Fitch Rates CCM's Proposed US$200MM Sr Notes Offering 'BBB-'.

MONTERREY, Mexico -- Fitch Ratings has assigned a 'BBB-' rating to Controladora Comercial Mexicana, S.A. de C.V.'s (CCM) proposed senior notes offering of up to US$200 million. Proceeds from this issuance will be used to prepay existing debt and for other general corporate purposes. Fitch Ratings has also affirmed CCM's national scale ratings of 'F1+(mex)' and 'AA(mex)'. The Outlook for the ratings is Stable.

CCM's ratings are based on the company's sound competitive position in the Mexican food retail market, its multiple-format strategy, ownership of the majority of its selling space, and solid financial profile. Over the past few years, the company has implemented several strategic initiatives designed to improve its long-term competitive position in an evolving Mexican retail industry. Incumbent food retailers, including CCM, have faced increased competition from Wal-Mart de Mexico (Walmex), which dominates the market. In addition, hypermarkets are replacing supermarkets as the format preferred by consumers. In response to these market trends, in 2002 the company modified its product pricing strategy from deep discounts on targeted products to 'everyday low prices.' CCM has also focused on growing its larger store formats by opening new stores and converting some of its existing supermarkets to Mega stores. In 2003, the company acquired five hypermarkets from the French retailer Auchan. These initiatives have allowed the company to improve its profit margins in a highly competitive industry.

CCM owns the majority of its current store locations and has acquired land sites targeted for future new store developments, which provides a competitive advantage in highly concentrated areas such as Mexico City. Capital expenditures ($140 million in 2003 and $183 million in 2004) have been and should continue to be financed with internally generated cash, thereby maintaining stable debt levels. During 2005, CCM is planning to open 21 new stores, which will increase its selling space by approximately 10%. Total planned capital expenditures for the year will reach around US$240 million.

During 2004, revenues increased by 2.2%, driven by the opening of new stores. For the first three months of 2005, revenues increased by 3.1%. Same-store sales of the company remained flat in 2004, and for the first three months of 2005. This compares favorably with the 0.7% and 1.7% declines of same-store sales for the supermarket sector, respectively, according to the Mexican source ANTAD. The EBIT and EBITDA margins have improved over the past several quarters due to tight expense controls and higher operating efficiencies. These initiatives have also included a combination of marketing and pricing tactics, supplier negotiations, shrinkage reduction programs, management of store categories, and efficiency in the management of the company's new distribution center.

CCM has a solid financial profile. At March 31, 2005, the company had US$190 million of on-balance-sheet debt with an adequate repayment profile. The current debt structure includes US$100 million of private notes due 2010, peso-denominated debentures equivalent to US$55 million due 2010, and bank debt of US$36 million. Fitch adjusts on-balance-sheet debt to include eight times annual store rental expenses (which in 2004 reached US$28 million).

Credit-protection measures remain solid and are consistent with the rating category. Credit ratios have slightly improved from 2003 due to increased EBITDA and lower funding costs. At March 31, 2005, the ratio of total adjusted debt (including off-balance-sheet debt) to LTM (last twelve months) EBITDAR was 1.5 times (x), and LTM EBITDAR/interest expense plus rents was 4.9x. Additionally, as a result of the Auchan stores acquisition, CCM has liabilities totaling US$60 million (due in annual payments of US$20 million from 2006 to 2008). Including this debt, the ratio of total adjusted debt to LTM EBITDAR was 1.8 x. Credit protection measures are expected to remain stable over the next few years.

CCM is one of the largest Mexican food retailers, with revenues of US$3.4 billion in 2004. At March 31, 2005, the company operated a total of 180 stores, the majority of which are located in Central Mexico (which includes Mexico City). CCM operates five store formats: Comercial Mexicana, a service-oriented supermarket; Mega, a hypermarket; Bodega, a value-priced supermarket; Sumesa, a value-priced neighborhood supermarket; and Costco, under a joint venture with Costco Wholesale Corp. In addition, CCM operates a chain of 58 family-style restaurants.