Spectacular (and price anchoring bias)
Tiendas 3B’s Q2
(Tiendas 3B is a company I profiled on January 2026. Paid subscribers can read the in-depth report and follow up articles here.)
Tiendas 3B reported spectacular Q2 earnings last week. Even though I was aware that the company had a history (even if short) of outperforming even the most optimistic of expectations, I was once again pleasantly surprised (good problem to have). The market had similar feelings; the stock rose considerably on the report. It now stands very close to all-time highs:
This begs the question:
Is Tiendas 3B’s stock now expensive?
Valuation is always a tricky topic with such fast-growing businesses, and I’ll go over the topic in more detail at the end of this article.
Let’s jump right into the numbers.
Tiendas 3B’s numbers
Tiendas 3B grew close to 39% in Q2 on a $1.5 billion quarterly base (wow), but what was most interesting about this growth were the drivers. Despite Tiendas 3B being in the “early” phases of its store expansion opportunity, more than half of this quarter’s growth was driven by same store sales growth! SSS grew 20% YoY against a comp of 18% YoY (Q2 2025). Simply phenomenal:
SSS growth requires some context, which doesn’t subtract from its impressiveness but actually amplifies it. At first sight one might think that SSS was aided by several tailwinds, the usual suspects of inflation in Mexico and a growing industry. The reality, though, is very different.
Food inflation in Mexico was 3-4% during the period, but inflation at Tiendas 3B was “minimal,” in management’s own words. This is something I discussed in my in-depth report. Due to Tiendas 3B’s hard discount model in which most efficiency gains are passed on to the consumer, inflation is unlikely to be a big tailwind for the business (in some instances the business model might lend itself to deflation!). Management said the following about the composition of SSS growth:
We have about ⅔ of the growth is explained by volume. One third is explained by price, and within price, the large impact is coming from better mix.
This is also an interesting topic (and very relevant for investors) because the value proposition within each store is simply getting better. A better value prop is not only driving consumers to buy more, but it’s also improving Tiendas 3B’s value capture. This has pretty relevant implications for returns, because the cost of opening a new store is growing much slower than the incremental value that Tiendas 3B is obtaining from each new store that is opened with an improved value proposition. This ultimately means that incremental returns are going up (something that was confirmed by management not long ago):
So it’s like we get new customers, not only more customers, but we get them faster at the initial part of a store opening, and that has a very beneficial impact.
There’s also significant optionality in the stores, and these are likely to play out with minimal incremental needs of capital (i.e., therefore making their returns very attractive). As Tiendas 3B attracts more customers, the possibilities expand:
3B is a platform, and we have said that many times. We touch a client very frequently, and this client not only needs grocery. You can basically say that whatever this client needs is something you can potentially offer, as long as you don’t violate your core principles.
The second supposed “tailwind” (a growing industry) is even more interesting, because ANTAD SSS growth (what could be considered Tiendas 3B’s industry in Mexico) was actually down 0.1% in Q2 2026! This means Tiendas 3B won (once again) significant share from peers during the quarter. A trend that has been ongoing for a while:
This shouldn’t surprise anyone familiar with the hard discount model. The larger that Tiendas 3B gets, the more efficiencies it can pass on to its customers, therefore widening the gap with competitors. This is also not something an investor has to envision because it has played out like this in other countries with the likes of Lidl, ALDI, and BIM (Turkey). The gap above compounds materially because ANTAD is posting decreasing growth on pretty soft comps, whereas Tiendas 3B is posting accelerating growth on pretty tough comps. It doesn’t take a genius to understand that market share growth is accelerating.
The remaining variable in the growth algorithm pertains to store openings. Tiendas 3B opened 155 stores in Q2 and one new distribution center. Even though this is an okay store opening number (not the best, not the worst), it’s worth noting that Tiendas 3B is likely going to need to accelerate store openings if management wants to maintain growth at the current level. I believe this is very possible for reasons discussed in the in-depth report, but even when we zoom out we can see that Tiendas 3B store count growth remains very attractive: it has increased 20% since H1 2025. This is more than decent, although if my math is mathing, Tiendas 3B will need to accelerate its quarterly store openings to continue on this growth path (duh!). Will the company manage to do it? I believe so, and signs point to store growth potentially accelerating quite soon. Management shared the opening of 3 new distribution centers in Q3 (the company opened 1 in Q2). Just for context, this is the fastest DC opening growth in at least a year!
