BBB Foods(TBBB) - 2024 Q4 - Annual Report

PART I ITEM 3. KEY INFORMATION This section outlines the principal risks associated with the company's business, its Mexican operations, BVI corporate structure, and publicly traded shares Risk Factors - The company's business is significantly exposed to economic factors affecting its low-to-middle-income customer base, such as unemployment, inflation, and changes in government subsidies, which can reduce disposable income and decrease sales[38][40][41] - BBB Foods faces intense competition from a fragmented market including hard discounters, large retailers, informal vendors, and government-run stores, competing on price, location, and product assortment[49] - The success of private label products, constituting 53.6% of 2024 sales, is crucial for growth and margins but also exposes the company to product liability and supply chain risks[54] - The company operates with a negative working capital position, a key driver of operating cash flow for store expansion, but faces cash shortage risks from revenue decreases or changes in supplier payment terms[64][66][67] - All operations are based in Mexico, making the business highly dependent on the country's economic conditions, political stability, and currency fluctuations, with recent political changes potentially introducing uncertainty[105][120][122] - The principal shareholder, Bolton Partners Ltd., holds approximately 44.7% of the voting power, giving it significant influence over shareholder approval matters and potentially limiting other shareholders' influence[133][134][135] - Management identified four material weaknesses in internal control over financial reporting as of December 31, 2024, including reliance on outside advisors, inadequate segregation of duties, and ineffective risk assessment and monitoring, risking inaccurate financial reporting[151][604] ITEM 4. INFORMATION ON THE COMPANY This section details the company's history, hard discount business model, decentralized organizational structure, and primarily leased physical assets in Mexico History and Development of the Company Founded in 2004, BBB Foods Inc. pioneered the hard discount model in Mexico, expanding to 2,772 stores and 16 distribution centers by 2024, and went public in February 2024 Company Growth Trajectory (2020-2024) | Metric | 2020 | 2021 | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Number of Stores | 1,249 | 1,547 | 1,899 | 2,288 | 2,772 | | Total Revenue (Millions of Mexican Pesos) | 22,891 | 32,580 | 44,078 | 57,439 | N/A | | Same Store Sales Growth (%) | 13.1% | 14.1% | 14.9% | 13.4% | N/A | - As of December 31, 2024, the company developed over 108 private label brands, representing over 458 SKUs[172] Business Overview BBB Foods pioneered the hard discount model in Mexico, offering a limited assortment of high-value products, emphasizing private labels, low-cost operations, and rapid, self-funded, decentralized expansion Sales Mix by Product Type (Percentage of Sales) | Product Type | 2024 Sales (%) | 2023 Sales (%) | | :--- | :--- | :--- | | Private Label | 53.6% | 46.5% | | Branded | 40.6% | 47.5% | | Spot | 5.7% | 5.8% | - The company's total revenue grew at a 35.5% CAGR from 2021 to 2024, reaching Ps.57.4 billion (US$2.8 billion) in 2024[186] - The store network expanded at a 22.1% CAGR from January 1, 2021, to December 31, 2024, reaching a total of 2,772 stores[186] - The business model achieved a high ratio of 3.1 Payable Days to Inventory Days in 2024, contributing to a negative working capital dynamic that helps fund expansion[192] - In 2024, the company averaged a new store opening every 18 hours, outpacing other Mexican grocery retailers, with an estimated potential for at least 12,000 additional stores[199] Organizational Structure BBB Foods Inc. is a BVI holding company with Mexican operations, where the principal shareholder, Bolton Partners Ltd., holds 44.7% voting power, significantly influencing the company - The company is a holding company incorporated in the British Virgin Islands, with substantially all operations conducted through its Mexican subsidiary[264] - Bolton Partners Ltd., the principal shareholder, controls approximately 44.7% of the combined voting power of the company's outstanding common shares[266] Property, Plants and Equipment The company's asset strategy is primarily lease-based, with 2,771 of 2,772 stores and all 16 distribution centers leased, supported by a standardized logistics fleet - As of December 31, 2024, the company leased 2,771 of its stores and all office space, owning only one operational property[268] - The company operates 16 distribution centers, each serving approximately 150 stores, with an average size of 11,850 square meters[269][270] - The company's fleet consists of 367 standardized trucks and 971 utility vehicles, monitored in real-time for security and performance management[275] ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS