Good morning, everyone. I'm Salvador Villaseñor, responsible for investor relations at Walmex. I want to thank you for joining for our live Q&A session following our second quarter earnings results published yesterday evening. Today with me is Ignacio Caride, President and CEO of Walmex. Raúl Quintana, our COO. Paulo Garcia, our CFO. We will have one hour to go through your questions, having a hard stop at 8:15 A.M. Now I will pass over to Ignacio for his initial remarks. Please, Ignacio.
Thank you, Salvador. Welcome, and thanks for joining us today. Before starting this Q&A, I'd like to briefly mention that our vision remains the same. It remains relevant for our customers both in Mexico and Central America. Our goal is to maintain our leadership in Mexico and Central America as a preferred omni ecosystem to help customers save money and live better, while placing a higher emphasis on strengthening automation, digitalization, and simplification. To deliver on this vision, we have a strategy rooted in three key pillars: winning discount, leading omni, and become the ecosystem of choice; and four enablers: customer centricity, best talent, technology, and supply chain. All of these empowered by our purpose, culture, and values. Today, we have an exciting opportunity in the horizons to double the business even faster than before. I'm positive about this business and what we can achieve.
Thank you again for all of your continued support and interest in our business. Now, let's open to questions.
We will now start the Q&A session. If you have a question, please press the question button in the browser. Please make sure you are not in full screen mode to see the button. The first question is from Rodrigo Alcántara from UBS. Please go ahead.
Hi, Ignacio, Paulo.
Salvador, nice to see you again. Just a very simple one. I mean, just curious on your initial requirements about business simplification. If you can explain to us, what do you mean by that? And precisely, what are the areas of opportunities for Walmart that you spotted here, Ignacio? That would be it. Thank you very much.
Simplification, basically, it's how we feel about our businesses. We want to do things as simple as possible, as fast as possible. Our feeling is our complexity is the enemy of efficiency. Simplifying all our internal and external processes is not only to make our operations smoother, but improve the experience for our customers, for our suppliers, and associates. The way to simplify the way we operate is using more technology, more automation, and eliminating processes that are not needed anymore. The worst thing we can do is try to improve a process that is actually not needed. We're putting a lot of focus on reviewing the way we do things in order to simplify as much as possible so we can move faster.
I see. As we make progress on this front, I mean, can we expect profitability to improve on the margin side or would it be more like on the approach to commercial side with customers just to understand the benefits of it?
Yeah. I think it will have an impact on the way we work, and it's a cultural change. So it will allow us to have a slimmer operation, faster, and more efficient. Basically, what we're trying to do is operate with less and run our business with less and in a more simple way. So you can expect benefits all across the business.
I see. Thank you.
Thank you very much for your question. Our next question is from Mr. Antonio Hernández from Actinver. Please go ahead.
Hi. Good morning. Congrats on your results, and thanks for taking my question. My question is regarding the new businesses. You mentioned that you could post some expansion because of that. Congrats on that. As you are aware of, I'm quite confident in some of these businesses. Could you please give some light into which of these businesses are you more opting in the very short term? Maybe what do you expect going forward? Thanks.
Yeah. Thank you. So we're very happy with the pace. Our new businesses are growing mainly Bait with 13.7 million customers and, again, beating the market on new customers. Our Walmart Connect as well, performing very well and contributing to our bottom line in our P&L and our health membership. And regarding all of that, we also launched our Walmart Beneficios and Bodega Aurrera Beneficios that will help us integrate the whole ecosystem and give us much more information about how customers are interacting with our ecosystem, how each one of our new businesses are generating this interaction with our stores and bringing more traffic to our stores. So we are starting to see a lot of positive results in how these new businesses have impact in our P&L. So we are happy with the strategy, how it's unfolding.
Launching Beneficios in Walmart and Bodega is a key milestone for us because it will generate a lot of information of a lot of customers that in the past we knew nothing about because they were paying in cash. That information will allow us and give us the opportunity to generate better insights. With those insights, we will be able to fuel again our business. We can contribute with that information to our suppliers so that together we can have a positive impact on how we build our business. I don't know if Paulo wants to.
No, I think maybe Ignacio, just to clarify to the people, when you talked about Beneficios, also we've been talking about digital connections program. It's the same thing so that you just don't get confused. But nothing to add to what Ignacio said.
Okay. So this was more than the one-off. You are expecting this type of benefit going forward, I guess?
As our ecosystems unfold and with all the launches we're doing and the improvements we're doing, yes, we expect the ecosystem to keep contributing to our business.
