• Shares near record even after last month's global stocks rout
  • Stock gains may not be sustainable: Signum Research analyst

El Puerto de Liverpool SAB, Mexico’s biggest department store, survived last month’s stock meltdown to return to near-record levels, showing further evidence that retail sales and consumer credit are the bright spots in a sluggish economy.

The company, named after the Port of Liverpool when it imported merchandise from the English city in the 19th century, had the fourth-biggest stock gain in the country’s benchmark index this year, after beating analysts’ sales estimates for four straight quarters.

With the 33 percent share increase so far in 2015, Liverpool trades at 31.5 times earnings, close to the average among its peers, data compiled by Bloomberg show. Still, the rise may not be sustainable, according to Signum Research analyst Cristina Morales. The weaker peso means imported products are getting more expensive and it may force Liverpool to raise its prices, driving some consumers away, said Morales, who recommends holding the stock.

"The product prices have so far held, but they can only sacrifice margins so much, and demand levels could be affected," Morales said in a phone interview. Liverpool has taken advantage of "sales and promotions even in a year where consumption remains comparably weak. But a big part of that has already been priced into the shares."

About half of the merchandise in Liverpool’s 107 stores -- goods ranging from cocktail dresses to bed sheets and pans -- is exposed to currency fluctuations, Fitch Ratings said in a report this week. The impact can be mitigated by price increases on some articles, with consumers absorbing a portion of the rising costs, Fitch Ratings analysts including Alberto Moreno said in the report.

Mexico’s currency has followed a slide in developing nations, tumbling 22 percent in the past twelve-months and touching a record low of 17.3056 per dollar last week, amid the threat of a further global economic slowdown. The weaker peso means goods and materials bought in U.S. dollars, for instance, cost more when translated in the local currency.

Liverpool officials didn’t respond to calls and e-mails seeking comment.

The Mexico City-based retailer reported a 12 percent gain in sales to 22.1 billion pesos ($1.3 billion) in the second quarter. Retail sales represented about 85 percent of the total, while its credit cards generated about 11 percent of revenue. The growth was driven by an increased traffic in stores, as well as higher average spending by customers, Barclays Plc analysts said in a report after the results.

The stock has jumped 2.8 percent since Liverpool released second-quarter earnings on July 27, while Mexico’s benchmark index dropped 1.7 percent after the global stock meltdown at the end of last month.

While Mexico’s economic growth forecasts have been falling due to tumbling oil prices and output, retail sales and consumer credit helped fuel “moderate growth” in the second quarter, Banco de Mexico Governor Agustin Carstens said last month. Same-store sales -- which measure sales in established stores -- grew 6.8 percent in July, more than anticipated, according to the Antad trade group, which represents chain stores including Organizacion Soriana SAB and Liverpool.

Liverpool is now in a prime position to take advantage of low inflation rates and a growing working class, said Jose Antonio Cebeira, an analyst at Actinver. Cebeira, who recommends buying the shares, has a target price of 205 pesos, up 4.5 percent from the Wednesday closing price of 196.23 pesos.

"We’re seeing a good enough recovery in consumption," Cebeira said by phone from Mexico City. Liverpool’s lower-end store chain, Fabricas de Francia, gives it access to a wider spectrum of the middle class. "Truth is, this gives them an opening to a lot of people."

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