Walmart's Mexico margins narrow as costs outrun sales growth

what happened

Walmart's Mexico unit reported third-quarter results below analyst expectations as higher costs and spending on growth squeezed profitability, according to Reuters. Net profit dropped 6% to 11.03 billion pesos ($610 million), short of the 12.26 billion pesos that analysts polled by LSEG had forecast. Revenue reached 248.83 billion pesos, up 3% year on year but under the 250.44 billion pesos expected.

EBITDA rose only 0.4% to 25.37 billion pesos, and its margin contracted 30 basis points to 10.2%. General expenses climbed close to 6%, while sales expenses rose more than 6% on investments aimed at growth. Same-store sales in Mexico grew almost 2%, with average ticket up 1.6% and traffic roughly unchanged.

Online performance stood out, as gross merchandise value (GMV) jumped 15% in Mexico and 23% in Central America. Conversions were made at the end-September rate of 18.0808 pesos per dollar.

why it matters

For investors, the message is that growth in Mexico is running into cost pressure. With traffic roughly flat, the business is leaning on ticket growth and online sales to protect margins, so attention is likely to shift from sales volume to profitability.

market impact

WALMEX shares: profit below forecasts and thinner margins weigh on the stock

• ▼WALMEX shares pressure down — profit below forecasts and thinner margins pressure the stock

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