Perfect. Thanks alot and h ave a nice day. Thanks.
Thank you. Thank you for your question.
Thank you very much for your question. Our next question is from Mr. Andrew Ruben from Morgan Stanley. Please go ahead.
Hi. Thanks very much for the question, Ignacio. Congratulations again. I was hoping you could dig in a bit more on the performance by banner. We see Walmart Express exceeding the company average for the first time in a while. On the other hand, Walmart below average. So is that an issue of geographic location, exposure to, you mentioned some of the government benefits, just trying to disaggregate the relative trends between the banners? Thank you.
Thank you. I will let Raúl answer your question.
Sure. Thank you, Andrew. I think from a portfolio standpoint, we remain very focused on our customer value proposition, Andrew, for each format. So let me start with Bodega, and then I'll jump into Walmart Express and Walmart Supercenter. So in Bodega, we continue to focus on our price leadership and our expansion model so that we can continue to bring the value of Bodega to more customers and more areas across Mexico. In the case of Walmart Express and Walmart Supercenter, like we've mentioned in the past, we're in a cluster strategy to better shape our performance for our AB customers. And we're very happy with some of the progress that we're making. We've improved assortment in some of our stores in this cluster, premium stores for Walmart Express and Supercenters. We've improved as well our quality and our fresh products.
We're also revamping our service model so that we can better tailor to our customers what they need. We've seen some good uptake as well on our fresh. We've also changed some of our look and feel for our customers. We've seen some good progress on some early signs. I think that's also translated into the results that you see in Walmart Express. Walmart Supercenters, we continue to focus as well on the breadth of our assortment and bringing the value that the customers need, and as well improving the service that we want our customers to receive in Supercenters. We feel good about the progress that we're making as well there. In Sam's Club, the treasure hunt items and the innovation and the value the members see in the membership is also paying off.
I think the focus that we're putting on the customer value proposition on each format and making sure that we have a clear direction is helping us achieve the results.
Great. Thank you.
Thank you very much for your question. Our next question is from Mr. Álvaro Garcia from BTG Pactual. Please go ahead.
Hi. Thanks. Thanks for the space for questions. My question's on gross margin in Mexico specifically. You mentioned that sort of the expansion was not at the expense of price perception or competitiveness in the market, but your commercial margin did inch 40 basis points higher in that breakdown you gave. And thanks for that breakdown, by the way. So I was wondering if you could maybe talk about pricing into the second half of the year. We're obviously in a much more favorable environment. Your suppliers are clearly not passing price year to date. So just any commentary on that competitiveness would be great. Thank you very much.
Yeah. Thanks, Álvaro. Thanks for your question. Indeed. So first, indeed, I'd like to reassure you on that fact that we are increasing our gross margin without jeopardizing our competitiveness. And believe us, that is our mantra, and it's our everyday what we're trying to achieve. Indeed, to the composition of the gross margin improvement, let me first talk about the other elements, and then I will come back directly to your question. I think it's important to understand the contribution that the new businesses are already giving to the gross margin progression. So you see this quarter, another 20 basis points, as well as with improvements that we've been doing in efficiencies and e-commerce giving another ones. So that is a significant chunk of a gross margin improvement that you see versus what we have done in the past.
And particularly, the former is something that our competitors don't have in order to help their profitability in the shape of their P&L, as you can see it. There, of course, always efficiency on the supply chain. I will not spend much time there. I will go directly to your question around the 40 basis points and around the commercial margin. First thing to say, and then Raúl can elaborate a bit more on that if needed, actually, we're maintaining our price gap and improving our price perception. So that's constantly our focus. We've been talking about to you in the past that our need to improve our price perception because our equation in terms of what we were investing in the market, so to speak, and the perception from our customers was not the right one.
In the last 18 months to 2 years, we have put a lot of effort on that by working on levers that we've always talked about here. Of course, depending on the banner, they might be different, but they will range from, of course, the price gap or the KVIs. They will range with the communication, the penetration, private brands, quality of fresh. They're all important elements for the price perception. In this particular case, in the quarter, as we alluded to, we actually did just a much better management of the catalog, particularly in the general merchandise. And better management of catalog means in terms of actually how we buy, what we buy, but also as well what we liquidate. And therefore, that actually we don't have necessarily so much assortment that we actually then need to liquidate.
If you look at it from that perspective, you can generate efficiency, and we are not putting at all our competitiveness at risk. And I think you could expect that going forward to the outlook for the H2. I don't know if you want to add anything, Raúl?
