Walmart Stores Inc. lost sales from a Chilean strike in July, is facing slowing revenues in recessionary Mexico and exited its troubled Brazilian franchise last year. But the retailer is putting a brave face on its business in Latin America, where it has no plans to dwindle its footprint and is, in fact, expanding.
“We have not said anything about Latin America slowing down or any plans to exit the market,” a Walmart insider told WWD. The company’s sale of an 80 percent stake in Walmart Brazil to Advent International in 2018 was a onetime event stemming from the nation’s deep recession — not the beginning of a gradual departure from the market, as some suggested.
“We exited Brazil as part of a thoughtful business decision and we still have 20 percent,” added the insider, who requested anonymity. “There are divestitures and joint ventures and acquisitions that happen all the time and it’s part of business. That doesn’t mean that we are exiting Latin America.”
Walmart decided to leave Brazil after the country’s five-year economic crisis began to bite, forcing retailers to shutter or curtail their operations to stem losses.
More than 100 of its stores are being re-branded as Big and Big Bompreco (Big Goodprice] as part of Advent’s effort to shore up the business, which will now be called Grupo Big.
Meanwhile, the official noted it’s “business as usual in Chile,” where Walmart continues to expand after cementing its lead in the hypermarket space, where it is number one, followed by Cencosud’s Jumbo.
The executive would not comment on trade union claims that the six-day strike cost millions as 17,000 workers staged what was billed as the largest private sector protest in history to demand higher salaries and better conditions.
Walmart operates nearly 400 stores in Chile under the Lider, Hiper Lider, Express de Lider, Ekono, Acuenta and Central Mayorista.
Union officials claimed 130 of those stores remain shuttered as workers abandoned their posts, while 100 were open intermittently.
“They lost around $6 million,” claimed Juan Moreno, director of Walmart Chile’s main union SIL. As part of a deal reached July 15, workers got a maximum raise of 5.2 percent plus an additional 3.5 percent after obtaining multi-tasking training enabling them to use a new mobile system streamlining sales and tracking inventory.
“The total increase is for up to 8.6 percent annually for 24 months,” Moreno revealed. “Before the strike, they did not want to pay more for multi-tasking.”
While the Chilean business, where Walmart intends to open 20 to 25 stores this year (though Moreno said the strike could delay that), swings back to normal, Walmart has been encountering headwinds in Mexico and must now fend off a financial meltdown in Argentina.
Mexico is flirting with recession after new leftist President Andrés Manuel Lopez Obrador’s controversial policies are taking longer-than-expected to work, denting investor and consumer confidence.
In this environment, analysts expect Walmart’s sales growth in the country to shrink.
Mexican broker Actinver, which recently downgraded shares of WalMex (as the Mexican and Central American division is known) to 50 pesos from 58 pesos, expects same-stores sales to slow to a gain of 3.8 percent in 2019 and the consolidated top line to grow 4.4 percent. But that compares with 5.8 percent and 7.6 percent in 2018, respectively.
However, when compared to this year’s 4.3 percent consolidated revenue forecast for peers, Walmart is still outpacing rivals such as Chedraui or La Comer.
“We are expecting slower retail sales because of a lack of dynamism in the economy,” said Valentin Mendoza, analyst at Banorte broker. “But Walmex’s sheer size, low-price strategy and strong supplier relationships” mean it is in better shape than rivals to weather a worsening outlook in Mexico.
Walmex has also improved its act in Mexico, where profit margins hover at 10 percent of earnings before interest, taxes, depreciation and amortization and are seen rising at high-single digits this year. It also has a good balance sheet, where debt to EBITDA stands at 0.6 percent versus 1.4 percent percent on average for peers.
“If you look at Mexico, it contributes a lot to Walmart Stores in the U.S. and with 10 percent margins, it is helping improve the bottom line,” Mendoza said, adding that even in a prolonged recession, Walmex is unlikely to sell out of Mexico.
Jeronimo Cobian of Actinver added: “The business has good fundamentals and they are doing things very well. Their low-price strategy leaves us calm. We don’t see it as a super outperformer, but we don’t think they will sell Mexico.”