, to have a new bond with a better cost and maybe with a better tenant also. That’s our view for – in 2 years, because it’s a 5-year too. But for sure, we are going to have in a couple of years a better rate than the one that we had last year.
Andres Ortiz
Prefect. Thank you very much and congratulations on the results.
Operator
Thank you very much for your question. Our next question is from Ms. Melissa Byun from Bank of America. Please go ahead.
Armando Torrado
Hi Melissa. We can hear you, and I don’t know if you have any issues with your mic.
Operator
Our next question is from Mr. Bernardo Gonzalez Ahedo from SURA Investment Management. Please go ahead.
Bernardo Gonzalez Ahedo
Good morning. Thank you very much for the time to talk about the company’s results. I know you have been talking about inflation costs and how you are managing them. So, just to know if you can give us guidance in terms of EBITDA margin for year-end. And the other question is related to digital revenues. If you have any target with respect to the contribution to total sales for probably this year or next year? Thank you.
Rafael Contreras
As we mentioned, our target for the full year pre-IFRS 16 is to be close or a little bit higher than 13% EBITDA margin for Alsea. Post IFRS 16, we will be close to 24%. And we are confident that we are going to achieve that over the year.
Bernardo Gonzalez Ahedo
Okay. Thank you.
Rafael Contreras
Regarding – can you repeat it? Sorry.
Bernardo Gonzalez Ahedo
Yes. Regarding digital revenues, if you have any target with respect to the total – the contribution to total revenues?
Rafael Contreras
I guess that’s a tough one because during the pandemic, it was a huge frog leap what we saw in terms of the development. So, we were probably – we are right now at the levels that we expected to be back pre-pandemic. We expect it to be close to 20% in 2025. So, right now, we are exactly there. We think as traffic is coming back, probably this is going to stay between 18% to 20% in those ranges. However, I would say it is – pretty much we are meeting targets.
Bernardo Gonzalez Ahedo
Okay. And regarding that, do you have also any expectation with respect to the mix between aggregates and your own app?
Rafael Contreras
I mean it is stop since – I mean as you know, aggregators are in pretty much every geography where we operate. They are spending a lot of money positioning themselves in this, pretty much amongst themselves. On our end, we have to have the alternative of having our own digital programs, our own delivery alternatives. However, right now, what we are picturing is, if we are able to get it above 10%, it’s already winning. We will have to keep on developing, as what Alberto was mentioning, and before in the last quarters, and Armando mentioned very recently, we are going to be moving ahead on our – improving the quality of our digital platforms. We are going to be implementing Domino’s Pizza OLO platform in Mexico. So, it’s pretty much the same as international, so the one that they have in the U.S., which is, it has a bit more sophistication on the product itself. We are going to be introducing Starbucks Rewards in Europe as well during this year. So, we have still some work to do in order for us to improve the percentage of sales that we are achieving on our own platforms.
Bernardo Gonzalez Ahedo
Perfect. Thank you so much.
Rafael Contreras
Thank you.
Operator
Thank you very much for your question. Our next question is from Mr. Joao Andrade from Bradesco BBI. Please go ahead.
Joao Andrade
Hi Armando, sorry for the camera, it’s not working here. Congrats for the results and for the promotion. I have a quick question. I would like to get your thoughts on how are you thinking about brand portfolio in the mid, long-term, if there is any space for rationalization or even expansion if that’s the case? I guess that’s pretty much it.
Armando Torrado
I think also we had – I was in the Alsea Day that we did last November – December of last year. And we also said that we know our complex portfolio that we have and how in the future, we want to visit will, as you said, I think we will rationalize or really get a smaller portfolio. At the end, that is a little bit – that will perform better. I mean we as you know, Starbucks and Domino’s are taking a little bit more participation in the pie. Anyway, when we see some opportunities of turning down some concepts in some geography, I mean that will be the case if we see. But right now, we don’t have any short-term decisions to take about any brand that we have. They are all performing positive. They are all performing well. And we are keeping up with the portfolio that we have. And – but yes, at I think in the long-term, what you said, it’s we agree. We already gave you that guidance that we – in the future, it’s a rationalization of our portfolio.
Joao Andrade
Perfect. Thank you very much.
Operator
Thank you very much for your question. Our next question is from Mr. Thiago Bortoluci from Goldman Sachs. Please go ahead.