I think you covered it. I think our baseline and our core business maintains strong, and we feel good about our commercial margins on what we're delivering to the customers. And like Paulo mentioned, I think you're starting to see the benefits of the ecosystem and what that's contributing to the gross margin effect.
Great. Thank you very much.
Thank you very much for your question. Our next question is from Felipe Cassimiro from Bradesco. Please go ahead.
Good morning, everyone. Thanks for taking my question. I wanted to explore just the launch of the Glass platform. My curiosity is on how much this new front-end platform could unlock e-commerce growth, and what categories are you particularly seeing that you can see a stronger growth? Still on this, do you anticipate any stronger marketing efforts to bring more traffic to your e-commerce platform? That's it. Thank you.
Yeah. Thank you. So as we told everyone, we've been telling in the past, we are in the process of changing the whole structure and the whole technology of our e-commerce platforms and the technology that we use to serve our customers in e-commerce, mainly migrating into what we call WCPs, Walmart Commerce Platform, is our own platform that was built in the U.S., and we're bringing that into different countries like Canada and Mexico, Central America, and eventually Chile as well. Glass is part of that. Glass is a front-end, WCP is a back-end, and we're in the process of migrating all of that.
What you can expect with all of this is that eventually, in the midterm, we're going to be exactly on the same technology platform as the U.S., so that will allow us to have the same usability and the same site as them that is much more advanced than the ones that we have now. We already started the process of migrating that. Glass was the first part that is a front-end that helps the customer navigate easily our sites. Now we are also in the process of migrating the back-end with WCP. Actually, this week, we turned on already traffic to 1% to start doing the first test. This will put us into parity with the rest of our competitors regarding e-commerce. There's no secret sauce there. You can use our site in the U.S. That's exactly what you can expect here in Mexico in terms of technology.
It's a big effort from our part, but we believe it's the right choice. And that also, once we are connected with this technology, it will allow us to offer to the Mexican and Central American customers most of the assortment that we have available in the U.S. That's more than 400,000, sorry, 400 million items listed in the marketplace in the U.S. So we'll unlock the cross-border business for us. So that's what we are in the process of and starting to see the benefits of that.
Just to complement, we just finished the Glass migration, Ignacio, in Bodega. As you know, we already had it in Walmart Express and Walmart Supercenters. Bodega, we just finished in this quarter, and we're starting to see early signs of good progress and good customer adaptation on that.
Perfect. Thank you very much.
Thank you very much for your question. Our next question is from Mr. Bob Ford from Bank of America. Please go ahead.
You there?
Our next question is from Ms. Renata Cabral from Citi. Please go ahead.
Hi. Hi, everyone. Thank you so much for taking my question and congrats on your new position. So my question is related to the financial solutions. During the Walmart Day, the company mentioned a series of initiatives. I wonder if you can give us some color, especially about the development of the credit score system and the open platform? And more than that, if you can share with us the ambition in this light in the financial solutions if you intend to make further partnerships with other banks or to become a bank in the future, just to understand where Walmart wants to achieve. Thank you.
Thank you, Renata. Yes. So we are very confident that it will represent our turning point for Cashi and the whole ecosystem once we migrate to Open Loop. Regarding the launch of Open Loop, we are targeting now Q4 to release the initial Open Loop capabilities. Unfortunately, the launch has been postponed due to a combination of unexpected requests from regulators and some delays from the development part. We are very careful on what we are building and what we are launching because it's very sensitive. We are going to be handling other people's money, so we don't want to take any risk here. So we're being very thoughtful on this. Unfortunately, we've been having some delays, but we are targeting now to launch sometime around Q4. Hopefully, we won't have any more delays on this.
But we are still very confident that this will change for the positive for our customers in the whole ecosystem.
Maybe just to build to another question you were talking about, the credit scoring. We will continue working on that, which is an element that we said in the past, Renata, which is important as additional information that will help the people that will work with us, the third parties, normally a bank or actually a fintech company that will want to put their balance sheet to work in order to facilitate credit to our customers. That's an important element.
What we've talked about, what Ignacio was talking about, about Walmart benefits, Bodega benefits, or the digital connection program that we just started, where we're getting the phone number of the customer, is this something that in the future periods will give us increased data about the customer, the behavior, what do they shop, how much do they actually spend on a weekly basis that will be able to strengthen the credit scoring that we are building? This doesn't happen, as you can imagine, Renata, one day to the next. So this is a couple of months investing on this one, but it's something that we are quite positive about that can unlock potential in our ability to provide credit to our end users that buy from us on a daily basis.
