We maintained our Neutral rating on
Wal-Mart Stores, Inc.
(
WMT
) following appraisal of fourth quarter and full year 2012
results.
Walmart posted earnings of $1.44 per share in the fourth quarter
exceeding the prior-year earnings of $1.34 per share, driven by an
improved top-line growth. However, the results lagged the Zacks
Consensus Estimate by a penny. Revenues climbed 5.8% to $122.3
billion in the quarter, including the positive impact of
acquisitions of Netto in UK and Massmart in South Africa. It,
however, missed the Zacks Consensus Revenue Estimate of $123.6
billion. We are encouraged by the positive comparable sales of the
company for the quarter, which were driven by increased focus,
greater price leadership and improved merchandise offerings.
We are optimistic about the company's significant exposure to
the international markets. With retail operations in 26 countries,
the international segment of the company is now among the top 3
largest retailers in the world, due to accretive acquisitions, new
store growth and positive comparable store sales.
Walmart has also been focusing on expanding its online business,
where it holds the sixth position. It has already developed its
online businesses in US, UK, Canada and Brazil. Walmart has also
increased its controlling stake to 51% in Chinese Internet retailer
Yihaodian in order to further strengthen its online business.
Walmart has improved its access to Chinese consumers who
increasingly use smartphones and social media to shop. Walmart also
acquired the Vudu streaming video service in February 2010 and
technology company Kosmix in April 2011, demonstrating its
commitment to e-commerce and goal of offering customers a unique
shopping experience.
Although Walmart has a significant international presence, the
company has not been able to enter the lucrative Indian markets and
tap a large customer base of $1.2 billion. The proposal to allow
51% foreign direct investment (
FDI
) by multi-brand retailers like Walmart would have provided a good
option to enter Indian markets. However, it raised debates in India
and thus the Indian government has suspended the proposal for the
time being.
Additionally, Walmart remains exposed to unfavorable foreign
currency translations due to its considerable international
presence. With rising investments in markets outside US, Walmart
also faces economic and political risks. In addition, the company
operates in a highly competitive retail market. Walmart also needs
to be more competitive, as US shoppers seek for discounts on items
to cope with high unemployment. Moreover, we remain cautious of the
weak economy and the rising costs, which keep us on the
sidelines.
WAL-MART STORES (
WMT
): Free Stock Analysis Report
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