Walmex, controlled by Bentonville, Arkansas-based Wal-Mart Stores Inc., reported net income of 3.5 billion pesos (US$332.7 million), or 82 centavos a share, in the quarter compared with an inflation-adjusted 3.6 billion pesos, or 82 centavos a share, a year ago, the company said in an e-mailed statement.

Same-store sales are powering revenue growth for Walmex as Chief Executive Eduardo Solorzano´s strategy of opening units in smaller markets pays off, said Manuel Zapata, an analyst with Citigroup´s Banamex unit in Mexico City. Sales rose 15 percent to 50 billion pesos in the quarter, the company said. Stores open more than a year boosted sales 6.5 percent, the second-fastest quarterly growth.

"The company is growing at a strong but manageable rate that allows it to improve profit margins," Gonzálo Pangaro, who manages about US$1.5 billion, including Walmex shares, for T. Rowe Price International in London, said before the earnings release. "I think that what Walmex is doing is very wise."

In the full year, same-store sales grew a record 5.9 percent, the company said.

The added volume increased profit from every 100 pesos of sales by 44 centavos from a year earlier, Morgan Stanley analyst Lore Serra wrote in a Feb. 5 report.

Solorzano has made a priority of opening new stores in rural areas since he took over the company in February 2005, the same month Walmex said it would open a single-year record of 70 stores. Solorzano later bolstered the plan to open 90 stores, ending the year with 93 new outlets.

In the fourth quarter of 2004, net income rose more than analysts expected - the second-biggest jump in earnings in five years - after cuts in corporate income tax rates created a 640 million-peso credit.

BOOM IN STORES

Walmex now operates 784 stores in Mexico, up from 331 in 1994, according to the company´s Web site.

The quickening pace of expansion means more stores each quarter contribute to same-store sales, Zapata, who has covered the company for four years, wrote in a Jan. 24 report. The new rural stores are in areas with less competition, further improving Walmex´s profit margins, he said. Walmex opened 46 new stores in 2003, 58 in 2004 and 93 in 2005.

Same-store sales growth probably improved the company´s ratio of expenses to sales to 12.7 percent from 13 percent a year earlier, said Zapata, who maintained his "buy" rating on the shares.

J.P. Morgan Securities analyst Andrea Teixeira also maintained an "overweight" rating on the shares in a Jan. 9 report after the company said December same-store sales grew 5 percent, beating her 3.6 percent estimate.

Sales by existing stores are growing faster than the economy, signaling Walmex is taking market share from other retailers, she wrote.

The nation´s gross domestic product grew about 3 percent in 2005, according to government estimates.

Same-store sales at Organizacion Soriana SA, the nation´s second-largest retailer, probably fell 1 percent in the fourth quarter, according to Serra. Sales at Controladora Comercial Mexicana SA, Mexico´s third-largest retailer, probably slipped 3 percent, wrote Deutsche Bank analyst Joaquin Lopez-Doriga Jan. 10.

Walmex was the fifth best performer on the Bolsa index last year, rising 54 percent compared with the index´s 40.6 percent gain. The stock rose 1.28 pesos, or 2.1 percent, to 61.10 pesos today in Mexico City trading.

The stock´s price prompted UBS head Latin America strategist Damian Fraser to recommend cutting Walmex holdings in a Jan. 20 report.

Fund managers such as William Fries, who helps manage about US$20 billion for Thornburg Investment Management Inc. in Santa Fe, New Mexico, said the company´s growth potential justifies the price.

"It´s pretty compelling to look at Mexico and expect that we are going to see the same kind of structural advantage Wal- Mart has in the U.S. play out there," he said in a telephone interview this week. "It´s a just a very efficiently run business."