) reports its Q4 fiscal 2013 earnings on February 21, and we expect
its international segment to be the key growth driver as the U.S.
growth has remained relatively stable. Revenues from international
markets have increased by an average 15% annually over the last
couple of years due to aggressive expansion and Wal-Mart's low
On the other hand, the retailer's revenues in the U.S. have
grown at an annual rate of just 1% during the same period. Although
this trend is likely to continue, a good performance during the
weak holiday season in the U.S. and the updated layaway program
should help its U.S. results, which remain significant and account
for just over half of our estimate for Wal-Mart. Additionally,
we'll watch out for Wal-Mart's future expansion plans in
international and the U.S. markets.
See our complete analysis for Wal-Mart
Expect Slow Growth For Wal-Mart U.S.
Wal-Mart's revenue growth in the U.S. has been fairly stable
since 2007, averaging around 3% annually. In the last couple of
years, the growth was well below this average as Wal-Mart slowed
down its expansion in the country. The retailer opened only 113
stores during 2010-2011 compared to 300 stores opened during
2007-2009. We expect this trend to continue in fiscal 2013 as
Wal-Mart reaches saturation in many markets, as evident from its
slowing expansion,in the U.S. and risks cannibalizing its sales.
Wal-Mart's Huge Overseas Expansion Distracts From
Its Domestic Saturation Problem
, cbsnews, April 23 2010))
Holiday Sales And Updated Layaway Program Might Offer
Last year, Wal-Mart improved its Layaway program to encourage
customers to shop more during the holiday season. Under its Layaway
program, Wal-Mart allows customers to buy merchandise with 10% down
payment and pay the remaining amount in 60 days. In comparison to
its 2011 Layaway program, Wal-Mart increased the payment time frame
by 30 days, eliminated the cancellation fee and started offering a
full refund on the opening fee (fee paid when a customer opens a
Layaway account). Moreover, it increased the product categories in
this program, which were earlier limited to electronics, toys and
The layaway program along with the one hour in-stock guarantee
(an attractive deal offered if a product is sold out while the
customer was in the store between 10:00 pm - 11:00 pm on
Thanksgiving day) helped the retailer report its best ever Black
Friday events. The retailer stated that its stores made 5,000 item
transactions per second. Furthermore, Wal-Mart performed well
during the weak holiday season in the U.S. with its EDLP strategy
and attractive holiday deals.
International Growth Will Be In Focus
With less than 30% of overall revenues, Wal-Mart's international
segment accounts for about 40% of its stock value according to our
estimates. Emerging markets provide significant scope for expansion
for the retailer along with a huge pool of value conscious
customers and its proven business model. As Wal-Mart's U.S. faces
an increasingly saturated domestic market, we believe the majority
of its growth will come from international markets.
In Q3 fiscal 2013, Wal-Mart reported 7.6% revenue growth from
its international business as it gained retail market share in
various international markets. Of these, Brazil, Mexico and China
still remain the key international markets for Wal-Mart. In the
last two quarters, Brazil's revenues and comparable sales increased
by an average of 10% and 5%, respectively, while Mexico's grew by
10% and 4%.
However, Wal-Mart is having some troubles in China with its
local strategies (Read:
Wal-Mart Struggles With Local Strategy In China
). Although Wal-Mart China's revenues increased by 6% in Q3 fiscal
2013, its comparable sales were up by just 0.4%. The retailer is
looking to strengthen its position in the region by centralizing
management, cuttings costs, improving operational efficiency and
expanding efforts to gain price leadership. Wal-Mart also acquired
a 51% stake in Yihaodian, a China e-commerce retailer, to improve
its online sales in the region.
Updates On Expansion Plans
Apart from revenue growth, we will closely monitor updates on
Wal-Mart's expansion plans in domestic and international markets.
The retailer had planned to open 20-25 smaller format Wal-Mart
Express stores in the U.S. in Q4 fiscal 2013. Since these stores
are Wal-Mart's pilot program and have performed well, it will be
interesting to see how the retailer goes ahead with its
Last year Wal-Mart decided to slow down its expansion in Brazil
and Mexico to build a strong foundation for comparable store sales
growth. Furthermore, the retailer also reduced the number of new
stores in China scheduled to open in the latter half of fiscal
2013. Any change in these expansion plans will play a vital role in
deciding Wal-Mart's growth in these regions.
Our price estimate for Wal-Mart stands at $80, implying a
premium of about 15% to the market price.
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