Why a Weaker Peso Is Driving Bigger Sales at Wal-Mart de Mexico

  • October same-store sales beat Credit Suisse estimates
  • Company will benefit from a rebound in the economy: CEO Ostale

Wal-Mart de Mexico SAB is benefiting from a weaker peso, as dollars coming into Mexico create greater purchasing power for consumers and bigger sales for the country’s largest retailer.

Walmex, Wal-Mart Stores Inc.’s Mexican unit, said sales in stores open at least a year jumped 11 percent in October from a year earlier, well above a 6 percent projection by Credit Suisse Group AG. Consumers are coming into the stores more often, as the peso’s 18 percent decline versus the U.S. dollar in the past year increases the local value of remittances, or money sent home by workers outside the country, which grew 27 percent this year through September.

On top of its sprawling “Supercenters,” the retailer also operates smaller stores in locations far from urban areas, where people who receive remittances are likely to spend it, Carlos Hermosillo, an equity analyst at Mexico City-based Actinver, said in a phone interview.

“For the middle and lower classes in Mexico, bigger remittances in dollar terms are a big contribution to purchasing power,” Hermosillo said. “Out of all retailers and grocery-store operators, the most exposed to this kind of niche is Wal-Mart.”

The increased spending is also a reflection of a recovering economy. In October, Mexico’s consumer confidence index rose to a three-month high, according to the national statistics agency. Retail sales climbed to 9.8 percent that month from a year earlier, the highest level since 2011.

Walmex shares reached their highest closing level ever-- 46.92 pesos -- last week. Chief Executive Officer Enrique Ostale told investors on a conference call last month that the company is positioned to benefit from a rebound in the economy after net income rose by about 22 percent last quarter, exceeding analysts’ estimates. The retailer has simplified operations and refocused on its stores after selling the Vips restaurant chain and announcing the sale of its banking unit last year.

Antonio Ocaranza, a Walmex spokesman, didn’t have an immediate response to a request for comment.

“The relationship between the currency exchange and the average ticket seems to be narrowing,” Vector Casa de Bolsa SA analyst Gaspar Quijano said in a note this month. “With few exceptions, Mexico keeps showing consumer strength that could well extend toward the end of the year.”

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