Walmart International sales increased 7.1% to $27.8 billion in the second quarter and all countries produced sales growth, except Japan, when measured on a constant currency basis. Profitability didn’t improve as quickly. Operating profit was up 0.5% to nearly $1.3 billion, but if some one time charges are excluded the growth rate picks up to 5.6%.
Even on a reported basis, operating profits grew at a slower pace than sales. Due to a $2.3 billion benefit related to weak dollar, on a reported basis international sales increased 16.2% to $30.1 billion while operating profits grew 8.9% to $1.4 billion.
Looking around the world at Walmart’s performance in some major countries, international division president and CEO Doug McMillon offered these observations:
United Kingdom: Asda was said to have a solid second quarter, but the big news from across the pond was that following completion of 147 Netto stores 60 of the units have been remodeled. The major difference is an expanded merchandise assortment so shoppers can satisfy a broader range of needs. Asda now operates 536 stores in the United Kingdom
Mexico and Central America: The shift to EDLP is complete in five Central American countries and continues to strengthen in Mexico, according to McMillon. However, expansion is the name of the game south of the border. Walmex opened 129 new stores in the second quarter, compared with 59 units the prior year, continuing a pace of growth that has given the company 394 more stores than at the end of the second quarter the prior year. That means Walmex is well positioned for the rest of the year, according to McMillon.
Brazil: Walmart has been in the news a lot lately regarding potential acquisitions here, but that topic wasn’t addressed on the earnings call. Rather, the focus was on conversion to the EDLP pricing philosophy begun earlier this year and expansion. Seven new stores were opened in Brazil during the second quarter giving the company a total of 487 units in Brazil.
Canada: Sales and operating income increased to unspecified levels in Canada where the supercenter expansion and conversion process is ongoing. In addition to nine store expansions and nine in-the-box conversions, Walmart Canada expects to open 40 supercenters this year. McMillon did not mention the recent acquisition of 39 store leases of former Zeller’s locations acquired from Target or the timing of when those stores would open. There are a total of 329 units in Canada.
South Africa: Following the recently completed acquisition of a 51% stake in Massmart, results of the company will begin showing up in Walmart’s financial results during the third quarter.
Japan: It is still a tough go in Japan where three stores are yet to reopen following natural disasters earlier this year. Not surprisingly, sales declined as McMillon noted brownouts, food shortages and contamination fears are some of the effects of the disasters. Nevertheless, comp-store sales are said to be running ahead of other competitors, according to McMillon, and the EDLP pricing philosophy was applied to an additional 1,000 items.
China: Expansion activity remains robust with a total of 53 new stores opened during the past 12 months, including 48 supercenters. Walmart’s store count in China now totals 344 units. McMillon said sales in China grew 9.7%, but expenses grew faster, resulting in a small operating loss.
Countries that didn’t rate a mention during the second quarter conference call included Chile, Argentina and India. McMillion did not comment on the performance of or expansion activity in the two South American countries nor did he provide an update on efforts in India where a key issue remains the government’s willingness to allow foreign direct investment in the retail sector.