Walmex Posts Smallest Profit Growth in a Year

Wal-Mart de Mexico SA, Latin America's biggest retailer, posted its smallest profit increase in a year by cutting prices to take market share from competitors.

Net income rose 19 percent to 4.38 billion pesos ($400 million), or 51 centavos a share, from 3.68 billion pesos, or 43 centavos a share a year ago, the company said in an e-mail today. Walmex, as the company is known, is based in Mexico City.

The retailer intends to counter slowing growth by opening a bank after June, said Jose Miguel Garaicochea, who helps manage $1.1 billion at Santander Fondos in Mexico City. The bank will attract customers to its stores and encourage spending, said analysts including Eduardo Estrada of Citigroup Global Markets.

``Walmex can grow very rapidly in the banking sector,'' said Garaicochea, who holds Walmex shares in his fund. ``Once they get the bank format right, they will quickly replicate it.''

Sales at Walmex stores open for at least a year rose 7.1 percent in the fourth quarter. Meantime, supermarket and store chains that compete against Walmex posted an increase in same- store sales of 1.9 percent, according to the National Association of Supermarket and Department Stores.

Walmex doesn't belong to the trade group, which includes Controladora Comercial Mexicana SAB, Organizacion Soriana SAB and Grupo Gigante SAB.

Walmex said today same-store sales grew 5.4 percent in January. All percentage increases for Walmex and competitors are adjusted for inflation.

Economic Expansion

Mexico's $833 billion economy expanded at least 4.3 percent, according to finance ministry estimates published Jan. 31.

Shares of Walmex, Mexico's second largest company by market value, fell 0.7 percent to 48.88 pesos today in Mexico City trading before the earnings release. That reduced this year's gains to 2.8 percent.

The stock rose 27 percent in the fourth quarter, the biggest quarterly gain since 1999. The country's benchmark Bolsa index gained 21 percent in the period.

Bentonville, Arkansas-based Wal-Mart Stores Inc. (WMT) owns two- thirds of Walmex.

Fourth-quarter revenue, including sales at all stores and membership fees, rose 16 percent to 60.8 billion pesos, Walmex said today. Earnings before interest, taxes, depreciation and amortization rose 20 percent to 6.63 billion pesos.

Banking Push

Chief Executive Eduardo Solorzano, 49, is entering the banking market to boost sales and earnings growth. Walmex was granted a full-service banking license in December, beating its U.S. parent, whose application was put on hold for a year by regulators on Jan. 31.

The company plans to set up branches at all of its stores, excluding restaurants, and will initially offer savings accounts and small loans to individuals and small companies, Solorzano said in November. Walmex had 576 stores and 319 restaurants as of Dec. 31.

``The bank will boost traffic and customer loyalty,'' said Eduardo Estrada, who is based in Mexico City.

By running the bank out of its stores, Walmex probably will have the lowest cost within the banking industry and will be able to tap into lower-income consumers who aren't served by traditional lenders, wrote Merrill Lynch & Co. analyst Robert Ford in a Jan. 5 report. He estimates the bank may net $400 million in five years of operation.

About 80 percent of Mexico's 25.8 million households had access to financial services, according to a 2004 survey by the government's statistics agency.

To contact the reporter on this story: Adriana Arai in Mexico City aarai1@bloomberg.net

To contact the editor responsible for this story: Michael Nol at mnol@bloomberg.net

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