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Wal-Mart de Mexico Plunges After Cutting Expansion Plan

Wal-Mart Unit Falls After Expansion Plan Cut
Cars sit outside of a Wal-Mart store in Guadalajara, Mexico. Photographer: David Rochkind/Bloomberg

Wal-Mart de Mexico SAB, the unit under investigation for bribing Mexican officials to get stores open faster, tumbled the most since May after cutting its expansion plan for this year.

The shares fell 3.5 percent to 35.17 pesos at 9:04 a.m. in Mexico City, after earlier declining as much as 5.5 percent, the biggest intraday drop since May 31. The benchmark IPC index of 35 Mexican companies slipped 0.6 percent.

Wal-Mart Stores Inc.’s Mexico subsidiary will open between 325 and 335 locations in Mexico and Central America this year, down 23 percent from its previous estimate of as many as 436, according to a statement to the Mexican stock exchange yesterday. The new steps required to open a store set back development plans by 60 days to 90 days, Wal-Mart de Mexico said.

“It’s bad news” and the delays are likely to hurt the stock’s performance, Raul Ochoa, an analyst at Interacciones Casa de Bolsa, said in a telephone interview yesterday from Mexico City. “We’re talking about a whole quarter. That’s a lot of lost sales days.”

Ochoa said he’s reviewing his buy recommendation.

JPMorgan Chase & Co. slashed its 2012 earnings estimate by 8.2 percent to 1.34 pesos per share after the announcement, according to an e-mailed research note from analysts including Andrea Teixeira, who has a neutral recommendation on the stock.

‘More Uncertainty’

There’s “no indication of how long it may take for the company to be out of the bribery investigation, which adds more uncertainty,” the JPMorgan analysts said in the note. “If the investigation drags on for long, the company will continue to grow its sales area at a single-digit pace.”

JPMorgan now projects 8 percent growth in store sales space in both 2012 and 2013, the note said.

In April, the world’s largest retailer confirmed it had started a probe into its Mexican operations in response to allegations that executives bribed officials to accelerate expansion. The U.S. Justice Department and the U.S. Securities and Exchange Commission are also investigating.

Officials at Wal-Mart Stores Inc. have been sued by a group of New York pension funds for alleged mismanagement in failing to prevent bribery.

Pension Funds

Investors including the New York City Employees’ Retirement System, Police Pension Fund, Fire Department Pension Fund and Board of Education Retirement System contend that company officials were duty bound to control alleged “widespread corruption” and a subsequent cover-up at Wal-Mart de Mexico, according to a complaint filed on June 11 in Delaware Chancery Court.

Last year, Walmex, as it is known, generated about 21 percent of Wal-Mart’s international sales growth.

More than half of the Mexican locations are relatively small Bodegas Aurrera stores. Their success prompted Wal-Mart to use them as the inspiration for new, small-format locations in the U.S. and Latin America.

In the past decade, Wal-Mart de Mexico expanded its stores by an annual average of 37 percent, outpacing Mexico’s economic annual growth average of 1.3 percent for the same period by 29 times.

Mexico may grow between 3.5 percent and 4 percent this year, central bank Governor Agustin Carstens said yesterday.

In Mexico, Wal-Mart also put several retail concepts on one patch of real estate. Configurations include a large discount store, Sam’s Club, Suburbia apparel store and a Vips restaurant all facing one parking lot.

Shares of Walmex, which is 69 percent owned by Bentonville, Arkansas-based Wal-Mart, have dropped 19 percent since an April 21 report in The New York Times.

The changes for real-estate developments in Mexico seek to “improve documentation,” Walmex spokesman Antonio Ocaranza said in a telephone interview yesterday. He declined to comment on the bribery investigations.

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