Walmart Slips as Yet Another Overseas Obstacle Materializes
Walmart Investors Shrug Off Challenges Abroad With U.S. Thriving
(Bloomberg) -- In India, an unfavorable e-commerce ruling is likely to crimp the growth for Walmart Inc. In China, the retailer says an economic slowdown has shoppers tightening their purse strings. And now in the U.K., a deal to reduce Walmart’s exposure to the slowing market there is on life support.
It’s yet another international headache for Walmart Chief Executive Officer Doug McMillon. While the struggles abroad are outweighed by strength in the U.S., the company’s shares fell on Wednesday -- a sign that investors are concerned by its growing array of hurdles overseas.
Walmart stock’s decline sharpened to as much as 3 percent on Wednesday, while the S&P 500 was little changed. Still, Walmart’s drop was well below the 17 percent swoon for J Sainsbury Plc, which faces the prospect that its proposed purchase of Walmart’s U.K. unit, Asda, will fall through after objections from regulators.
Walmart’s relatively muted decline may be explained by Wall Street’s focus on the company’s home market and its development of e-commerce to take on Amazon.com Inc.
International events are important, “but as long as the U.S. is doing well that’s enough for many investors,” said Chuck Grom, an analyst at Gordon Haskett Research Advisors. About two-thirds of Walmart’s revenue came from the U.S. in the fourth quarter.
“The lion’s share of investors will focus the lion’s share of their time on the U.S. business,” Grom said.
Some of the company’s troubles abroad may be easily fixed. The retailer could find another buyer to take control of Asda if its deal with Sainsbury is unable to overcome skepticism from regulators, who said Wednesday the transaction raises significant competition concerns.
“Walmart will clearly still be looking to offload Asda and there will likely be other suitors waiting in the wings,” said Richard Curry, a partner who covers retail at Rapleys, a U.K. consulting firm.
Other parts of Walmart’s international business are doing well: In Mexico and Central America, sales rose more than 5 percent last quarter. That’s faster than in the U.S.
Investors’ Patience
As long as the U.S. is humming along, investors are likely to remain patient with McMillon’s efforts to reshape the company’s portfolio of international assets. In addition to agreeing to sell the controlling stake in Asda to Sainsbury, he acquired a 77 percent holding in Flipkart, the Indian e-commerce giant, last year for $16 billion. Walmart also sold a majority stake in its Brazil operations to Advent International last year, while its Japan stores have been the subject of deal speculation.
Same-store sales in the U.S. climbed 4.2 percent last quarter, marking one of the best holiday seasons Walmart has reported in years. The shares gained 2.2 percent Tuesday after Walmart’s earnings report.
“The most important signal for Walmart remains how is it doing in its core business in its core market,” said David Schick, Managing Partner at Consumer Edge Research. “What Walmart is doing in the U.S. is seen as largely successful.”
Because of Walmart’s size and geographic scope, it will likely continue to face hurdles overseas, either from regulators or local economic conditions, Schick said. But those short-term setbacks pale into comparison to how its investments in technology have boosted its growth prospects. Grom, meanwhile, said the expectations for Walmart’s international business have also shifted as the company sharpens its e-commerce objectives.
“The narrative on Walmart has shifted, from a global growth story five to ten years ago, to a digitally-enabled brick-and-mortar company,” he said.
--With assistance from Ellen Milligan.
To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net;Matthew Boyle in New York at mboyle20@bloomberg.net
To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Lisa Wolfson
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