This section analyzes the company's financial performance, highlighting 30.3% revenue growth to Ps.57.4 billion and a shift to Ps.334.4 million net profit in 2024, driven by expansion and IPO proceeds Operating Results In FY2024, BBB Foods achieved a Ps.334.4 million net profit on Ps.57.4 billion revenue (up 30.3%), driven by new stores, 13.4% Same Store Sales growth, and reduced financial costs post-IPO Consolidated Results of Operations (Thousands of Mexican Pesos) | Metric (Thousands of Mexican Pesos) | 2024 (Thousands of Mexican Pesos) | 2023 (Thousands of Mexican Pesos) | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | 57,439,019 | 44,078,459 | 30.3% | | Gross Profit | 9,376,106 | 7,039,917 | 33.2% | | Operating Profit | 1,328,509 | 793,863 | 67.3% | | Profit (Loss) Before Income Tax | 717,546 | (100,905) | (811.1)% | | Consolidated Net Profit (Loss) | 334,422 | (306,153) | (209.2)% | - Revenue from sales of merchandise increased by 30.3% in 2024, with 24.0% of growth attributed to 484 net new stores opened[302] - Same Store Sales for the year ended December 31, 2024, increased by 13.4%[302] - Administrative expenses rose 43.3% in 2024, primarily due to growth-related hiring, public company readiness costs, and non-recurring IPO fees[308] - Financial costs decreased by 17.7% in 2024, primarily due to the repayment of Promissory and Convertible Notes in February 2024 using IPO proceeds[313] Liquidity and Capital Resources Liquidity is driven by Ps.3.7 billion operating cash flow and negative working capital, with the February 2024 IPO raising US$459.0 million for debt repayment and Ps.3.7 billion budgeted for 2025 CAPEX Consolidated Cash Flow Summary (Thousands of Mexican Pesos) | Cash Flow Activity | 2024 (Thousands of Mexican Pesos) | 2023 (Thousands of Mexican Pesos) | 2022 (Thousands of Mexican Pesos) | | :--- | :--- | :--- | :--- | | Net cash flows provided by operating activities | 3,748,537 | 3,140,349 | 2,116,335 | | Net cash flows used in investing activities | (4,907,296) | (1,778,789) | (1,111,350) | | Net cash flows obtained from (used in) financing activities | 1,288,113 | (1,095,692) | (1,027,115) | - The company relies on positive cash flow dynamics and Ps.2.6 billion negative working capital in 2024 to finance operations and expansion[322] - In February 2024, the company repaid all outstanding Promissory Notes (US$261.1 million) and Convertible Notes (US$22.5 million) using IPO proceeds[323][344] - Capital expenditures for 2025 are budgeted at approximately Ps.3.65 billion, including Ps.2.55 billion for new stores and Ps.360 million for four new distribution centers[339] Trend Information Performance is influenced by economic conditions, product mix, infrastructure investment, supply chain management, inflation, and natural disasters like Hurricane Otis in 2023 - The business model is resilient to economic downturns as consumers seek affordability, but is also affected by macroeconomic factors like employment, inflation, and interest rates[356] - The ability to develop and offer a compelling product assortment, particularly private labels, is crucial for attracting and retaining customers[357] - Hurricane Otis in October 2023 led to the temporary closure of 51 stores in Acapulco, resulting in Ps.42.4 million in impairment losses, Ps.7.6 million in sales expenses, and Ps.30.4 million in inventory obsolescence for 2023[362] ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES This section details the company's nine-member staggered board, executive compensation plans, and human capital management, including 25,300 employees and internal training programs Directors and Senior Management The company is led by founder K. Anthony Hatoum, with a nine-member board divided into three staggered classes, supported by an experienced executive team - The board of directors is composed of nine members and is divided into three staggered classes, with each class serving a three-year term[369] - K. Anthony Hatoum is the founder, Chairman of the board, and Chief Executive Officer of the company[373] Compensation Executive compensation includes fixed salaries, cash bonuses, and equity awards, with Ps.748.9 million aggregate compensation in FY2024, supported by the 2004 Option Plan and the new 2024 Equity Incentive Plan - For the year ended December 31, 2024, the aggregate compensation for the board of directors and executive officers was Ps.748.9 million[397] - As of the report date, 38,232,812 Class C common shares are issuable upon the exercise of options granted under the 2004 Option Plan[401] - A new 2024 Equity Incentive Plan was adopted with an initial reserve of 8,400,000 Class A common shares for future awards to attract and retain key personnel[411][412] - The Liquidity Event Share Plan allocated 7,500,000 Class C common shares for the CEO and his direct reports, while the Bolton Partners Share Allocation entitled an