Delayed Digital Adaptation Will Exacerbate Margin Pressure

Key Takeaways

• Weak digital transformation and intense competition risk further erosion of revenue, market share, and profit margins amid shifting consumer preferences.
  
• Economic headwinds and a concentrated physical footprint challenge demand growth, heightening vulnerability to price sensitivity and operational pressures.
  
• Strong digital, private label, and loyalty program growth, coupled with modernization and strategic partnerships, positions Soriana for sustained market share, customer engagement, and earnings expansion.

Catalysts

Operates various formats of stores in Mexico.

• The accelerating shift toward e-commerce and digital retail continues to erode foot traffic and sales in Soriana's traditional grocery store formats, as reflected by rising average ticket but declining shopper visits quarter-over-quarter, directly threatening long-term revenue growth and risking permanent market share loss to more agile digital-first competitors.
  
• Persistent income inequality and recent declines in key income sources such as remittances, alongside a slowing rate of formal job creation, are likely to stifle discretionary spending and overall demand, leaving Soriana exposed to flat or shrinking revenue-even as operational costs rise-while its core customer base becomes increasingly price-sensitive.
  
• Soriana's lagging investment and execution in digital transformation and e-commerce, relative to stronger competitors like Walmart, continues to result in the lowest same-store sales growth in its peer group despite incremental digital sales gains, indicating mounting structural revenue headwinds and increasing risk of profit stagnation or margin erosion.
  
• Soriana's concentrated physical footprint in regions with limited population growth exacerbates challenges from shifting demographics and urban migration, as its largely large-format stores become less aligned with consumer preferences for smaller, more flexible retail experiences, likely constraining future store productivity and sustaining pressure on net margins.
  
• Intensifying competition from both global chains and aggressive regional discounters, coupled with an industry-wide trend of price wars, is placing sustained downward pressure on gross and net margins-as already seen in the need for heavy promotional campaigns and anticipatory discounting-jeopardizing earnings resilience and the company's ability to defend its market position in the medium to long term.

Organización Soriana S. A. B. de C. V Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Organización Soriana S. A. B. de C. V compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Organización Soriana S. A. B. de C. V's revenue will grow by 4.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 2.2% today to 1.6% in 3 years time.
• The bearish analysts expect earnings to reach MX$3.2 billion (and earnings per share of MX$nan) by about August 2028, down from MX$3.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.3x on those 2028 earnings, up from 12.3x today. This future PE is lower than the current PE for the MX Consumer Retailing industry at 18.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.3%, as per the Simply Wall St company report.

Organización Soriana S. A. B. de C. V Future Earnings Per Share Growth

Risks

• Soriana's digital business continues to deliver strong growth, with digital sales rising 19 percent and order volume increasing 44 percent compared to last year, indicating the company is effectively capitalizing on long-term secular trends toward omnichannel retail and digital adoption, which may drive higher revenues and market share.
  
• The private label business is showing robust performance, achieving 9.3 percent growth in sales and strong customer acceptance, while nearly 13 percent of Soriana's total sales and double-digit growth at City Club demonstrate the potential to improve gross margins and customer loyalty, positively impacting net earnings over time.
  
• The Soriana Ya loyalty program has reached 8.1 million active members, with average spend per loyalty customer 62 percent higher than non-registered clients, meaning deeper customer engagement and repeat business can fuel higher recurring revenues and mitigate volatility in traffic trends.
  
• Soriana's partnership with Falabella continues to gather momentum, as evidenced by a rapidly expanding credit card portfolio with more than 980,000 active cardholders and a credit portfolio value up over 30 percent year-over-year, creating new sources of fee income and cross-selling opportunities that can support both top line growth and margin expansion.
  
• The company is actively investing in long-term differentiation by modernizing stores, expanding the Sodimac home improvement concept, leveraging real estate assets to grow specialized formats, and installing EV charging stations, all of which are aligned with secular consumer and sustainability trends and may enhance brand equity, drive new traffic and tenants, and ultimately strengthen revenue and EBITDA growth potential.

Valuation

• The assumed bearish price target for Organización Soriana S. A. B. de C. V is MX$19.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Organización Soriana S. A. B. de C. V's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$33.0, and the most bearish reporting a price target of just MX$19.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be MX$197.7 billion, earnings will come to MX$3.2 billion, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 15.3%.
  
• Given the current share price of MX$25.96, the bearish analyst price target of MX$19.0 is 36.6% lower.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.