That's great. Thanks so much, Paulo and Ignacio.
Thank you very much for your question. Our next question is from Mr. Ben Theurer from Barclays. Please go ahead.
Yeah. Good morning, and thanks for taking my question and the time for that. Just wanted to follow up a little bit on some of the investments you're doing. As we look at the general expense line and obviously the sequential increase here, but also the year-over-year increase was quite meaningful in the quarter. It was more meaningful even in first quarter. So just wanted to understand from these investment needs, the initiatives you're boosting, how much should we expect going forward as a boost to the general expense, just as a percentage of sales? Because it kind of went up from 1Q into 2Q, and clearly, the absolute peso amount that you're spending seems to be significantly more elevated. So just wanted to understand what the run rate of that is for the next couple of quarters.
Hi, Ben. Thanks for your question. So I think when you looked at the expenses, and as we've been talking in the past, I think in particular, the biggest expenses that you're seeing in our P&L, and you continue to see this year, less so in the future, will be the labor costs. And the labor costs, because of the increases that you all know that we have had in the last couple of years, were at 20% average rate of minimum wages. We've always said to you, it's not that we have a lot of people actually paying minimum wages because that's not the fact. But as you can imagine, across the organization, in the operations, you have lots of levels. And as you push minimum wages, you have to push all the levels and the salary bands.
And of course, that tends to impact all the population that we have. That said, we had also specifically said on purpose and intentionally that we wanted to make an investment in our people, catching up in terms of our position versus the market, and to pay the people the right money, which actually allows us to reduce the turnover and the rotation that actually we used to have levels above 70%. As you know, now we've been public about that, around 35%. On top, additional to that, we always have investments to run the business, to remodelings, cost of doing business like electricity that is higher than it was in the past because also even the renewable energy has not been able to have the cost that we have seen in the past, and our investments. And we have to balance all that.
As a result of that, we've been explicitly talking about the fact that temporary reshaping of the P&L between the gross margin and SG&A. I want to say, repeat, I already said it too often, but I wanted to say it again. We do so, but not at the expenses of competitors. We do so, not at the expenses of our price gap or our price perception. Believe us on that one. And therefore, what we've been building with the ecosystem that we've been building with the verticals contribution, with Connect, with the Bait, also the financial services that to some extent start also contributing to that, and efficiencies that we generate. Sometimes the way we buy, sometimes in the supply chain efficiencies are helping that.
Looking forward to your question, I think looking forward and where we see that the minimum wage is going the next couple of years, Claudia Sheinbaum has been, the new president has been open about that. She wants to make the 2.5 x the basic basket, which is roughly up to 10%. I think with that and all the initiatives that we are taking into drive automation in the business, we believe that therefore then we'll be able to see more leverage in the expenses. I think in the short term, we've been open short term, so meaning 18 months period or so, we have been open that you might not see all this leverage in our expenses because delivering efficiencies on top to offset this while also investing to grow well ahead of the market.
Sometimes it's not difficult but to land in the short term. Easy but to land in the short term.
Yep. Thank you very much.
Thank you very much for your question. Our next question is from Ms. Irma Sgarz from Goldman Sachs. Please go ahead.
Yeah. Hi. Just two quick questions. On the expense front, I think you answered it very clearly. I was just curious that as you roll out the benefits program, is there a cost attached to that initially in the startup phase? I mean, over time, I would imagine that you get benefits out of it as you continue to learn more about the customer and you even monetize it to some extent through the Luminate program. But I was just curious if you initially sort of see an expense attached to that that we should just work into our numbers. And then I was also curious if you could share anything about, it's obviously very exciting for you to be able to have that, I guess, single customer view or this unique customer view across the different channels.
What's your starting point just in terms of you mentioned that you often don't have identified sales in the offline channel? What's your starting point and where do you think you could get to over time in terms of identifying customers? And then, sorry, final question, but hopefully one to the benefit of everyone. Just if you could make any comments about consumption outlook into the back half as we're coming out of the sort of election period, etc., would be super helpful. Thank you so much.
Yeah. So let me just answer very briefly to the first one, Irma. Now, it's minor investment that we make into the people that are working on it. So we actually, in any margin, we're actually not giving a lot of benefits that the people can cash back. It's not about that one. So minimal investment. Talking about the program itself and the question that you connect and unique customer, I will pass the baton to Ignacio to talk about that, and I will come back to the question on the outlook.