affiliated vehicle to 4,224,960 Class C shares, both contingent on the IPO[407][408] Employees As of December 31, 2024, the company employed 25,300 people, with 20,848 in stores, fostering a culture of trustworthiness and investing in employee development through "University 3B" and promotions Employee Distribution as of December 31, 2024 | Location | Number of Employees | | :--- | :--- | | Stores | 20,848 | | Warehouses & Distribution Centers | 4,070 | | Corporate Offices | 382 | | Total | 25,300 | - The company promoted 4,970 employees during 2024, highlighting its focus on internal career development[430] ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS This section details the company's ownership structure, where Bolton Partners Ltd. holds 44.7% voting power, and outlines related party transactions, including pre-IPO Promissory Notes repaid with IPO proceeds Major Shareholder Ownership (as of April 25, 2025) | Shareholder | Class A Shares (%) | Class B Shares (%) | Class C Shares (%) | Total Voting Power (%) | | :--- | :--- | :--- | :--- | :--- | | K. Anthony Hatoum (via Bolton Partners Ltd.) | — | 100.0% | 12.3% | 44.7% | | QS 3B Aggregator Inc. | — | — | 23.6% | 6.0% | | Capital International Investors | 10.8% | — | — | 3.6% | | Capital Research Global Investors | 8.6% | — | — | 2.9% | | FMR LLC | 5.6% | — | — | 1.9% | - The company's multi-class share structure grants Class B shares 15 votes per share, while Class A and Class C shareholders receive one vote per share[439] - Prior to the IPO, the company had significant related-party debt through Promissory Notes, which were fully repaid in February 2024 using IPO proceeds[444][447] ITEM 8. FINANCIAL INFORMATION This section outlines the company's dividend policy, which prioritizes retaining earnings for growth and does not anticipate cash dividends in the foreseeable future, subject to legal requirements - The company does not anticipate paying any cash dividends in the foreseeable future, intending to retain earnings to fund growth[458] - Dividend payments are subject to legal restrictions in both the British Virgin Islands (solvency test) and Mexico (profitability and legal reserve requirements for the operating subsidiary)[460] ITEM 10. ADDITIONAL INFORMATION This section details the company's BVI corporate structure, multi-class share rights (Class A, B, C), governance, shareholder meeting procedures, and taxation considerations for various jurisdictions Memorandum and Articles of Association The company's BVI governance defines three share classes (Class A, B, C) with varying voting rights, subject to a 24-month post-IPO "Liquidity Lock-Up Period" and registration rights, alongside staggered board and BVI/Delaware law differences Share Class Voting Rights | Share Class | Votes per Share | | :--- | :--- | | Class A Common Share | 1 | | Class B Common Share | 15 | | Class C Common Share | 1 | - Class B and Class C shares are subject to a 24-month "Liquidity Lock-Up Period" following the initial 180-day IPO lock-up, restricting their sale or transfer, with certain exceptions[475][477][480] - Class B shares automatically convert to Class A shares upon public sale or when their total number falls below 1.0% of all outstanding common shares; Class C shares convert upon public sale or at the end of the Liquidity Lock-Up Period[476][482] - The board of directors is staggered into three classes, with directors serving three-year terms, which can make it more difficult for shareholders to change the board's composition quickly[518] Taxation This subsection outlines tax implications, noting BBB Foods Inc. is exempt from BVI taxes, non-Mexican holders are exempt from Mexican taxes on Class A shares, and U.S. Holders' dividends may be qualified, with PFIC status assessed annually - The company is incorporated in the British Virgin Islands and is not subject to any income, corporate, capital gains, or withholding taxes in that jurisdiction[554] - For non-Mexican holders, capital gains and dividends from Class A common shares are not considered Mexican-sourced income and are not subject to Mexican tax[560] - For U.S. Holders, distributions are generally taxed as dividends, believed to be eligible for reduced rates as "qualified dividend income," provided the company is not classified as a PFIC[568][570] ITEM 15. CONTROLS AND PROCEDURES Management concluded that disclosure controls were ineffective as of December 31, 2024, due to four material weaknesses in internal control over financial reporting, with remediation efforts ongoing through 2025 - Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2024, due to identified material weaknesses[599] - Four material weaknesses were identified in internal control over financial reporting as of December 31, 2024[604][607](index=607&type=chunk] - High reliance on outside advisors for preparing IFRS financial statements and technical accounting[607] - Lack of controls for