Walmart has been in the news in recent weeks because of two things: Walmart officials allegedly bribed Mexican officials to “fast track” permitting in order to build new stores in Mexico and secondly, Walmart appears to have covered up the investigation into the use of bribes.
Bribing foreign officials is a no-no for US companies, even if they are foreign subsidiaries operating essentially outside the US. The Foreign Corrupt Practices Act (FCPA) prevents this and the reasoning is that companies benefit by the protection of US laws, therefore, they must obey them even in foreign markets. I don’t have a problem with the law. It makes sense of course.
What “muddies the waters” in this situation is that apparently it is legal to use “facilitators” in Mexico and pay them to help facilitate the speedy permitting of new store construction. Crossing the line from facilitation to bribery I guess will be up to the investigators who will be looking into this matter.
The worse part is the apparent cover up by the Walmart company here in the US. It’s rumored that it could go pretty high. Eduardo Castro-Wright was the CEO of Walmex or Walmart de Mexico (the Mexican subsidiary) during the time when this bribery supposed took place. Interestingly, Castro-Wright became the CEO of Walmart US afterward and has since served as the Vice Chairman of Walmart. His rise through Walmart undoubtedly is because of the Mexican subsidiary’s outstanding performance. Critics will question how much of that growth in Mexico was a result of bribery?
Castro-Wright has resigned from the Metlife Board of Directors since the scandal broke. I won’t be surprised to see him step down in his current role at Walmart as well.
The controversial question here is for the shareholder of Walmart. Walmart has had outstanding performance in Mexico. It’s a major piece of the international picture of the company. Much of the growth happened under Castro-Wright. While nobody wants to defend bribery, it’s an interesting question since most shareholders probably view this as a financial net-positive regardless of the ethical questions.
Overall, this changes nothing in my long-term picture of the company. Walmart’s operations are sound. The result is likely some changing of personnel, maybe even some directors and a likely fine from the US government. The company will move forward just fine.
For most of you, the dividend is a primary focus as a Walmart investor. I am no different. We’ve been used to the annual increases in the dividend around this time of year, and they did not disappoint once again. While a 9% increase isn’t the same level of increase we’ve been seeing in recent years – I believe last year, the dividend was increased roughly 20% – it’s still a good move higher.
Remember, Walmart has also been repurchasing a ton of stock. Assuming that the stock has been undervalued, which I believed it has been, then the repurchase is an even more effective way to return value to shareholders than dividends. Over time as the shares increase in value, we will want to see the bulk of the cash returned to shareholders in the form of dividends vs share buybacks.
The $1.59 annual dividend or $.3975 quarterly dividend represents a 2.65% yield at a $60 share price.
Walmart stock has crossed a new high in this recent run, hitting levels not seen since late 2008. The stock is benefiting from two things, an overall nice rally in the stock market as well as good data in recent months from Walmart. The rally is bucking the slightly negative retail data that came out in the last few weeks regarding December retail sales (of which Walmart was not a part).
As a shareholder, it is fun to watch your shares go higher in value. Walmart investors have been waiting for a long time to buck the trend, but they still need to go higher to hit new highs. WMT really hasn’t crossed $63/share since over a decade ago when it approached $70/share in late 1999/early 2000.
If you’re skeptical that this run can continue in the short term, you might consider selling some calls on the stock which would return some extra cash to you. For example, you could sell the June 2012 calls with a $65 strike and pocket $60 per 100 shares you own. If the stock hits the $65 strike, you’ll be forced to sell your shares at that level. If it doesn’t hit that strike, you keep the shares and the cash premium.
South African retailer, Massmart, which is controlled by Walmart as of last year, posted some great sales numbers. Sales for the 26 weeks to December increased 15 percent to $3.9 billion. Massmart shares traded to their highest level since June 2000.
Just as impressive, same store sales increased 9.2% in the same period.
The South Africa market represents great opportunity and should be a major factor in long term international growth for Walmart.
Mexico continues to be a top performing international market for Walmart. Walmex (as it is known) has released great growth numbers for December and the 2011 calendar year. The numbers benefit from some of the investments made earlier in the year with regards to expansion.
In addition to the increase derived by additional retail stores, Walmex’s same store sales increased 4%.
The release says:
Retailer Wal-Mart De Mexico SAB (WALMEX.MX) logged another double-digit sales gain in December, leading to a strong performance for the fourth quarter and 2011 as a whole.
Latin America’s biggest retailer said its total sales rose 12.4% on the year last month, to 48.6 billion pesos ($3.6 biliion), bringing its fourth quarter sales to MXN115.5 billion for growth of 15.6%.
For the full year, Walmex’s sales expanded by 13.3% to MXN379 billion. The company front-loaded an ambitious expansion plan in 2011 that added 12.8% more sales space and 441 new stores, helping pad sales in the final quarter of the year. Walmex Chief Executive Scot Rank said in a statement that the retailer’s 2011 sales growth topped its 9.3% year-on-year pro-forma expansion in 2010.
Walmex is a unit of Arkansas-based Wal-Mart Stores Inc. (WMT). Investors were specifically looking for evidence that the retailer’s Mexican sales continued to gain in December, following a strong showing in November during Mexico’s first-ever nationwide Black Friday-style sales event. Sales at Walmex’s Mexican outlets grew 11.2% on the year in December to MXN42.2 billion, with sales at stores open more than one year, known as same-store sales, up 4%. The retailer’s average Mexican ticket sale in comparable stores was 2.7% higher in the month while the number of transactions increased 1.3% on the year.
The December performance bodes well considering that the retailer reported total sales up 21.7% from a year earlier in November, and comparable sales, which count only stores that have been open at least one year, up 12.6%. Some analysts warned that consumers may have shopped for the holidays ahead of time, given the discounts available in November, possibly crimping December figures.
Walmex’s troubled Central American outlets also turned in growth last year, with total sales up 6.1% and same-store sales up 2.2%, without taking into account foreign exchange fluctuations. The retailer said it invested MXN3.5 billion to buy back 103.2 million shares during 2011
Walmart Launches Green Sustainability Blog
January 9, 2012Furthering their push into the “green” space as well as the web 2.0 space, Walmart has launched WalmartGreenRoom.com which is their blog focused on being green as a company. Walmart spends a large amount of resources on charity and green areas. When it comes to investing, frankly, I prefer my company to focus on operating [...]