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Walmart Is Optimistic about International Performance after 1Q16

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Walmex delivers across formats

Walmart (WMT) reported strong performance in four of its five largest international markets in 1Q16, in constant-currency terms. Sales in Mexico grew at the strongest pace in two years, driven by comps growth in most formats, including warehouse clubs.

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Market share gains in Canada

Canadian sales rose by 3.7%, with store comps rising by 1.8%, the fourth straight month of increases. E-commerce sales were up by over 40%. WMT also expanded its market share.[1. Nielsen, Walmart filings] The company announced the acquisition of 13 former Target (TGT) stores, after the latter announced it was exiting Canada.

China comps reverse 12-month trend

China (FXI) reversed same-store sales trends. Comps rose 0.4% in 1Q, showing positive growth for the first time since 4Q14. The later timing of the Chinese New Year, better fresh selection, and higher e-commerce sales were among the major drivers impacting performance. WMT’s new deal with Ali Baba (BABA), using Alipay for 25 stores in China, should also benefit future sales, according to the China Daily.

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The UK grocery market

The UK’s grocery market continues to see prices deflate. Prices fell by 2%, according to Kantar Retail. Asda, Walmart’s UK arm, reported a 2.9% decline in sales, with comps falling by 3.3%.

Competition is tough. Lower prices at German discount chains Aldi and Lidl are winning market share for these retailers (XRT). They’re also forcing the four large supermarket chains, Tesco (TSCDY) (TSCO.L), Sainsbury (SBRY.L) (JSAIY), Wm Morrison (MRW.L) (MRWSF), and Asda to follow suit.

WMT is aiming to be more competitive on the price front. It’s investing 1 billion British pounds over five years to lower prices and compete more effectively.

Higher dollar hurts

Despite positive sales trends and margin expansion in four of its five largest overseas markets, Walmart’s reported international revenue declined by 6.6% to $30.3 billion. The higher US dollar (UUP) eroded sales by $3.3 billion. Walmart International sales grew 3.4% on a constant-currency basis.

International expansion plans

WMT will be adding 29 supercenters in Canada this year, on top of the stores acquired from Target (TGT), as part of its expansion strategy. It’s also looking to add 33 new stores across formats in China and expand floor space in Mexico and Central America by 2.4%.

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