Yes. Important here to understand what we build with Beneficios is a set of benefits that are given by third parties to our customers. We identify that our customers are very valuable for other companies that want to attract them. So in order not to break our EDLP philosophy inside our stores, all the benefits are inside our ecosystem or with benefits from other companies like cinema tickets or discounts in coffee shops or with other brands. So it won't add up any cost. It will give usable and requested benefits for our customers that they can use. And the type of benefits we're offering will keep rotating. So if something is not working, we will just change it for something else. And let me say that our first initial numbers on this were very, very good. We are happily surprised with how this is unfolding.
So yeah, it will help unfold and connect the whole ecosystem and give us much more information that we will use for credit scoring, for relationship with suppliers, for advertising, or to understand better our customers, to give them a better service. And regarding second half, Paulo, you want to take it?
Yeah. I can talk about the second half. Irma, the way I like to answer that question, which we get it often, is in two ways. One is around the long term, and the other one is in the short term, right? I think on the long term, we remain very positive about Mexico and its potential. And some of you know that they've been in contact with me sometimes on the road that I keep saying since I've been here, Mexico, the thing that surprised me the most is actually Mexico. And I think the potential continues to be out there.
Whether you look at from what Mexico has been growing in the past, the prospects of nearshoring, the fact that it's now the biggest exporter to the US, sometimes the relationship between the U.S. and China and the space that it gives to Mexico, the investment that's been made in Mexico and infrastructure most recently. So I think that you will continue to see the positive. I'm sure when you ask that question, you're looking more to the short term and what is going to happen in H2 and H1 next year. Yes. Typically, let me say two things here. One, we have seen in the past, typically in the elections, the last two elections, there've been a slowdown in H2 versus H1.
But it's important to say the last two elections that were done, actually, there was a change of government in the department, which is not the case this time around. So therefore, not sure if we can look really to the past to infer the future. It's true, though, that we actually start seeing some of the economic factors that you all see, be it employment, be it actually the growth, be it actually the, in this case, reflecting in the traffic in our store and in consumption. We saw a little bit at the end of June and early July, a little bit of a slowdown in traffic. How these will unfold, we'll have to see, but it's just too early to say.
You know that it has been a bit erratic, this H1, because with a lot of incentives pulled to the quarter one and therefore driving a lot of the consumption. In the quarter two, you didn't have the incentives, so people tended to spend most of that in the quarter one. The incentives, though, the subsidies from the government started now in July. So the first bimester was already given to the population up to the 19th of July. So let's see how that also helps driving consumption amongst our consumers.
Yeah. Let me build on this. The second half, it's typically a part of the year where we feel stronger given seasonality, where we are typically stronger than the industry. We're still positive in our intentions, and we need to wait and see about the macro buts.
Very helpful.
We feel good about our ability. Irma, we feel good about our ability to continue to win share in the back half of the year.
Yeah. Okay. Great. That's great. Thank you.
Long-term target of doubling the business faster than before, so.
Thank you very much for your question. Our next question is from Mr. Froylan Méndez from J.P. Morgan. Please go ahead.
Hello, everyone. Thank you for taking my question. I have two questions, if I may. The first one is on the long term and the end goal that you have for the ad business. I mean, given the magnitude of the margins that this business usually commands, what we see in other e-commerce players, do you expect these to be a game changer to your margin outlook at some point? Or what could prevent you to see the same benefits that we see for pure e-commerce players from this type of business? And my second question is on the price gap that increased versus peers. Can you expand a little bit on what were the key levers on that gap increasing? Was it more on private label efforts, a longer summer campaign? If you could dig into what drove that gap wider? Thank you so much.
Yeah. Thank you. Thank you so much. Well, the first one, briefly on that, indeed, we see a lot of potential. We are completely open about that. Otherwise, we will not have said in our annual Capital Markets Day where we said that we expect that to fourfold in the next five years in terms of, and we have announced what's the revenue that we did in our Walmart Connect or advertising business by roughly $150 million. I'm rounding it at the end of last year. And I think that will be indeed a big contribution to our P&L. We've always been saying that then we can decide taking that to the P&L or actually take that to actually invest back in the business or combination of both. And investing back in the business might be continuing investing in pricing where we still see areas of opportunity.
We're almost pretty much reaching to the ceiling where we feel very comfortable, but there are a couple of categories here and there that we can put a bit more money and as well as investing behind tech, e-commerce, and the new business, which therefore at the same time are contributing to the whole ecosystem, as you know. So I think that's a lever. It's a competitive advantage that we have because if you look at our competitors here, and be it in Mexico and Central America, they don't have that size of the don't have that type of business unless, of course, you're talking about the pure players, as you mentioned in your question. So I think it's something that we can continue unlocking and then use as a competitive advantage to win in the marketplace.