This would bring the distribution center total to 24, which at 173 stores per DC (more or less the average of the past few years) translates into the capacity to support at least 4,200 stores, a 16% increase from today’s numbers (and this is without assuming any more DC openings in future quarters).
Due to Tiendas 3B’s decentralized structure…
…the structure itself is unlikely to limit store count expansion. Management mentioned in the past that if there were to be one constraint, that would be the availability of real estate. Now, they claimed this quarter that opportunities were not precisely absent:
There are no constraints on real estate. The runway is tremendous in Mexico for us, so we haven’t seen any constraints on that front.
Margins were also a strong point and a pleasant surprise, as Tiendas 3B is tracking considerably ahead of my estimates (hopefully it continues to outpace my estimates for long). EBITDA excluding SBC rose 44% for a very decent 6.1% margin (would’ve been 6.2% excluding one-off costs related to the follow-on offering).
I know many people will claim that SBC is a real cost, and while I agree, I am already accounting for it in dilution and therefore including it here would be double counting:
The beauty of this model, however, is the negative working capital dynamic.
Adjusted negative net working capital reached MXN 10.2 billion compared to MXN 7.1 billion in 2025, excluding IPO and follow-on proceeds. This represents approximately 11.2% of total LTM revenue.
OCF/EBITDA conversion was 270% and Tiendas 3B generated 4.3 billion MXN in operating cash flow in Q2. This is around $253 million in OCF in a single quarter for a business with a current market cap under $6 billion and growing 40%. It’s evidently true that once growth slows down, the working capital benefit will shrink, but it’s key to enjoy it during the growth phase as it allows Tiendas 3B to self-finance its fast store expansion while having capital left over for shareholders (something I also went in detail during the in-depth report). There seemed to be some pretty strong tailwinds in working capital which I don’t know whether they’ll recur or not (I asked management and I’m waiting for a reply because the improvement was pretty spectacular).
Management also shared that, despite the margin upside limitations inherent in the hard discount model, they expect to continue to find operating leverage and therefore it’s unlikely that we’ll see the trend slowing down anytime soon (pretty bullish commentary to be honest).
The concerns and their counter-argument
Tiendas 3B faces three main “concerns.” The first one is evidently that the company is 100% based in Mexico. There’s little one can do about this besides being aware of it and managing the risk at the portfolio level.
The second “concern” is that the lock-up period expired this month (August 6th). This didn’t stop Tiendas 3B’s stock from climbing to ATHs, but management did mention that they’ll do whatever is in their hands to smooth any potential selling:
You would think that people will rush to the doors to sell their options, and I don’t have a feeling that that’s going to be the case. In any event, we do already have in place mechanisms to ensure that when naturally people want to sell some of their options, it’s done in a very orderly and timely way.
The thing is that, if Tiendas 3B continues to operate at a similar level, I don’t anticipate that the end of the lock-up period will cause any significant selling pressure down the line. Besides those mandated to sell their shares, who would be willing to front-load the selling of such an appealing asset?
The third concern is competition. Even though Tiendas 3B was early to the hard discount trend in Mexico (key to retain the leadership position), some investors are worried about copycats. Management said the following during the call:
I continue to believe that the market potential in Mexico is significant, and that there is room for several players to thrive in the sector that we call discount. We continue to do what we are doing, and I think that it’s going to continue to work extremely well.
It does not take much in our case to see an increase in SSS. All we need to do is sell one more item per customer, and you can see that number significantly increasing.
I must say that the numbers that Tiendas 3B is reporting surely point to the gap between the company and competitors getting wider, not slimmer.
So, all in all, outstanding earnings from TBBB, but what about the valuation?
Is Tiendas 3B still a good deal?
As I mentioned at the beginning of the article, valuation for such fast-growing businesses can be somewhat tricky. The reason is price anchoring. When a stock rises considerably from our purchase price, we might naturally feel inclined to believe that it has become more expensive (as our purchase price was “fair value”), but the reality is that the valuation might be more appealing today than it was back then. Since I published my in-depth report (January 2026), Tiendas 3B’s stock has risen 38%, but it has not necessarily become 38% more expensive! Let’s understand whether this has been the case.