Walmex Promotions Spark 11% Growth for Mexico Retailer

Wal-Mart de Mexico SAB, Latin America’s largest retailer, saw sales grow 11 percent in the third quarter as it used discounts and promotions to increase store visits.

Walmex, as the company is known, said sales rose to 100.8 billion pesos ($7.9 billion), in line with the average 101.2 billion-peso estimate of nine analysts compiled by Bloomberg.

Net income rose 11 percent to 5.26 billion pesos from a year earlier as the retailer recorded a higher tax charge, according to a filing sent yesterday to the nation’s stock exchange. That was lower than the average estimate of 5.63 billion pesos from five analysts.

The Mexico City-based retailer started a price-cutting campaign in August in response to competitors’ markdowns that slowed Walmex (WALMEXV)’s sales growth during the summer. The promotion increased store visits in the third quarter, helping offset higher expenses in the company’s Central American business.

“The competition in the sector is more aggressive all the time,” said David Foulkes, an analyst with Corp. Actinver SAB in a telephone interview from Mexico City. “There are always more discounts and promotions.”

Walmex’s discounts were meant to counter sales from rivals Controladora Comercial Mexicana SAB (COMERUBC) and Organizacion Soriana SAB (SORIANAB) and they “produced results,” Foulkes said.

Maintaining Growth

Earnings before interest, taxes, depreciation and amortization, or Ebitda, rose 15 percent to 9.43 billion pesos, while eight analysts expected an average of 9.75 billion pesos.

Walmex shares have risen 2 percent this year, trailing the 15 percent advance of Mexico’s benchmark IPC index. The stock was little changed yesterday at 38.99 pesos at the close in Mexico City.

The retailer is starting a discount program for food and cosmetic items this month to maintain same-store sales growth that surpassed the industry average in Mexico during the last quarter, Chief Executive Officer Scot Rank said in a conference call following yesterday’s earnings release. Comparable or same- store sales growth excludes outlets open for less than a year.

While Walmex’s strategy in Mexico has been successful, the retailer’s Central American business is lagging behind in liquidating outdated inventories and updating operating systems, said Raquel Moscoso, an analyst with Grupo Financiero Banorte SAB.

“Central America has been a bit slower than what we thought originally,” Moscoso said yesterday in a telephone interview from Mexico City.

Strategic Steps

Walmex, which is controlled by Wal-Mart Stores Inc. (WMT), acquired its Central American business from the parent company in 2010. Central American operations, which represent about 13 percent of the company’s revenue, are still being phased into Mexico’s distribution system. The process will conclude by the middle of next year, Rank said.

“In Central America, we’re taking the strategic steps to strengthen the consistency of our execution and meet our long- term goals,” he said.

Slower expansion in Mexico has weighed on the company’s shares. Walmex is taking longer to open locations after the U.S. Justice Department and Securities and Exchange Commission announced investigations into bribes that company officials allegedly paid to speed up store openings.

The retailer opened 49 stores in the third quarter and 162 this year. It will expand installed capacity by 7.7 percent this year from 2011, Chief Financial Officer Rafael Matute said on the conference call.

To contact the reporter on this story: Jonathan Roeder in Mexico City at jroeder@bloomberg.net

To contact the editor responsible for this story: Helder Marinho at hmarinho@bloomberg.net

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