Thank you.
Okay. Regarding price gap, the commercial teams, both in self-service and in Sam's Club, are very focused on delivering the best value to the customers and to the members. The way we achieve that is we focus on KVI items and we focus on product mix in categories. We understand from the customers what they need and what they want. Based on key value items and the mix of the categories, we have a strong customer value proposition to make sure that we're delivering the value that the customers expect from us. In the case of Bodega, it's not only a reasonable price perception or a price gap, but it's the price that the customer can afford.
We're very focused on the price that the customer can afford and delivering the key value items that the customers need and the value that they're looking for.
Thank you very much.
Thank you very much for your question. Our next question is from Ms. Daniela Bretthauer from HSBC. Please go ahead.
Hi. Good morning, everyone. Thank you so much for taking my question. I just wanted to follow up on a comment made yesterday on the gross margin, Paulo. In the slide, you showed that there is 40 basis points of gross margin improvement, but then it says brick and mortar. But I believe in your speech, you mentioned that it was also brick and mortar and e-commerce that you saw an improvement in the commercial margin. So I just wanted to clarify if that's the case. And also wanted to clarify if the improvement that you mentioned today in the last mile for e-commerce, if that's in supply chain or that's reflected in the others because you did a bridge for gross margin. I thought that was very interesting, but I'm just a little bit confused on the components there. Thank you.
Yeah. So let me clarify in case I wasn't. So I think the gross margin progression is exactly as you have in the slide. So we have out there 40 basis points for new businesses and e-commerce. Half of that is actually for new businesses, Connect, Bait, and of the other verticals. The other one is actually efficiencies that we are improving in e-commerce, mostly related with efficiencies that we're doing in the last mile per se. So that is one. The other one, which was also the question of Álvaro, was about the 40 basis points that we have in the commercial margin in what's called mostly the brick. There actually is about a much better management of the catalog of general merchandise.
When you say management of the catalog of general merchandise, it means the way we buy the assortment that we buy and the way we actually sell it to avoid, of course, the fact that we then have to liquidate some of that category or inventory if we didn't buy in the first place the right one. I think that's the way you should look at it in terms of the explanation.
Yeah. Now it's clear. Thank you. And just a follow-up question on, well, we had the Copa América, and we're just going to have the Olympics starting on Friday. So I was wondering if that could provide any sort of tailwind momentum for the Q3 sales performance, or it's just like the underlying macro environment that will dictate the performance.
Yeah. In the case of Copa América, when Mexico plays, you do see a surge. Unfortunately.
Sorry. You're laughing. We all want to make a joke to Ignacio, but okay.
Unfortunately, Argentina probably had a surge in Argentina. We don't have a lot of Argentines living in Mexico. But we do see a surge when the Mexico team plays and when they develop a good performance. We do see a surge. So as Mexico did not have a good performance, so we're not seeing that uplift that we wish we would have seen. In the case of the Olympics, the Olympics are still kind of scattered from a follow perspective in Mexico. So you will see some sports more followed than others, but it's still lower in an impact base from a lift perspective. But we are promoting with partnerships with the vendors in our stores the Olympics so that we make it front and center so that the customers can feel the ambient and also get some of the momentum.
Not expecting a lot of the sales lift as we would see more on a soccer tournament that we will see from the Olympics.
Thank you so much.
Thank you very much for your question. Our next question is from Mr. Ulises Argote from Santander. Please go ahead.
Hi guys. Thanks for the space for questions and congrats on the results there. Two quick ones from my side. I think the first one wanted to do a double click on the Central American margins. So if you could expand a little bit on what were the drivers there of expansion and maybe how sustainable you see this trend going forward? And then the second one on capital allocation, right? So there on the buybacks you mentioned you've done around MXN 1 billion in cashback already, sorry, in buybacks already. Let's call it in kind of these initial steps in bringing this into your capital allocation strategy. So how do you feel about this? How are you thinking of this part kind of going forward and what have been your perceptions of how that works and how that fits with the overall kind of strategy you guys have? Thank you.
