Marketing Investments And ESG Focus Will Boost Brand Reputation And Customer Loyalty

Key Takeaways

• Strategic expansions and remodels in high-traffic areas, coupled with digital transformation, are poised to boost revenue and improve customer engagement and net margins.
  
• New distribution center and ESG-focused marketing investments aim to strengthen logistics, enhance brand reputation, and sustain growth amidst regional macroeconomic challenges.
  
• Declining revenues and profitability are impacted by regional sales slumps, high debt levels, and macroeconomic pressures, potentially compromising financial stability and growth prospects.

Catalysts

Operates restaurants in Latin America and Europe.

• Alsea's global expansion strategy includes opening 66 new stores and remodeling existing ones to enhance the customer experience, focusing on high-traffic areas in Mexico and Europe. This is expected to increase revenue growth through higher sales volume.
  
• Digital transformation efforts are fueling growth, with loyalty sales growing 38% and digital orders contributing 32.5% to total sales. This is likely to enhance revenue and improve net margins due to increased efficiency and customer engagement.
  
• The construction of a new distribution center and factory in Guadalajara aims to strengthen logistics and support future regional growth, potentially improving operational efficiency and thus increasing net margins.
  
• Strategic investments in marketing and commercial campaigns, coupled with a focus on delivering ESG commitments, are expected to enhance brand reputation and customer loyalty, potentially boosting future earnings growth.
  
• Continued growth in Mexico and targeted strategies in South America are anticipated to recover traffic and maintain sales momentum, positively impacting revenue and earnings, despite macroeconomic challenges in Europe.

Alsea. de Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alsea. de's revenue will grow by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 3.7% today to 3.6% in 3 years time.
• Analysts expect earnings to reach MX$3.6 billion (and earnings per share of MX$4.39) by about February 2028, up from MX$2.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting MX$4.8 billion in earnings, and the most bearish expecting MX$3.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.2x on those 2028 earnings, up from 14.3x today. This future PE is greater than the current PE for the MX Hospitality industry at 16.9x.
• 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 21.35%, as per the Simply Wall St company report.

Alsea. de Future Earnings Per Share Growth

Risks

• The decline in Starbucks Europe same-store sales by 12.3%, particularly in France and Benelux, suggests ongoing pressures that could impact revenue and net margins, especially if these trends continue.
  
• The net income decrease by 65.6% year-over-year highlights significant financial challenges, such as negative noncash effects from currency exchange translation, posing risks to earnings stability.
  
• The elevated debt level of MX$32 billion, particularly increased due to acquisitions and foreign exchange impact, might strain future earnings and limit financial flexibility.
  
• Macro-economic pressures in South America, especially Argentina, along with loss of traffic, may hinder revenue growth and create operational challenges that affect profitability.
  
• Potential impact on growth from reduced consumer traffic in high-traffic areas like airports and popular tourist locations, coupled with disruptions from weather-related events, could adversely affect same-store sales and overall revenue potential.

Valuation

• The analysts have a consensus price target of MX$68.819 for Alsea. de based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$98.0, and the most bearish reporting a price target of just MX$50.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MX$101.2 billion, earnings will come to MX$3.6 billion, and it would be trading on a PE ratio of 27.2x, assuming you use a discount rate of 21.3%.
  
• Given the current share price of MX$50.98, the analyst price target of MX$68.82 is 25.9% higher.
  
• 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.