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Signum Research

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Joaquín Sánchez

Joaquin Sanchez, CFA

Signum Perspectives

WALMEX Day 2018

Walmex Day emphasized the company’s focus on achieving growth with greater productivity.

The company will seek to boost same-store sales through higher client traffic.

We believe Walmex will continue to be the best positioned retailer in the sector.

Wal-Mart de México, S.A.B. de C.V.


During Walmex Day, management announced the main points of the company’s strategy, its next- 12-month investment plan, and we got to see some of its stores.

Distribution and Logistics Center

We visited the distribution center located in Cuautitlán, which supplies 300 Superama, Walmart, Bodega and Medimart stores in five Mexican states.

Walmex has made progress in terms of distribution and logistics, which has boosted the gross margin in recent quarters. More specifically, progress has been made in terms of speed, efficiency and distribution.

E-commerce delivery time has been cut in half and delivery costs slashed by 70%. Investment in digitalization and technology translates into greater productivity.

These productivity gains have enabled Walmex to maintain a low cost structure, which is also reflected in low prices, the pillar of the company’s strategy, and continues to drive store traffic.

Walmex will continue to invest in logistics in order to differentiate itself from the competition and improve omnichannel distribution. They will continue to work with suppliers to achieve greater efficiencies and implement more technological advances.

So far, Walmex has invested US$1.3 bn in its logistics network, mainly in systems and new distribution centers or more capacity for existing ones.

So far, Walmex has invested US$1.3 bn in its logistics network, mainly in systems and new distribution centers or more capacity for existing ones.

Store visit

In line with the strategy to increase productivity, Walmex is seeking to reduce the number of employees involved in the production of certain areas.

For example, progress has been made with the introduction of frozen products for packaging, thus improving turnover and making areas that are the key drivers of client traffic more efficient.

The company’s main focus is driving growth through higher client traffic, which is the most profitable way to grow.

Departments like meat and the bakery, where such changes are being introduced, are experiencing double-digit growth rates.

A digitalization process that permits greater mobility and information standardization is underway. This is achieved through Apps that enable store information to be seen in real time and allow prompt decisions to be made.

Thus it is possible to have immediate knowledge of which merchandise should stay on the sales floor and which should go to the warehouse, a process that used to be very time consuming. At the same time, the company knows where the products are, which reduces the delivery time of on-line products.

Stores continue to offer e-commerce sales, which have a higher average ticket than store sales. Sales using this channel are made through a broad catalog.

Virtually all of the company’s stores offer Wifi, which increases store traffic while at the same time providing an email and permitting direct promotions.

The new Walmart Supercenter prototype was created to facilitate e-commerce sales and greater productivity.

Some productivity measures include the stores receiving ready-to-receive pallets, which lowers employee work time and enables them to focus on customer service instead.

The company seeks immediate replenishment and products with the highest turnover are placed at the top of shelves and lowered when there are shortages.

A module for on-line purchases has been installed with greater visibility aimed at encouraging e-commerce purchases.

The customer’s purchasing experience ends with payment and the new prototype incudes an auto scan area for merchandise payment.

There is now a convenience store outside Walmart where on-the-spot purchases can be made to satisfy new customers’ needs and cater to millenials.


Walmex’s main strategy focus is sustainable growth with higher profitability.

Same-store sales continue to drive total sales, but new store openings are also contributing more to sales growth, which was 2.2% at the end of 2017 with 125 new stores.

Same-store sales should contribute between 2.2 and 2.4% of sales growth in 2018. On-line sales continue to grow by more than 50% and in 2017 contributed 30 bp to total sales growth.

The sector is evolving and competition is increasingly fierce calling for more emphasis on customer needs. Walmex seeks to improve the purchasing experience through better prices and has reached a 90 bp price differentiation vs. the competition.

Omni-channel sales, a sector in which there is still room for physical stores, could make the difference. Walmex will seek to combine technology with commerce to offer faster purchase solutions.

Priorities include growing client traffic, which implies more profitable growth and the company aims to double its size by 2026.

2018 Capex is P$20. 9 bn, 20% more than in 2017, P$17.4 bn; however, it remains at 3% of sales compared to 2.7% the previous year.

30% of the Capex would be used for store refurbishing and maintaining existing ones; 29% would be used for new stores, 28% for logistics, 10% for technology and ecommerce and 3% for improving the perishables area.

A dividend of P$1.65 per share has been proposed for 2018, which corresponds to an ordinary dividend of P$0.76 and an extraordinary dividend of P$0.89 per share. The dividend yield is 3.5% vs. the last price.

P$5 bn is contemplated for the share buyback program.

Final remarks

Walmex continues to outperform the competition in terms of growth. The first two months of the year displayed strong growth with an increase in client traffic not seen in five years.

This growth can be traced to the company’s strategy, which focuses on driving client traffic, developing omni-channel sales and achieving greater productivity.

We believe that Walmex will continue to outperform its sector peers and take advantage of ongoing solid consumption in an election year when spending is generally higher.

After factoring these expectations into our projections, we obtain a 2018 target price of P$48 per share and our rating is BUY.

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