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Here’s How Walmart’s Segment Results Might Look in Fiscal 1Q18

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Walmart US to improve YoY

Walmart’s (WMT) US (SPY) segment, which accounts for the major portion of its sales and profitability, has been generating healthy comps (comparables) growth in the past couple of years, driven mainly by an increase in store traffic. In fiscal 4Q17, sales for the segment rose about 3.0%, driven by an increase in store traffic and average ticket size. All the company’s store formats reported positive comps. Meanwhile, its digital business contributed about 40 basis points to the segment’s comps.

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In its fiscal 4Q17 conference call, management stated that its US segment is off to a slow start as deflationary pressures are likely to impact food comps. Despite the challenges, Walmart projects its comps to rise 1.0%–1.5% in fiscal 1Q18, driven by growth across all store formats. The segment’s performance is also likely to be supplemented by strong e-commerce sales.

Walmart International to be in the red

Walmart’s international business has been grappling with declining sales as a strong US dollar and a softness in the United Kingdom have dragged down the results. Looking at regions, Walmex (Mexico and Central America) has been the key growth engine. On a two-year stack basis, the region reported a 15.0% growth in comps, with Mexico witnessing improved trends.

Canada and China (FXI) have also seen improved comps. Going forward, sales in China are likely to benefit from the investment in JD.com (JD). However, adverse currency movement and increased competition from Aldi and Lidl in the United Kingdom will continue to offset the positives.

Sam’s Club to see increased sales

Walmart’s Sam’s Club, which faces tough competition from Costco Wholesale (COST), is in the midst of a transitory phase aimed at driving top and bottom line results. Management expects comps (excluding fuel) to rise 1.0% in fiscal 1Q18, driven by an increase in traffic. The company’s multichannel shopping experience, Club pickup, and direct-to-home offerings bode well with consumers. Its e-commerce segment is also reporting strong sales growth.

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