Walmart bets on its international business to drive growth as it expands in China, Mexico

Walmart (WMT), America’s biggest retailer, is doubling down on its ambition to be a global behemoth.

“International is one of the better stories going on at Walmart, and it’s not fully appreciated,” CFO John David Rainey told Yahoo Finance following its second quarter results. “International is going to contribute more to the top line and more to the improvement in the bottom line over the next five years than the rest of the business.”

In Q2, operating income for its international segment jumped 14.3%, while net sales increased 7.1% and e-commerce sales grew 18%. As cautious American consumers flock to value, Walmart’s stock has been a star performer in 2024, with a year-to-date gain of 50%.

Internationally, the company is finally seeing returns after years of rightsizing. Its global footprint peaked at 6,363 locations outside the US in 2016.

Former CEO of Walmart International, Judith McKenna, took over in 2018 and quietly exited businesses in Brazil, Argentina, the UK, and Japan.

As of Q2, Walmart has 5,414 foreign locations in 18 countries. Kath McLay, who previously served as the CEO of Sam’s Club, took the helm last September following McKenna’s retirement.

CFRA analyst Arun Sundaram said divesting some of their “unprofitable international businesses or their slower growing international business” was the most important step Walmart took to improve the profit trajectory of the segment.

McLay told Yahoo Finance that Walmart has been “tailoring the portfolio to be in the right markets.”

“I’m happy with the portfolio that we’ve got. We’re always open to explore opportunities, but I’m not actively pursuing other markets to go into it,” she said.

The company is focusing on key markets like China, India, and Mexico. Similar to the US, value is at the core of its business.

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

Read more: Best credit cards for back-to-school shopping at Walmart (September 2024)

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

In Q2, Flipkart’s revenue grew by double digits, per Rainey. “Scale and delivery density are key. As more customers are shopping with us more often across more categories, we’re improving delivery density and transaction-level margins,” he said.

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Sundaram said the company is “closer to becoming profitable in Flipkart.” Meanwhile, PhonePe brings in $1.6 trillion in total payment volume per year. The company expanded beyond its initial payments app to a marketplace for secured loans, including car and business loans.

The loan program will “get PhonePe offerings to about 200 million-300 million new customers that are not using PhonePe,” McLay said.

McLay said the team is looking at an IPO for both companies, though no firm timeline has been set.

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

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

The company has been learning from Sam’s Club China’s use of “clouds,” what it calls micro fulfillment centers with more curated assortments that are used in place of large warehouses.

Each Sam’s Club has eight to nine clouds, compared to more traditional models where one warehouse may serve several stores. The higher number of locations allows Sam’s Club to deliver orders to customers in under an hour, per McLay.

For all of Walmart China, which has roughly 400 locations, about 80% of its deliveries are done in less than an hour. Total transactions are about evenly split between online and in-person. Flipkart has taken advantage of Walmart’s lessons in China and now uses micro fulfillment centers and new routing technologies to deliver to some customers in under 15 minutes.

Rainey said both China and India are fast-growing markets with an e-commerce focus, though it didn’t close the number of new locations planned in China.

Walmex, Walmart’s business in Mexico and Central America, announced in March that it will invest $34.5 billion pesos, or around $1.8 billion, into the region this year, a 19% jump over the previous year.

The money will go toward remodeling existing stores, opening new stores, modernizing its supply chain, and improving its technology. Same-store sales for Walmex jumped 5% year over year in Q2, while revenue increased 6.4% to $12.8 billion.

The company said the segment saw improved margins, including growth of higher-margin businesses. It has been diversifying into other services, such as its mobile phone business, Bodega Aurrera Internet y Telefonia (BAIT). Last quarter, it also sold 600,000 health memberships, which offer telemedicine services and discounts with specialists.

“There’s this great reinforcing, kind-of compounding effect of being able to learn from one market to the other and then evolve it for the customer and context of that market,” McLay said.

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

She said the “hyper focus on the customer” is something she learned from her time at Sam’s Club.

“That focus on the customer is true and relevant no matter what market you’re in … [or] what you’re offering is. Whether it’s a marketplace, whether it’s a membership club, whether it’s a SuperCenter, whether it’s a bodega, every single one,” McLay said.

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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