adequate segregation of duties, including user access to the ERP system[607] - Ineffective design and maintenance of the risk assessment process[607] - Lack of an independent department to monitor control activities and assess risks of material misstatement[607] - The company is undertaking remediation efforts, including hiring new staff, implementing new processes and software, and enhancing training, with these activities planned to continue throughout 2025[610] ITEM 16. Corporate Governance and Other Disclosures This section covers corporate governance, including the "audit committee financial expert," Code of Ethics, reliance on BVI governance as a foreign private issuer, and a cybersecurity risk management strategy - The board has designated Nicole Reich as the "audit committee financial expert"[611] Principal Accountant Fees (Thousands of Mexican Pesos) | Fee Type | 2024 (Thousands of Mexican Pesos) | 2023 (Thousands of Mexican Pesos) | | :--- | :--- | :--- | | Audit fees | 23,480 | 16,353 | | Audit-related fees | — | — | | Tax fees | — | — | | All other fees | — | — | | Total | 23,480 | 16,353 | - As a foreign private issuer, the company relies on exemptions from certain NYSE corporate governance standards, including requirements for a majority-independent board and a nominating committee[619][621] - The company has a cybersecurity risk management strategy managed by a Chief Information Security Officer (CISO) and an internal Committee on Information Security and Technological Risk (COSIRT)[628] PART III ITEM 18. FINANCIAL STATEMENTS This section presents the audited consolidated financial statements for 2022-2024, prepared under IFRS, highlighting a 2024 financial turnaround with Ps.22.8 billion total assets and Ps.4.0 billion positive equity post-IPO Consolidated Statements of Financial Position Key Balance Sheet Items (as of December 31, Thousands of Mexican Pesos) | Account | 2024 (Thousands of Mexican Pesos) | 2023 (Thousands of Mexican Pesos) | | :--- | :--- | :--- | | Total Current Assets | 8,554,139 | 4,393,160 | | Total Assets | 22,776,813 | 14,963,802 | | Total Current Liabilities | 11,187,416 | 8,951,941 | | Total Liabilities | 18,742,031 | 19,598,650 | | Total Stockholders' Equity | 4,034,782 | (4,634,848) | Consolidated Statements of Profit or Loss Key Income Statement Items (Year ended December 31, Thousands of Mexican Pesos) | Account | 2024 (Thousands of Mexican Pesos) | 2023 (Thousands of Mexican Pesos) | 2022 (Thousands of Mexican Pesos) | | :--- | :--- | :--- | :--- | | Total Revenue | 57,439,019 | 44,078,459 | 32,580,397 | | Gross Profit | 9,376,106 | 7,039,917 | 4,924,754 | | Operating Profit | 1,328,509 | 793,863 | 520,269 | | Consolidated Net Profit (Loss) | 334,422 | (306,153) | (565,110) | Earnings (Loss) Per Share (Mexican Pesos) | Metric | 2024 (Mexican Pesos) | 2023 (Mexican Pesos) | 2022 (Mexican Pesos) | | :--- | :--- | :--- | :--- | | Basic Earnings (Loss) per Share | 3.06 | (25.51) | (47.09) | | Diluted Earnings (Loss) per Share | 2.40 | (25.51) | (47.09) | Consolidated Statements of Cash Flows Key Cash Flow Items (Year ended December 31, Thousands of Mexican Pesos) | Account | 2024 (Thousands of Mexican Pesos) | 2023 (Thousands of Mexican Pesos) | 2022 (Thousands of Mexican Pesos) | | :--- | :--- | :--- | :--- | | Net cash flows provided by operating activities | 3,748,537 | 3,140,349 | 2,116,335 | | Net cash flows used in investing activities | (4,907,296) | (1,778,789) | (1,111,350) | | Net cash flows from (used in) financing activities | 1,288,113 | (1,095,692) | (1,027,115) | | Increase (decrease) in cash and cash equivalents | 129,354 | 265,868 | (22,130) | Notes to the Consolidated Financial Statements The notes detail the February 2024 IPO's impact (Ps.7.81 billion net proceeds), the single operating segment, debt structure, share-based payment plans, lease accounting (Ps.8.2 billion lease liabilities), and critical audit matters like share-based payment valuation - In February 2024, the company completed its IPO, receiving net proceeds of Ps.7.81 billion, which were used to repay all Promissory and Convertible Notes[666] - A critical audit matter identified was the accounting for share-based payments, due to significant management judgment required for fair value estimation using a binomial tree valuation model[649][650][651] - As of December 31, 2024, total lease liabilities amounted to Ps.8.2 billion, with corresponding right-of-use assets of Ps.7.0 billion[782][820] Revenue by Product Category (Thousands of Mexican Pesos) | Product Category | 2024 (Thousands of Mexican Pesos) | 2023 (Thousands of Mexican Pesos) | 2022 (Thousands of Mexican Pesos) | | :--- | :--- | :--- | :--- | | Branded | 23,264,743 | 20,900,242 | 16,817,176 | | Private label | 30,737,804 | 20,466,545 | 13,859,748 | | Spot | 3,255,961 | 2,557,310 | 1,739,956 | | Other | 74,819 | 63,706 | 55,697 | | Total | 57,333,327 | 43,987,803 | 32,472,577 |