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Retail

Wal-Mart Mexico Soars While Parent Company Struggles in the U.S.

Wal-Mart Stores’ U.S. chain is still mired in a sales slump, but the retailer’s Mexican business is a star south of the border.

Wal-Mart de Mexico SAB, Latin America’s largest retail chain and a separately traded stock, reported better-than- expected sales for September, with same-store sales rising 7 per cent from a year ago. Improving results have sent the shares soaring 31 per cent in 2015, bouncing back from a roughly 40 per cent tumble that began after a 2012 scandal in which the company was accused of bribing Mexican officials to speed up store openings. Its parent company’s stock, meanwhile, is down 22 per cent this year.

The Mexican chain, known as Walmex, has refocused on its stores after selling restaurants and a bank. That’s helped fuel the recovery, according to Carlos Hermosillo, an equity analyst at Mexico City-based Actinver. A rebound in domestic spending is a providing a tailwind as well, helped by job gains and the lowest inflation rate in almost 50 years.

"Walmex revamped its strategy and set new goals," Giselle Mojica, an analyst at Monex Casa de Bolsa, said in a phone interview. "The combo has benefited the company, and this has been reflected in its results all year long."

Its American counterpart also is working on a comeback, but the effort hasn’t shown much of a payoff. Same-store sales grew just 1.5 per cent last quarter, and the company is still cutting costs. That includes the elimination of 450 workers at headquarters earlier this month. Wal-Mart faces fierce competition from the likes of Amazon.com Inc., and its U.S. stores have struggled to keep inventory stocked in recent years. Earnings fell short of analysts’ estimates last quarter, and the company trimmed its forecast for the year.

At Walmex, the economy has a lot to do with the retailer’s recovery. Unemployment has been steadily improving, while consumer confidence has recovered from a drop last year. The peso’s 18 percent decline versus the U.S. dollar in the past year magnified the local value of remittances -- money sent home by workers outside the country. They grew 45 per cent year over year in August.

This year, Walmex has seen sales increasing equally in all formats, Antonio Ocaranza, a spokesman, said in a phone interview.

"We’re seeing a very consistent demand in all regions and products,” he said. “The numbers reflect the solidity of our value proposition.”

Walmex has simplified its operations over the past two years. In May 2014, the company sold its Vips restaurant chain to Alsea SAB for 8.2 billion pesos ($633 million), and it announced in December that Carlos Slim’s Grupo Financiero Inbursa would buy its banking unit for 3.5 billion pesos. The bank sale made a big difference, according to Hermosillo.

“The company was distracted,” he said. “The sale redirected its focus to their core business, which is being a pure retailer.”

Bloomberg News, edited by ESM

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