Yeah. Just on those two, thanks for the question, Ulises. So on the Central American margins, if I just separate it first, if you think just the gross margin, you saw a small progression there. While we continue to invest in the price investments there in order to reinforce our CVP, we're able to generate some efficiency, particularly in the supply chain. We're a fully integrated supply chain in Central America with manufacturing, which actually sometimes allows us to get to some of those efficiencies. I think if you look to our P&L of the margins of Central America, this particular quarter was also helped by one one-off that we had in our income that is also related with the asset sales.
I always say when we looked at the other income in a business, which includes various topics, including one-offs, includes drops of actually projects that we may have canceled, includes asset sales, includes contribution donations. We actually sometimes have headwinds. Sometimes we have tailwinds versus the prior year, and that is in both regions, Mexico, Central America. I always say that a business of our size should be able to accommodate that. What we have to do is to make sure that we reflect what we expect to see on that line, on other income in a way we establish our forecast, in a way we establish our decision-making in order to be able to be able to balance the long term and the short term.
I think to answer your question on the share buyback in terms of the way we return capital to our shareholders, most of you and also the investors have been saying your favorite way of returning capital to shareholders is about investing in CapEx behind growth because of our high or best-in-class returns on investments. So that's our priority way of returning value to the shareholders, and that followed by the dividend. I think on a share buyback, it's a bit more tactical use of that, and then particularly it's more about the signal that sometimes we tend to pass to the market the way we look at our share price, which we have a point of view where it stands today, but we leave it up to you and then investors to make your own mind around that.
I think that's the way you should look at the way we return capital to our shareholders.
Great. That's perfect. Thanks so much for the call, guys.
Thank you very much for your question. As a reminder, if you have a question, please press the question button in the browser. Please make sure you are not in full screen mode to see the button. Our next question is from Mr. Alejandro Fuchs from Itaú. Please go ahead.
Hello, Ignacio, Paulo, Raúl, Salvador. Thank you for the space for questions. Two very quick ones from my side. The first one on Bait, I think another quarter of strong growth. I wanted to ask you, where would you see Bait maybe in one or two-year period, and how do you see Bait adding to the overall core business? And the second one is maybe a follow-up from Ulises on Central America. How do you see the second half of the year semester sales under 3%, even though with a very good margin result? Anything that is worth highlighting for the second half in terms of maybe revamping up the top line in Central America? Thank you very much.
Yeah. Thank you, Alejandro. So we're very pleased with Bait's results, and we expect that to continue in the near future, basically because our offering to the customer is a winning offering in terms of pricing, quality service, and proposal for the customers. Bait is a key part of our ecosystem because most of the business units we are creating or the services that we are creating in our ecosystem start with a digital connection. You will need access to those services, digital access. And in the past, in Mexico, access to internet was very expensive. So that's why we jumped into creating Bait and lowering the cost to customers to access to internet through their mobile phones. So for us, it's a key part of how we build the ecosystem going forward.
With the results that we have and what we are seeing for the future, we want to keep gaining market share, becoming an even larger operator and being a top player in the industry. And once we reach a bigger base of customers, we can unlock an opportunity to start monetizing more of those customers through a whole ecosystem, through different offerings or services to them. So we're very positive of what we are building and the pace it's growing and how we see it unfold in the future, not only for the business in Bait itself, but how it contributes to the whole ecosystem. And the other important part here is the advertising around Bait. So it helps us fuel our Walmart Connect offering in a suite of solutions to the advertisers that we believe is unique in the market.
So again, it's a big part of what we are creating, and we are very happy how it's unfolding.
Central America, so good question around our growth. I have to say that if you look at Central America performance and you look, I think on four of those countries, we are happy what they're doing and how we are actually competing in the market. To say, as we alluded in our transcript in the webcast, somewhat softer performance in Costa Rica, and partially also driven by the deflation that we've been talking about. And potentially, we probably need to gain even more volume in that context. And that's how you look to the H2, that's actually what we're doing. We put a set of actions and a plan in place so that how we can capture more volume, in particular in Costa Rica and in discount format.
We are confident about the plans that we're putting in place, and we should see increased growth going forward. I think we'll also be partly helped by there will be also a bit of at least an expectation of some small price inflation in the country that will also tend to help, of course, the comp sales and overall growth. I think you look forward even further. We have been open that we actually want to bring more growth to Central America, invest further in that business, and be even more aggressive in a way. We have been opening or will be opening stores in some of these markets, and therefore that will translate in the future as well to additional comp sales.
Thank you. Paulo, Ignacio, very clear.
Thank you very much for your question. Our next question is from Mr. Bob Ford from Bank of America. Please go ahead.