Thiago Bortoluci
Yes. Hi. Good morning Armando. First of all, good morning everyone. Thanks for taking the questions. Thanks for the presentation. Armando, first of all, congrats on the very strong first quarter results and your new administration, and good luck on the new role. I would just like to explore a little bit more the status of the burger business in Mexico, right? We know one of our largest competitors McDonald’s is like being a bit more aggressive and focusing to the region going forward. So, I would just like to hear more from you, how sustainable you think current trends might be in a more competitive scenario, and which are your key competitive advantage to fight increasing competition going forward? That’s the question guys. Thank you very much.
Armando Torrado
Okay. I was just two weeks ago with RBI team, the international, actually, all of you my sons who were here, all the Brazilian team were here and just looking about what it will do. As you know, in Mexico, the burger sector is – it’s complicated, but still Burger King just – it was 28.6% in same-store sales versus ‘19. So, I mean the brand is performing a lot better than we expected starting April, March. These guys have a good strategy in their portfolio. They have a new app that is working also in Brazil very well, of couponing. That is turning a lot of tickets, a lot of transactions. And then we are moving to premium sectors with some nice new burgers that we are putting in chicken. That is also working well. We are going to – as you know, our competitor, they are very aggressive in the digital menus, order-in menu in the restaurants. That’s leveraged 20% higher ticket average. We are doing that already. We have six stores already ongoing. More – all our Argentina and Chile and Spain are very well on track to put digital menus – already digital menus in the stores. But I think that’s another good opportunity. And then I think in the product, we just have a great advantage because when you taste our product at home, that delivery for burgers, it’s one of the top killers category. Pizza and burgers are one and two or two and one. It depends on the market. But in there, I think we have a great competitive advantage. Our product is a lot better than our competitor in the household by delivery. So, I think we are remodeling a lot of stores of Burger King both with support of RBI, this digital menu and digital transformation also with the support of RBI. So, I think we are closer with them and very optimistic of the future. Everyone is – I think the big chains are growing in Mexico, but the smallers are not. The pop and mom that used to open here, the copycat of a company that you know with SS, they are not growing anymore. They are just there. And here, they are performing also with some competitors that we saw are doing well also. So, I am confident in the Burger King sector, not only in Mexico, in Mexico and LatAm that we have most of our revenues come from Argentina and Chile. That’s where we have the bigger stake of our business in the burger King sector.
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. Congrats Armando and to the team for the solid results. My question is regarding casual dining brands. Have you seen any structural changes in consumer behavior that could affect traffic dynamics going forward? That would be my question. Thank you very much.
Armando Torrado
What do you mean structural, a little bit more specific…
Jorge Izquierdo
Maybe different traffic trends in some casual dining brands pre-pandemic and now? Any comment would be helpful.
Armando Torrado
I will tell you in trends. For example, we have – in P.F. Chang’s that we went all the way to 35% of our sales were delivering that brand when the pandemia come. That is came in down because the restaurants are more open. But the traffic, like I said, especially in that division that I know very well, I have run it for 5 years, I mean our – we are up also in traffic. We are also in ticket. And our good strategy of delivery is working, adapting packaging to the consumer, a great value for the consumer. So and once again, when all – in Chile, for example, in other markets, we have a complication with hours, time, hours of operation of some shopping center that affect us. As soon as that policy open, we just see how that trends go up. We have – we are preparing for the World Cup of Qatar, that is going to be in Q4. And for that sector, especially in our Chili’s, in our TJs, in our Foster Hollywood, that will be great. So, I mean the trends are up too. We are not seeing complications in the volume in that sector. In area that category, especially Italian is we are doing just great there in Mexico with – that’s ahead of other brands in orders and in results. That’s a brand that we were suffering 2 years ago, and it’s grown by a great leader there, their team, and we are doing very well there.
Rafael Contreras
And if I may add, I guess there was no major or structural change in consumption in casual dining. I guess during the pandemic, of course, we saw an increase in delivery trends. Now, we have to focus a lot more because they are sharing some brands, the ones that travel better according to their products, are doing better in the delivery front or take out as well. However, where we operate in the countries where we operate, it’s a cultural thing. People like to go out, to sit on the table, to enjoy beer, watching a soccer match in Chili like Armando mentioned. So, there was no major change on how consumers behave towards casual dining.
Jorge Izquierdo
Perfect guys. Great color. Thank you and congrats again.
Rafael Contreras
Thank you.
Operator
Thank you very much for your question. [Operator Instructions] That was the last question. I will now hand over to Mr. Armando Torrado for final comments. Please go ahead.
Armando Torrado
And I just want to thank you all for the call, for being here with us today. And I mean I hope we will see each other later on in the near-term, that I think Salvador already has some appointments there, and things that we will share. But thank you very much for the call, your interest in Alsea. And I don’t know – thank you, and that’s my last comment that I will say.
Rafael Contreras
Great.
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