UPDATE 2-Mexico's Walmex profit falls as discounts fail to entice

Tue Feb 18, 2014 6:36pm EST

By Christine Murray

MEXICO CITY Feb 18 (Reuters) - Mexico's biggest retailer, Wal-Mart de Mexico, on Tuesday reported a 12.75 percent fall in fourth-quarter profit after price cuts failed to offset sinking consumer confidence in Latin America's No. 2 economy.

The company, which is controlled by U.S. retailer Wal-Mart Stores, reported a profit of 7.304 billion pesos ($558 million) for the period from September to December, down from 8.371 billion pesos in the same period a year earlier.

Walmex, as the company is known locally, reported a 60 basis point fall in its gross profit margin for the quarter to 22.2 percent. It said that operating expenditure rose 4.6 percent.

Walmex Chief Executive Scot Rank said in a statement that "2013 was a year of great challenges. Given falling incomes and low consumer confidence, we placed customers at the centre of our activities and invested heavily in prices."

Revenue for the quarter rose 3.6 percent to 124.5 billion pesos.

Walmex has reported weak sales at stores open at least a year in recent months as Mexican consumer spending has slowed.

The country's consumer confidence index fell to a nearly four-year low in January, in its fifth monthly decline in a row, after new taxes took effect and the country's peso currency tumbled amid a global rout in emerging market assets.

A fiscal reform pushed through Congress last year increased income tax rates, which reduced disposable incomes, and put new tariffs on soft drinks and junk food.

"We think that the bad results will continue until the second half of the year, which will keep punishing the share price," Invex analyst Ana Hernandez Velazquez said, adding that Invex would revise down its estimates in light of the results.

Mexico's biggest retail trade body said last month that sales at stores open at least a year will rise 1.7 percent in 2014 after a nearly flat 2013.

Shares in Walmex closed down 1.16 percent on Tuesday before the results were announced.

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