Wal-Mart Stores Inc.’s Mexican division, Wal-Mart de Mexico, has said it expects to sink $1.1 billion into increasing floor space and to enriching technology for ecommerce in Latin America this year. The announcement was made late Monday during the company’s annual analysts’ meeting in Mexico City.
The world’s largest retailer is hoping the expansion will offset slow sales growth in the United States. Same-store sales at Wal-Mart’s domestic stores open at least a year - excluding fuel - fell 0.4 percent in the fourth quarter of fiscal 2014.
An estimated $635 million will be invested in new Walmex stores, according to a release from the company. Space on sales floors in Mexico will be increased by 5 percent; floor space in Central American units is expected to grow by 7.6 percent. About $449 million will be divided between remodeling and maintenance of existing stores, logistics and technology/e-commerce and other costs.
Analysts have said that multichanneling, the act of employing several communications channels to reach consumers, represents a large customer and market share opportunity for Wal-Mart.
As of Dec. 31, Wal-Mart operated 2,498 stores under the Wal-Mart name and other brands in the Walmex territory, including 152 Sam’s Clubs and 262 Vips restaurants, which Walmex is now selling, said Wal-Mart spokesman Randy Hargrove. Vips was acquired by the Mexican restaurant company Alsea in September for about $626 million.
While reporting earnings for its fourth quarter and fiscal 2014 on Thursday, Wal-Mart Stores Inc., the parent, scaled back its outlook for fiscal 2015, which began Feb. 1.
Officials have predicted that first-quarter 2015 earnings per share from continuing operations will be between $1.10 and $1.20, compared with $1.14 reported for the first quarter of fiscal 2014. Earnings per share for all of fiscal 2015 are expected to fall into the range of $5.10 to $5.45. Earnings per share for fiscal 2014 were $4.85.
Lower food-stamp subsidies, higher taxes and struggles to keep shelves fully stocked have weighed on salesat home. During Wal-Mart’s release on earnings and the 2015 outlook, new Wal-Mart President and Chief Executive Officer Doug McMillon announced that the company is building as many as 300 smaller stores - Wal-Mart Express and Neighborhood Markets - in the current fiscal year.
McMillon was head of Wal-Mart International until he was named the company’s president and chief executive in the fall. David Cheesewright, who took over for McMillon, said in Mexico that consumers around the worldare stressed, with “significant slowdowns” in numerous markets, including the faster growing developing countries, Bloomberg reported Tuesday.
Wal-Mart de Mexico Chief Executive Scot Rank outlined the key priorities, citing as No. 1 the need to improve comparable sales at stores open at least one year, said Hargrove, who attended the analysts’ meeting.
“That’s leading the priorities,” he said. “Reinforcing fundamentals and reaffirming price leadership position in the market are also important, as is driving sales through digital channels.
“Winning at the intersection of physical and digital is increasingly important for the business in Mexico. The company will continue to grow through new store openings, especially in the small-store format that targets low-income customers in urban areas,” Hargrove added.
The company can glean opportunity to gain market share from the informal retail segment. Street vendors account for about 45 percent of retail sales in Mexico, according to statistics provided to the company by the Mexican government.
“Additionally, a focus is on improving the quality and price gap versus competitors for fresh products, which drive customers into stores,” Hargrove added.
The cost of doing business in Mexico has at times been expensive for Wal-Mart.
Wal-Mart disclosed in late 2011 that it was under investigation by the U.S. Justice Department and the Securities and Exchange Commission over allegations of violating the Foreign Corrupt Practices Act, a law that bars bribery of foreign officials for business purposes. The company has said it’s cooperating with U.S. investigators, as well as with Mexican authorities conducting their own probe.
On last week’s earnings call, company officials said they anticipate expenses for compliance enhancements and issues relating to the investigation to “range between $200 [million] and $240 million” in fiscal 2015. Wal-Mart said that in the fourth quarter of fiscal 2014 it spent $58 million on compliance and expenses related to the law and hit a total of $282 million for the year.
Business, Pages 25 on 02/26/2014