Comercial Mexicana to Reboot Expansion Plans after Costco Sale
06/14/2012| 12:21pm US/Eastern
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--Comerci to set new expansion targets following Costco deal
--Costco to pay $760.4 million for stake in Mexican business
--Comerci will apply Costco deal's proceeds to debt payments
--Previously, Comerci had targeted 13 store openings in 2012
By Amy Guthrie
MEXICO CITY--Mexican retailer Controladora Comercial Mexicana SAB (COMERCI.MX) said Thursday it will set new goals for expansion following the sale of its stake in Costco Wholesale Corp.'s (COST) Mexican franchise.
The targets will reflect Comerci's "new financial capabilities" given that the retailer expects to receive $760.4 million in cash for its 50% stake in Costco de Mexico, as well as a $170.5 million dividend from Costco de Mexico. Last year, Comerci officials said they planned to invest MXN1.8 billion ($129 million) during 2012 to open 13 new stores.
Comerci, which operates Mexico's third-largest supermarket chain, plans to use the proceeds from the Costco sale and dividend to prepay debt, reducing its total consolidated debt load to under MXN5 billion. In addition, Comerci hopes to refinance about MXN3.4 billion in obligations to achieve better conditions on that debt.
Comerci held back on new store openings for several years so as to chip away at its debt burden following a $1.54 billion debt restructuring in 2010. The restructuring was necessary because Comerci had logged heavy losses on foreign exchange derivatives during the 2008 global financial crisis.
Favorable consumer trends, such as strong demand and more abundant credit, have benefited Mexican retailers in recent months. For the first five months of 2012, companies affiliated with Mexican retail association Antad reported total accumulated sales of MXN409 billion for annual growth of 11.3% versus the same period of 2011.
Meanwhile, the competitive environment for grocery sales has intensified with retailers offering sharp discounts on perishable goods.
Comerci said Thursday it expects to maintain a cordial business relationship with Costco, which will continue to be a "preferred supplier" of goods for Comerci outlets. The two retailers also plan to develop additional real estate ventures together, and to preserve their shared presence in a number of Mexican strip malls.
Comerci owns rather than leases the majority of its stores.
Comercial Mexicana shares were up 11% to MXN26.84 in recent trade on the Mexican Stock Exchange, off an early-session high of MXN28.22. The shares burst out of the gate at the session's open, as the Costco deal was announced Thursday before trading hours.
Write to Amy Guthrie at amy.guthrie@dowjones.com
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