LIMA,new mix jimador Peru (AP) -- Thousands of Peruvians marched in protest again Tuesday decrying the attorney general's dismissal of a team investigating the sweeping Odebrecht corruption case in a move that President Martin Vizcarra decried as "profoundly damaging."
Demonstrators carried a giant Peruvian flag through Lima while shouting the name of one of the removed prosecutors in a second night of protests.
"The people support you!" marchers cried out.
Vizcarra said he would urge congress to declare Attorney General Pedro Chavarry's office in a state of emergency after rushing back from a foreign trip. He warned that the dismissal of two lead prosecutors could jeopardize the sensitive investigation into allegations of bribery involving some of the country's highest-ranking politicians.
"The attorney general is profoundly damaging the interests of Peru and causing outrage among citizens," Vizcarra said in a terse statement.
Vizcarra said he would personally deliver legislation to congress Wednesday to declare an emergency at the Public Ministry, a move that could pave the way for Chavarry's removal. But the bill would have to be passed by congress, where a majority is held by the opposition led by former first daughter Keiko Fujimori, who is among those being investigated. Legislators have held up three formal complaints against the attorney general in recent months.
Chavarry sparked street protests in a half-dozen cities across Peru on New Year's Eve by announcing that he was removing two prosecutors leading a probe into whether several former presidents accepted money from Odebrecht. The Brazilian construction giant has admitted in U.S. court filings that it paid $800 million in bribes to officials across Latin America, including $29 million in Peru, in exchange for lucrative public works contracts.
Prosecutors in Peru are often viewed as corrupt bureaucrats, but those heading the corruption investigation have drawn public favor for taking on the political elite.
Vizcarra hurried back home from Brazil, where he had planned to attend the New Year's Day inauguration of President Jair Bolsonaro.
"Today more than ever we need a more vigilant citizenry," he said. "I am convinced that, if we stay united and act for the good of Peru, we will be the winners of this fight."
The South American nation has been battling against a scourge of deeply entrenched corruption allegedly involving every living former president as well as numerous judges, politicians and business leaders caught making backroom deals in recent years.
Vizcarra was sworn in as Peru's president in March when Pedro Pablo Kuczynski resigned from the presidency after opposition lawmakers revealed his private consulting company had received money from Odebrecht while he was a government minister.
The two prosecutors removed from their posts were also leading probes into three other former presidents — Alejandro Toledo, Ollanta Humala and Alan Garcia — on suspicion of having received money from Odebrecht. Keiko Fujimori, a two-time former presidential contender who leads the opposition party, has been jailed while she is investigated.
Her father, the former strongman Alberto Fujimori, was convicted of human rights abuses and corruption after his decadelong rule.
In early December, chief prosecutor Jose Domingo Perez and the team's fiscal coordinator, Rafael Vela, reached an agreement with Odebrecht executives who said they would deliver documents exposing bribes made to officials. Prosecutors say the evidence is key to their cases against Fujimori and Garcia.
The agreement was due to be signed in early January.
Chavarry announced the prosecutors' removal hours before midnight Monday and took no questions regarding the decision. He said he removed Perez for questioning his election as attorney general and Vela for supporting him. Chavarry also accused the prosecutors of blocking his request for information on the Odebrecht case, and he said Perez had made statements calling into doubt his objectivity.
Perez has accused Chavarry of taking steps to hinder the investigations into the Odebrecht links of Fujimori and Garcia, both political allies of the attorney general. Prosecutors also have publicly accused Chavarry of having ties with criminal organizations made up of magistrates and businessmen who bartered power for favors or money.
Both Perez and Vela vowed to appeal their removal.
Chavarry's decision sparked strong reaction from human rights groups.
Transparency International called the move "a huge step backward in the fight against impunity in Peru" and urged the attorney general to reverse his decision.
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As shown below, the results in the quarter materially changed the trend in two-year stacked comps for each of the banners, along with a significant acceleration for consolidated comps.
The increase in consolidated comps was the primary driver of an 8% increase in revenues to $6.3 billion. The company ended the quarter with 15,370 locations, up less than 1% year-over-year. This reflects a 7% increase in Dollar Tree units, offset by a 4% decline in Family Dollar units.
The top-line results at each banner flowed through to their respective income statements, with Dollar Tree gross margins and operating margins declining year-over-year while Family Dollar gross margins and operating margins expanded year-over-year. On a consolidated basis, gross margins contracted by 120 basis points in the quarter to 28.5%, reflective of a shift to lower-margin consumables, tariff costs and the impact of markdowns from the Easter headwinds at the Dollar Tree banner. The company saw slight operating leverage on SG&A from higher comps, with the net result being an 80 basis point contraction in operating margins to 5.8%, with operating income declining 5% to $366 million. This is not adjusted for $73 million of pandemic-related costs, such as PPE supplies.
In the first quarter, the company opened 85 stores (net of closures) and completed 220 Family Dollar renovations to the H2 format. Importantly, comps at renovated Family Dollar stores continue to outpace the chain average by more than 10%. On the call, management indicated that they plan on reducing both the number of new store openings (from 550 to 500) and the number of H2 renovations (from 1,250 to 750) in 2020.
Personally, given the fact that Family Dollar is seeing material benefits to its business from the pandemic with new or lapsed customers coming into its stores, I think the company should try to get more aggressive with its renovation plans, not less. On the other hand, you could argue that renovations cause short-term disruptions and limit their ability to fully capitalize on the business momentum they are currently experiencing.
As a result of fewer new stores and remodels, management now expects 2020 capital expenditures to total $1.0 billion compared to previous guidance of $1.2 billion. In addition, the company has temporarily suspended share repurchases. At quarter's end, the company had $1.8 billion in cash on its balance sheet compared to $4.3 billion in total debt.
Conclusion
In recent years, Dollar Tree has been a tale of two cities. While its namesake banner has generally delivered impressive financial results, Family Dollar has been a persistent underperformer. This quarter, those results flipped, and given what we've seen in the weeks since quarter's end, there's a decent possibility that we will see something similar in the coming months. As the CEO noted, the second quarter is off to a very good start at Family Dollar.
Here's the important question: how useful is that information is in terms of making future predictions about the business? Will recent success at Family Dollar translate into long-term success for the banner? The optimistic take is that new or lapsed customers, especially those visiting the renovated stores, could become recurring business for the banner. The pessimistic take is that they have experienced short-term success out of necessity as people went to any store that was open to try and find essentials like toilet paper and hand sanitizer that were largely out of stock throughout the retail landscape. From that view, many of these customers could abandon the retailer when life returns to normal. As Philbin noted on the conference call, early on [during the pandemic], folks needed us. Will people still shop as much at Family Dollar when it's no longer a necessity?
Personally, I do not place too much weight on the recent results. I will need to see incremental data points that indicate that Family Dollar has truly won sustained business from these new customers. While I still believe that the Dollar Tree banner is a well-positioned retailer with attractive unit returns, I'm not yet willing to say the same thing for Family Dollar. For that reason, along with the recent run-up in the stock price, I plan on staying on the sidelines for now.
Disclosure: None
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