Hey, good morning, everybody, and thank you for taking my questions. Congratulations on the same-store improvements and the improvements in price perception. How big of a hit do you estimate the pull forward of transfer payments had on your same-store sales in the second quarter? And can you discuss some of your inventory exit strategies coming out of the Hot Sale? And then lastly, Paulo, you mentioned the one-offs in the second quarter. How are you thinking about funding labor pressures moving forward? Thank you.
Sorry, can you repeat the first question?
The first question was with respect to the impact of the early payments of transfer payments in February versus the second quarter and how it may have impacted your same store sales.
Okay. So Bob, thank you for the question. What you see with the social programs is that based on the government elections, as you know, they couldn't advertise based on the government party that they own, that you couldn't do the social programs in Q2 based on laws and regulations. So they pushed all of that into quarter one. And that had mainly to your question on Hot Sale, I think, two effects. The first is that there was less disposable income for durable goods. And we saw some categories that were impacted in the Hot Sale that compared to the last year, we didn't have that impact. Some of the categories that we saw, not as good performance were TVs, toys, and some video games.
And then the second thing that happened within Hot Sale is that the PTU, which is the profit sharing from the companies, it gets paid in May. And by law and regulation, you have the ability to pay to a certain point to the end of May. And the event, probably not a good calendar effect, was planned in the middle of May. And that limited the ability for customers to have more disposable income based on the PTU that was available in the market versus in the prior years, you had it in June. So you had the full effect of the PTU, and you had the full effect as well as the social programs. So those were the main impacts from a macro perspective. And then some categories as well that we don't play strong in like beauty and fashion were also good performers.
As you know, in extended assortment, we're still not there, and we're continuing to build from that standpoint.
Yeah. Let me build on that. Elections change a little bit the calendar for certain promotions like Hot Sale and social benefits. So that's why I think the right way to look at this second quarter is H1, considering Q1 and Q2 altogether. It will give a better understanding of how the quarter and how the first half of the year happened because we have a lot of changes with calendar effects, elections, and so on.
Bob, let me address the question on inventory. So you've asked about inventory post Hot Sale season. Let me even zoom out a bit further, Bob. I think on inventory management as a whole is something that we in the company are conscious that we need to do better, and we can do better.
I think there's an opportunity to reduce our days on hand, something that we are putting in place a task force to address that because, of course, we liberate quite some cash. Of course, with the improvements that it has in all our metrics, I think it's an important one. I think if you refer just to the short term and how we actually address the inventory post Hot Sale season, it's part of the day-to-day business that we have to do when we have these types of seasons. I think the first things that we have to do, if we have some inventory that was left over as a result of the Hot Sale, we need to liquidate that. It's best to actually have the right assortment in the moment that actually the customer wants to buy it.
We have to balance that within the margins that we have to manage on an ongoing basis. That's what typically we do, Bob.
No, that's helpful.
Than what we do in the past.
Yeah. Oh yeah. And then the last question was just with respect to.
Is there a question, Bob, that I think we are forgetting? There was another one.
The last one was on labor, Paulo, and it was really you had some one-offs in the first quarter that you or second quarter that you referred to. I'm just wondering how you're thinking about funding those higher labor costs as we move forward.
Yes. As I said, I think I don't recall who was asking that question anymore, but we should see, as we've been saying since the beginning of the year, so to speak, really a temporary reshape of the P&L between the gross margin and the SG&A. While we are able to drive the efficiency and the automation that will help us to fully offset the investments that we have in the SG&A, particularly in the labor costs with the last four years and particularly this year have been quite acute with the 20% growth year-over-year. And you know that labor cost is a significant part of our business in terms of expense line. So I'm confident that we're doing the things that we are building pipeline for the future so that we'll be able then to leverage the cost.
Meanwhile, of course, we always have to be smart in the way we do those investments, the way we run the business with the costs, how much investments we put to accelerate growth. And of course, driving efficiency margin and actually the benefit that we're bringing from the ecosystem that others don't have in order to balance that in the overall margins that we deliver to all our shareholders and will be delivered more recently that you have seen. I think that's what we have to do. But we do that, and I reiterate this for the third time in this Q&A, we do that without putting at our competitiveness at jeopardy because that's our mantra and that's unique differentiation versus our competitors out there in the market.
That makes perfect sense. Thank you so much.
Thank you very much for your question. That was the last question. I will now hand over to Mr. Salvador Villaseñor for final comments.
Thank you very much, everybody, for joining us in this event, and we hope to see you again next quarter results.
Thank you very much, everyone.
Thank you very much.
Thank you.