MEXICO CITY – Walmart’s Mexico and Central America unit, known as Walmex (WALMEX.MX) saw some $3.7 billion wiped from its market value on Thursday after the retailer posted weaker-than-expected margins for its second quarter, although revenues grew.

The stock tumbled 7.4% on Thursday, its steepest daily decline since 2020, decreasing Walmex’s market capitalization by 68.6 billion Mexican pesos ($3.7 billion).

Mexico’s largest retailer, which operates Walmart, Sam’s Club and Bodega Aurrera stores across six countries, on Wednesday posted a 10% drop in net profit, although sales were up 8%, as Walmex spent more than analysts expected.

Net profit was 11.2 billion pesos ($598 million) in the quarter, below analysts’ expectation of close to 13 billion pesos, while the core earnings margin hit 9.5%, the lowest level for that quarter since 2020.

“The company faces a very important challenge: regaining profitability,” analysts at financial group Banorte said.

Actinver analyst Antonio Hernandez said in a note to clients that the margin pressure came from investments in tech, e-commerce, store openings and labor expenses.

“The benefits of these investments will continue to translate into stronger growth and accelerated market share gains,” Chief Financial Officer Paulo Garcia said in a call with analysts on Thursday.

“We’re prioritizing investments with the highest returns and dropping those with lower returns,” he added.

Walmex has made a push in recent years to consolidate its market share, particularly in online sales.

CEO Ignacio Caride, who in a pre-recorded webcast on Wednesday said he was unhappy with the results, said he believed the group’s overall strategy was on track and reiterated the company’s guidance and share buyback plans.

Caride took the job last year after more than a decade at e-commerce powerhouse MercadoLibre (MELI.O).

Executives noted that Walmex would continue to expand its store footprint, with 4,124 stores currently and 25 new openings over the quarter, and push on with a remodeling campaign for a wave of stores that opened more than a decade ago.

Executives said on the call that unusually torrential rains in June in Mexico City – its wettest June in over 20 years – had “a big impact” on food and drinks sales. Built on a lake, Mexico City is prone to floods in and around its metropolitan area.

($1 = 18.7500 Mexican pesos)

News Credits- Reuters