According to Reuters, Wal-Mart Stores Inc's (WMT - Analyst Report) South African unit Massmart is planning to take a majority stake in Kenya-based supermarket chain Naivas. Massmart‘s acquisition of the majority stake will give Walmart a strong foothold in the fast growing east African economy.
Though the parties are yet to agree on the price, it is speculated that Massmart will have to pay a premium for Naivas, given the limited number of available retailers that would fit its business model. Moreover, Naivas has the potential to grow, given the rising middle class population in East Africa. Currently, Naivas has 28 stores and plans to open 2 more outlets by the end of the year.
Walmart has been expanding itself internationally, especially in the emerging markets through new stores, positive comparable store sales and accretive acquisitions. The company’s significant exposure in the international markets makes it the largest retailer in the world. The acquisition of a 51% stake in Massmart Holdings Ltd in Mar 2012 has given Walmart an opportunity to capture the fast growing markets of South Africa. In Sep 2012, Walmart received an opportunity to set up a store in India as the government agreed on 51% foreign direct investment (FDI) in multi-brand retail. Walmart paid $316 million for several other business acquisitions in fiscal 2013, including acquisition of the controlling interest in Yihaodian, an e-commerce business in China.
Besides acquisitions, Walmart has also been focusing on expanding its online business. We are also impressed with the company’s size and scale of operations. However, Walmart has always remained under media scrutiny due to its size and scale of operations.
Moreover, the recent debate to increase the minimum wage of workers to at least $12.50 per hour from a minimum wage of $8.25 per hour is becoming a concern for Walmart. This will make it harder for Walmart and other big box stores to pass on the wage hike as a price increase. In response to this, Walmart has even warned that it would scrap plans for three of the six stores it had hoped to build in Washington if the bill becomes law.
Walmart is scheduled to report its second quarter of fiscal 2014 results on Aug 15. Walmart is confident of its strong international network, its e-commerce business and cost saving initiatives but continues to expect decline in consumer spending going ahead as middle-class consumers struggle to cope with rising gas prices, delayed income tax refunds and higher payroll taxes.
Walmart holds a Zacks Rank #3 (Hold).
Other retailers and wholesalers that are presently doing favorable business include hhgregg Inc (HGG - Analyst Report), Ross Stores Inc (ROST - Analyst Report) and Delhaize Group (DEG - Snapshot Report). While hhgregg holds a Zacks Rank #1 (Strong Buy), Ross Stores and Delhaize carry a Zacks Rank #2 (Buy).