Walmart Relies on Its International Business to Drive Growth, Expanding in China, Mexico (Video)

Walmart (WMT), America’s largest retailer, is doubling down on its ambitions to become a global giant.

“International is one of the better stories at Walmart, and it’s not fully appreciated,” CFO John David Rainey told Yahoo Finance after the second-quarter results. “International will contribute more to revenue and bottom-line growth over the next five years than the rest of the company.”

In the second quarter, international operating income rose 14.3%, while net sales rose 7.1% and e-commerce sales rose 18%. With cautious American consumers looking for value on the rise, Walmart stock has performed remarkably well in 2024, up 50% year over year.

Internationally, the company is finally turning a profit after years of righting its size. Its global footprint peaked at 6,363 locations outside the U.S. in 2016.

Former Walmart International CEO Judith McKenna took over in 2018 and quietly exited operations in Brazil, Argentina, the U.K. and Japan.

Walmart has 5,414 international locations in 18 countries as of Q2. Kath McLay, who previously served as Sam’s Club CEO, took over last September after McKenna retired.

CFRA analyst Arun Sundaram said divesting some of its “unprofitable or slower-growing international businesses” was the most important step Walmart took to improve the segment’s profitability.

McLay told Yahoo Finance that Walmart is “aligning its portfolio to the right markets.”

“I’m happy with the portfolio we have. We’re always open to exploring opportunities, but I’m not actively looking for other markets to enter,” she said.

The company is focused on key markets such as China, India and Mexico. As in the US, value is at the core of its business.

“In every market, it’s really, really important for us to maintain our everyday low pricing principles and focus on price gaps and price perception,” McLay said.

Read more: Best Credit Cards for Back to School Purchases at Walmart (September 2024)

In India, Walmart operates mainly through local e-commerce company Flipkart, in which it has a majority stake. It also has a stake in digital payments company PhonePe. After years of operating at a loss, Flipkart is now focused on growing deliveries and profitability.

Flipkart’s revenue grew by double digits in the second quarter, according to Rainey. “Scale and density of delivery are key. As more customers shop with us more often and in more categories, we improve delivery density and margins at the transaction level,” he said.

Sundaram said the company is “closer to achieving profitability at Flipkart.” PhonePe, meanwhile, does $1.6 trillion in total payments value annually. The company has expanded beyond its initial payments app into the secured lending market, including auto and business loans.

The lending program “will enable access to PhonePe to approximately 200-300 million new customers who are not using PhonePe,” McLay said.

McLay said the team is considering taking both companies public, though no specific timeline has been set.

In China, Walmart is using the world’s second-largest economy to experiment with new e-commerce practices. Despite macroeconomic headwinds, same-store sales rose 13.8% in Q2, and revenue rose 17.7% year over year to $4.6 billion.

McLay said Sam’s Club China is a “pillar of strength.” Sam’s Club opened its 48th location there in May, compared to just seven at wholesale competitor Costco (COST).

The company follows Sam’s Club China’s example and uses “clouds,” or so-called micro-fulfillment centers with a more carefully selected assortment, replacing large warehouses.

Each Sam’s Club has eight to nine clouds, compared to more traditional models in which one warehouse might service several stores. The larger number of locations allows Sam’s Club to deliver orders to customers in less than an hour, according to McLay.

Across Walmart China, which has about 400 locations, about 80% of deliveries happen in less than an hour. The total number of transactions is roughly evenly split between online and in-person. Flipkart has taken a lesson from Walmart China and is now using micro-fulfillment centers and new routing technologies to deliver orders to some customers in less than 15 minutes.

Rainey said both China and India are fast-growing e-commerce markets. He did not say how many new locations were planned for China.

Walmex, Walmart’s subsidiary operating in Mexico and Central America, announced in March that it would invest 34.5 billion pesos, or about $1.8 billion, in the region this year, up 19% from a year earlier.

The money will be used to remodel existing stores, open new stores, modernize the supply chain and improve technology. Walmex’s same-store sales rose 5% year over year in Q2, while revenue rose 6.4% to $12.8 billion.

The company said the segment saw improved margins, including growth in higher-margin businesses. It diversified into other services, such as its mobile business, Bodega Aurrera Internet y Telefonia (BAIT). It also sold 600,000 health passes last quarter, which offer telemedicine services and discounts on specialists.

“There’s this big reinforcing, kind of compounding effect of learning from one market to another and then evolving that for the customer and the context of that market,” McLay said.

McLay has a long history with Walmart. Under her leadership as CEO, Sam’s Club saw revenue grow from $57.84 billion in 2019 to $84.35 billion in 2023. The retailer also posted 12 consecutive quarters of double-digit sales growth.

She said “being too customer-centric” is something she learned during her time at Sam’s Club.

“That customer focus is real and relevant no matter what market you’re in … (or) what you’re offering. Whether it’s a market, whether it’s a membership club, whether it’s a SuperCenter, whether it’s a grocery store, any of them,” McLay said.

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @Brooke DiPalma or email her at [email protected].

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