Wal-Mart Mexico sheds its urban clothing chain for $852 million

by Kim Souza ([email protected]) 151 views 

Wal-Mart’s international division continues to streamline operations with its latest move to sell its Suburbia clothing chain owned by its Mexican business unit in a deal reportedly valued at $852 million.

The deal sheds Wal-Mart of 119 store locations and the associated debt. The retail giant sold the business to El Puerto De Liverpool, which already runs more than 100 retail outlets in Mexico.

Walmart International CEO Dave Cheesewright told the media in June that the company would look for opportunities to sell assets that don’t fit the new streamlined retail focus, which in most places is centered on grocery. In June, he said the first round of bids on the Suburbia business were underway.

“Any business that is either not performing or we don’t see a way of turning it around and we don’t believe it’s core to our operations we will look for ways to dispose of it,” Cheesewright said.

Since 2013 Wal-Mart sold its Vips restaurant chain for $626 million and last year Wal-Mart parted ways with its banking unit garnering about $247 million for those assets. Walmart also sold a shopping center chain in Chile and joint real estate venture in Canada.

He said Mexico’s business unit is profitable and running high comps under the executive direction of Enrique Ostale who took over the Latin America leadership about 18 months ago. In the first quarter of this year Mexico delivered 9% comp sales and solid performance behind momentum in its effort to double the business of Walmex, which includes Mexico and Central America over the next five years. Cheesewright said growth will come from expanding the bodega grocery formats, adding a few supercenters and larger grocery formats in places like Nicaragua and Guatemala with a much of the expansion taking place in Mexico.

He said a major reason why Walmart operates abroad is to take advantage of growth opportunities. In the 28 countries where Walmart operates, Cheesewright said the retailer has access to about 60% of the all the global growth that will occur in the next 10 years. He said a lion’s share of growth (80%) is global.

“It’s very simple logic that if International can’t grow over the U.S. that makes it very hard for our total corporation to grow against global competitors. As a business whose goal is to sell for less, if you are not growing life is pretty tough,” he said. “We are very proud that for nine quarters now Walmart International has seen increased comp sales growth.”

He said when Mexico and Canada’s markets are performing well his job gets easier because those two countries make up the bulk of the nearly $480 billion annual sales.

Cheesewright said the international division is big and diverse in part because through acquisition the retail giant picked up smaller sideline businesses that were also owned by the parent company. Walmex reports that Suburbia is a profitable apparel business that stretches across 46 urban areas. Walmart International has owned Suburbia since 1997 with it acquired the supermarket chain Cifra, which was also the parent of Suburbia.

Analysts do not expect this sell of Suburbia to have a material impact on earnings. Shares of Wal-Mart Stores (NYSE: WMT) closed Tuesday (Aug. 16) at $72.89, down 43 cents. Wal-Mart will report its fiscal second quarter earnings before the market opens on Thursday (Aug. 18).

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