Wal-Mart Shuffles Management in Mexico Amid Bribery Charges - Analyst Blog

Wal-Mart Stores Inc. (WMT) has remained under media scrutiny due to food scandals, labor disputes, regulatory violations and bribery allegations.

The world's largest retailer has reportedly spent more than $400 million in the past two years in government investigations related to bribery charges, making it one of the most expensive probes in U.S. history. Such huge expenses significantly impact the company's margins. Moreover, the allegations severely hurt investor confidence.

Most recently, Wal-Mart de Mexico, Mexico's biggest retailer and a subsidiary of Wal-Mart, reportedly named its new chief executive officer (CEO) for the region, in hopes that he will strengthen the business in the region which has been facing a slowdown since bribery allegations surfaced in Nov 2011.

In Nov 2011, Wal-Mart was charged for violations in Mexico by the U.S. Justice Department and Securities and Exchange Commission. The New York Times reported in 2012 that the retailer paid $24 million in alleged bribes in Mexico to open stores faster. The probe then expanded to other countries, including China, India and Brazil.

Wal-Mart stated that Enrique Ostale, the Walmex Chairman and Latin America chief executive officer will also hold the new position of CEO of Wal-Mart de Mexico. Ostale will succeed Scot Rank who stepped down in Oct 2014 after serving for 14 years on the Wal-Mart de Mexico board. Ostale will take over the position from Jan 1 and will continue to lead Wal-Mart's operations in Latin America.

Of late, the company is not performing well either in the U.S. or in the international regions owing to a difficult economic environment, declining comp sales, currency headwinds and changing consumer behavior. In the recently reported third quarter of fiscal 2015, despite an improvement in U.S comps and international operations, the company narrowed its guidance for fiscal 2015 as it expects to invest more in the e-commerce business and in Sam's Club.

The company also expects higher U.S. health care costs and tax rates to hurt profits in fiscal 2015. Not only this, but currency headwinds, cuts in food stamps and the sluggish economic environment are likely to hurt the top line in the upcoming quarters.

Wal-Mart holds a Zacks Rank #3 (Hold).

Some better-ranked stocks in the retail sector include Ingles Market, Inc. (IMKTA), Safeway, Inc (SWY) and The Kroger Co. (KR). While Ingles Market and Safeway sport a Zacks Rank #1 (Strong Buy), Kroger holds a Zacks Rank #2 (Buy). 

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