Business

Wal-Mart Mexico soars while parent company struggles in the U.S.

Same-store sales for Wal-Mart in the U.S. grew just 1.5 percent last quarter, and the company is still cutting costs.
Same-store sales for Wal-Mart in the U.S. grew just 1.5 percent last quarter, and the company is still cutting costs. The Associated Press

Wal-Mart Stores Inc.’s 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 percent from a year ago.

Improving results have sent the shares soaring 31 percent in 2015, bouncing back from a roughly 40 percent 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 percent 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 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 percent last quarter, and the company is still cutting costs. That includes the elimination of 450 workers at its headquarters earlier this month. Wal-Mart faces fierce competition from the likes of Amazon.com, 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, Mexico’s 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 percent year over year in August.

“The result is that people are seeing more money coming into their wallets,” Hermosillo said. “It’s a relevant complement to purchasing power.”

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