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Wal-Mart de Mexico Profit Increases as Retailer Reduces Costs

Wal-Mart de Mexico SAB, Latin America’s largest retailer, said second-quarter earnings increased 9 percent from a year earlier as the company reduced operating costs.

Net income rose to 4.94 billion pesos ($363 million) on sales of 97.4 billion pesos, up 12 percent, according to a company filing yesterday with the Mexican stock exchange. Earnings before interest, taxes, depreciation and amortization, a cash flow measure known as Ebitda, rose 15 percent to 9.06 billion pesos.

Ebitda margin increased to 9.2 percent from 9 percent a year earlier. The rise in profitability was because of “discipline in control of costs in both Mexico and Central America,” the company said.

“I didn’t expect an improvement in Ebitda margin,” David Foulkes, an analyst with Corp. Actinver SAB in Mexico City, said in a phone interview after the report. “It came out better than I expected.”

Foulkes said he’s reviewing his hold rating for Walmex, as the Mexico City-based company is known, after the report. Gaspar Quijano, an analyst with Vector Casa de Bolsa SA in Mexico City, said in an e-mailed research note that he’s keeping his buy recommendation after “these very favorable results.”

The results improve the outlook for the company in the second half and may boost the shares today, Quijano wrote.

Slowing Expansion

Walmex’s positive performance in Mexico outweighed difficulties in integrating operations in Central America that it acquired in 2010 from parent Wal-Mart Stores Inc., said Luis Willard, an analyst with Grupo Bursatil Mexicano in Mexico City.

“The positive part is definitely seeing that the Mexican business is growing again and expanding margins,” he said in a phone interview.

The retailer slowed its expansion after the U.S. Justice Department and Securities and Exchange Commission announced investigations into bribes that Walmex officials allegedly paid to speed up the opening of new stores. The retailer reduced the number of stores it plans to open this year by 23 percent, according to a June 20 statement.

“Although Walmex does not presently believe, based on the information currently available and the advice of its external Mexican counsel, that these matters will have a material adverse effect on its business, given the inherent uncertainties in such situations, Walmex can provide no assurance that these matters will not be material to its business in the future,” the company said yesterday.

Behind Schedule

The retailer said June 20 that it will open between 325 and 335 locations in Mexico and Central America this year. It added extra steps to the real-estate development process required to open stores and said the 2012 growth plan is 60 days to 90 days behind schedule.

Walmex opened 111 stores in the first half, less than half of the lowered June 20 forecast, according to the earnings report.

Chief Executive Officer Scot Rank said in a conference call yesterday that the company named Javier Soni Ocampo, formerly a senior partner at Pricewaterhouse Coopers Mexico, as chief compliance officer. Adriana Velazquez Villasenor, formerly chief compliance officer at GE Latin America, was named anti-corruption director, Rank said.

Walmex started an internal investigation following a New York Times story on the alleged bribes published April 22. The company’s shares have fallen 14 percent since then. They rose less than 1 percent to 36.95 pesos yesterday in Mexico City trading before the earnings report.

It’s not yet clear whether Walmex’s compliance measures will translate into higher costs, Willard said.

“If you’re looking just at this quarter, the answer is no,” Willard said. “However, you’ll have to keep looking, you can’t take your eye off the ball there.”

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