Wal-Mart de Mexico's (NASDAQOTH:WMMVF) shares fell more than 6% in the past two weeks, following an announcement that the Latin American retailer's fourth-quarter profits were down almost 13%. According to the company, the loss in profit was due to a decrease in consumer confidence and a change in accounting standards used to report leasing expenses. The company's shares have declined more than 18% so far in 2014.

The falling stock price reflects more widespread troubles in the Mexican economy. The Mexican Stock Exchange, which many analysts were optimistic about in 2013 due to increasing stability and a rising middle class in Mexico, has been in decline so far in 2014 as it has fallen more than 19%. This drop, as well as the recent depreciation of the Mexican peso, has been attributed to reports of low consumer confidence in Mexico. The Mexican government reported in January 2014 that consumer confidence reached an almost four-year low of 84.46, from an average of 96.59 from 2001 to 2014. 

Walmex Announces Dividends and Buybacks  

Walmex's Chief Financial Officer Rafael Matute announced last Monday that the company would pay shareholder dividends and repurchase shares worth MXN22 billion ($1.66 billion) in 2014. The company plans to pay dividends of MXN1.38 ($0.104) per share in 2014. This shareholder payout is significantly higher than the company has offered in the past.

The announcement could signal that the company believes its long-term financial prospects are sound, or that it is hoping to stall a further decline in its share price (through a share buyback). The announcement failed to buoy the slumping share price last week, as share prices continued to fall following the announcement.  

Mr. Matute also said that the company would spend MXN15 billion ($1.13 billion) in capital expenditures in 2014, half of which would be spent on opening new stores. The company also plans to invest in e-commerce.

Competitors Could Join Forces, Again 

Walmex's main competitors are Mexican national supermarket chains, including Controladora Comercial Mexicana, Organizacion Soriana, Chedraui and Casa Ley. While Walmex is by far the largest of these retailers, the Chief Executive of Soriana announced last week that the company is considering the acquisition of Controladora Comercial Mexicana. This possible acquisition of Mexico's fourth-largest supermarket chain by its second-largest would certainly challenge Walmex's market dominance.

Analysts are still skeptical that an acquisition will happen because the two companies have similar market capitalization, and such a deal could be contested by Mexican antitrust regulators. However, Soriana gained approval to acquire Grupo Gigante in 2008 which was at the time among the largest supermarket chains in Mexico. 

According to analysts at Santander, the acquisition of Gigante by Soriana expanded the number of distribution centers and routes available to Soriana, increasing its productivity and decreasing transportation costs. 

Long-Term Outlook for Walmex 

Walmex's share price is unlikely to rise significantly in the near-term, as the Mexican economy and retail sales are getting off to a slower start than expected in 2014. However, analysts also predict that the devalued peso could spur manufacturing growth, and government spending could contribute to increased growth in Mexico in the long-term. 

Walmex has been able to capitalize on its dominant market share in Mexico in the past, but local Mexican competitors will likely become a greater threat in the future. In particular, Soriana seems poised to become a formidable competitor to Walmex in the Mexican retail and supermarket sector. While Soriana is still far behind Walmex in terms of operating scale and efficiency, and access to capital, its acquisitions and recent strategic initiatives, including the "Plan de Transformacion" launched in 2010 are expected to increase profitability in the long-term.  Furthermore, the company does not face the same legal troubles that Walmex does with a recent corruption and bribery scandal and lawsuit.

For these reasons, in the long-term investors should be cautious about Walmex as some of the competitive advantage it has enjoyed in the past may be eroding. 

Jillian Blake has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.