beyondbrics

Another quarter, another round of international growth at Walmart. The retail giant beat Wall Street’s expectations with a 3.6 per cent increase in Q2 earnings to $3.59bn on a 2.8 per cent boost in total revenues to $103bn, and the company raised its full-year profit forecast.

Once again, Walmart’s international segment – which Morningstar analysts estimate accounts for a quarter of total revenues – shone. Overseas sales growth easily outpaced US sales, surging 7.3 per cent to $25bn, excluding the impact of local currency appreciation against the dollar. Net sales in the US remained flat in the quarter.

“Walmart International continues to be an impressive growth engine,” Mike Duke, chief executive, said on a conference call with analysts, while “as expected, Walmart US had a challenging second quarter.”

And indeed, shoppers in China, Mexico and Brazil spent more at Walmart’s stores and restaurants than they did a year ago, whereas same-store sales in the US declined 1.8 per cent from the same quarter last year. Same-store sales were up 6.1 per cent in China, 3.1 per cent in Brazil and 2.7 per cent in Mexico.

That growth was “primarily due to a strong underlying performance in Mexico, as well as new store growth in Brazil and China”, said Doug McMillon, the head of Walmart International. He highlighted Mexico in particular, saying that “this sales increase is even more impressive when you consider the Easter calendar change and the comparison to higher sales during last year’s H1N1 [flu] outbreak.”

Morningstar analysts said today that they “remain encouraged by the firm’s international development and cost-management efforts, which helped to drive slightly better-than-expected profitability during the quarter”. They added that they are “confident” that the international segment “can sustain high-single-digit to low-double-digit growth over the next several years through strong square footage growth.”

And those expectations of continued fast-paced growth in the emerging world are likely to become ever more important to investors, Morningstar says.

Moreover, as Walmart gains traction in several high-growth markets such as Mexico, China, and Brazil, the international segment will become an increasingly critical component of our valuation assumptions

Related reading:
Walmart sales hit after remodelling of stores, FT
Emerging markets sales offset US declines at Walmart, beyondbrics
Hey Bric Spender – a special series on consumers, beyondbrics