I've mentioned a few times that I think Wal-Mart (NYSE:WMT) is an attractively valued retailer. But it's just as interesting to consider Wal-Mart's subsidiary, Walmartde Mexico (OTC BB: WMMVY), also known as Walmex.
The third-quarter results Walmex reported yesterday were once again impressive. Revenue climbed 16.8%, operating income increased 27%, and earnings per share rose 33%. Same-store sales growth for the quarter was also impressive, at 5.3%. That kind of performance is phenomenal, especially after taking into account the effects of inflation -- always something to consider with Mexican companies.
This quarter's growth comes atop last year's similarly strong performance. In the company's fiscal 2005 third quarter, sales increased 14%, operating income rose 24%, and net income jumped 17%.
Of the 857 stores Walmex operates in Mexico, 547 operate under one of the company's five retail brands: Sam's, Wal-Mart, Suburbia, Bodega Aurrera, and Superama. The other 310 stores are restaurants that operate under the Vips name. Already the largest retailer in Mexico, Walmex is expanding quickly throughout the country; it's added 74 stores since the beginning of the year, in addition to the 95 stores added last year.
Like its U.S. parent, Walmex maintains a strong balance sheet. In fact, with Walmex currently free of long-term debt, its balance sheet is more conservative. Given the growth of the company and its strong operating cash flows, I'd prefer to see some debt on the balance sheet, but there's nothing much to complain about here.
Also like its U.S. parent, Walmex purchases most of its land and buildings. (Costco (NASDAQ:COST) also owns a large number of its stores and the land the stores sit on.) Assuming that 70% of the capital expenditures at Walmex are for new stores and land, I find the company to be close to fairly valued, given that it should be able to grow same-store sales at 4% a year or more. However, if the portion of capital expenditures allotted toward growth is greater than 70% -- and I suspect it is -- Walmex begins to look somewhat attractive.
Wal-Mart is a Motley Fool Inside Value selection, while Costco is a Motley Fool Stock Advisor selection. Try either newsletter free for 30 days.
At the time of publication, Nathan Parmelee owned shares of Costco, but had no financial interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.
