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Can International & Online Strength Keep Driving Wal-Mart?

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Wal-Mart Stores Inc.WMT , which will be known as Walmart in less than a week's time, has been exploring all avenues for growth. The world's largest retailer, which has a robust foothold in the domestic market, has also been gaining traction internationally - particularly in Mexico and China.

Meanwhile, sources revealed that the company is struggling with some of its Brazilian operations. Incidentally, there were rounds that Walmart is planning to divest part of its operations in the country, and is on the lookout for buyers. Though the news has not been confirmed by Wal-Mart, we believe that the step will likely improve the company's business, by helping it focus on more profitable areas.

Talking of profitable areas, let's delve deeper into Wal-Mart's other international operations, which are likely to help Wal-Mart keep its growth cycle running.

International Strength to Spur Growth

With operations spread in China, Mexico, Canada and UK, international forms Wal-Mart's second-largest segment, in terms of revenues. Evidently, international sales constituted about 24% of the company's total sales in fiscal 2017, following the U.S. segment which accounted for 64%. In the international segment, the big-box retailer has been recording year-over-year currency-neutral sales for more than a year now. Evidently, sales grew 2.5% on a currency-neutral basis each, in the second and third quarters of fiscal 2018 while it was up 0.8% and 3% in first-quarter fiscal 2018 and fourth-quarter fiscal 2017, respectively.

In the third quarter, Wal-Mart's international sales gained from 10 out of 11 markets recording positive comparable store sales (comps). Notably, Mexico and China performed exceptionally well, while results in UK also improved in the quarter. Wal-Mart de Mexico, or Walmex has been leading the company's international growth for quite some time now. In the third quarter, Walmex sales jumped 9.2%, driven by strength across both stores and online. The company has been enriching consumers' experience in the region through strategies like online grocery, while it also launched an e-commerce marketplace there recently that fueled merchandise assortment by 20%.

Moving to China, sales advanced 4% in the third quarter, backed by improvements across core categories like fresh and consumables. Notably, e-commerce sales in China have been growing at an impressive rate. Consequently, the company's constant e-commerce initiatives, particularly its alliance with JD.com has been driving its performance in China. Incidentally, during the third quarter, Wal-Mart increased its stores count (that provide speedy grocery deliveries via JD Daojia) to 140.

Further, results in Canada were aided by efficient price investments, which led to market-share gains of major categories. Also, the company's solid online initiatives like enhancing assortments, launch of e-commerce marketplace and expansion of outlets that provide online grocery pickup fueled the 1.9% rise in Canadian sales in the quarter. Wal-Mart's UK sales also grew 3.6% on the back of efforts to enhance in-store experience and pricing.

The departmental biggie remains committed toward achieving growth across all its markets, on the back of fresh products; expansion of online grocery and private brands. That said, we remain encouraged about Wal-Mart's International segment performance.

Other Growth Initiatives

Apart from focusing on the international segment, Wal-Mart is undertaking several other strategies to fuel overall growth - with e-commerce topping the list. This retail bellwether is trying every means to evolve with the changing consumer environment and fight e-commerce king Amazon's AMZN growing dominance. Apart from Wal-Mart, many other major retailers like Macy's M and Kroger KR among others are adopting the online mantra to keep pace with the evolving trends. Coming back to Wal-Mart, the company has been taking several e-commerce initiatives, including buyouts, alliances, and improved delivery and payment systems.

Evidently, Walmart's buyouts of ShoeBuy, Moosejaw, ModCloth and Jet.com underscore its quest to build an impressive digital brand portfolio. The company's Walmart Pay mobile payment system, and Mobile Express Returns program further highlight its focus on accelerating online business and making shopping easier and faster. Apart from this, Walmart is making aggressive efforts to expand in the booming online grocery space, which was a major contributor to its e-commerce sales in the third quarter.

While strained gross margin and competition remain hurdles, the aforementioned factors rekindle optimism about Wal-Mart's strong chances of keeping its spectacular momentum alive.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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