Why Walmart’s International Segment Will Likely Remain in the Red
Recent performance remains bleak
Wal-Mart Stores’ (WMT) International segment has remained in the red as the segment reported yet another quarter wherein the top line marked a decline. Adverse currency movements and weakness in the UK have taken a toll on this segment’s performance.
During the last reported quarter (fiscal 4Q17), the segment’s top line fell 5.1% YoY (year-over-year) to $31 billion. However, on a constant-currency basis, sales rose 3%. Despite the segment’s strong showing in Mexico and China (large markets)—and despite its comps growth in ten out of its 11 markets—adverse currency fluctuations have negatively impacted sales by $2.6 billion.
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The segment marked strong sales in its Walmex region, supported by growth across all store formats and countries, especially in Mexico. (Walmex includes the consolidated results of Mexico and Central America.) Canada, Brazil, and China have all contributed meaningfully to the segment’s growth, whereas comps in the UK fell 2.9% during fiscal 4Q17.
Outlook not much different
Walmart’s International segment in the recent past has been driven by the strong performance in the Walmex region. On a two-year stack basis, the region marked a 15% rise in comps, with Mexico reporting stellar growth.
Besides Walmex, Canada and China have also continued to gain traffic. In China, sales are likely to be driven by the healthy performance of hypermarkets and Sam’s Club. Moreover, the company’s e-commerce initiatives, including its alliance with JD.com (JD), are likely to boost the top line results.
But the performance of the segment is likely to be negatively impacted by the strengthening US dollar. Walmart’s management noted that its Walmex region is likely to be adversely impacted by the strengthening of the US dollar, in particular, against the Mexican peso. Meanwhile, the UK—a key market for the company—remains a challenge and is likely to report tepid comps growth on account of increased competition from Aldi and Lidl.
Notably, ETF investors looking for exposure to the consumer discretionary sector might consider ETFs like the VanEck Vectors Retail ETF (RTH), which invests about 33.1% of the portfolio holdings in Amazon.com (AMZN), Walmart, Kroger (KR), and Costco Wholesale (COST).
Now let’s look at Walmart’s Sam’s Club business.