(WMT) Wal-Mart Stores Reopens Stores in China

Retail giant Wal-Mart Stores Inc. (WMT) has reopened 13 stores in southwest China, which were ordered to shut down two weeks before by the municipal government of China.

The municipal government of Chongqing in southwestern China had accused Wal-Mart of selling substandard food and thus fined the company with $420,000 and ordered to close 13 Wal-Mart stores for 15 days.

In addition, 37 Wal-Mart employees were detained in Chongqing over mislabeling ordinary pork as organic.

In response to it, Wal-Mart used the two-week closure to provide 30,000 hours of training to its employees to comply with Chongqing’s laws and regulations. The company has created food inspection labs at Chongqing stores to improve food management. Besides, Wal-Mart increased efforts to improve operations and reviewed its management procedures across China.

According to many analysts, large retailers in China have been penalized before, for mislabeling food products, particularly for selling expired items. Since 2006, Wal-Mart has been fined 21 times in Chongqing for deceptive advertising or for selling expired food. Also, in January, 2011, Wal-Mart and Carrefour were fined for charging extra on promotional items.

It is believed that selling dairy products and juice after expiration dates evoked food safety issues, which made the Chinese government stricter in maintaining their standards of quality control, labor rights and other industrial issues for foreign companies than for Chinese-owned companies.

The resignation of Wal-Mart’s chief financial officer (CEO) and chief operating officer (COO) in China in May, worsened the situation for Wal-Mart.

Earlier, on August 16 this year, Wal-Mart reported better-than-expected first-quarter 2012 results. The quarterly earnings of 98 cents a share rose 12.6% over the prior-year earnings of 87 cents a share as well as surpassed the Zacks Consensus Estimate of $1.08.

Further, Wal-Mart faces stiff competition from Target Corp. (TGT) and Costco Wholesale Corporation (COST), and has a Zacks #3 Rank, indicating a short-term Hold recommendation.

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