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What's Behind Walmart Shedding 80% Stake in Brazil Business

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Walmart Inc. (WMT - Free Report) took yet another step to improve international business. It struck a deal to sell an 80% stake of its underperforming Brazil business to global private equity fund, Advent International. This move once again highlights Walmart’s strategy of shifting focus away from underperforming areas, so as to concentrate more on profitable regions like India and China.
The deal, which is expected to conclude later this year, remains subject to regulatory sanctions in Brazil.

Though Walmart anticipates recording a non-cash net loss of roughly $4.5 billion in the second quarter, the company expects it to remain neutral to the bottom line this fiscal year. In fact, the deal is expected to be slightly accretive to Walmart’s bottom line in the next fiscal year.

Given these factors, the news was welcomed by investors who remain encouraged about Walmart’s solid efforts to strengthen its international operations and stay firm against Amazon (AMZN - Free Report) . Notably, shares of world’s largest retailer gained close to 3% yesterday, while it has rallied almost 9% in a year, outpacing the industry’s 6.8% upside. Let’s delve deeper and see how Walmart is placed.

Walmart to Sell Majority Stake in Brazil

There have been rounds for a while about Walmart looking for ways to get out of its struggling Brazilian business. Sources revealed that this big-box retailer, in Brazil, has been bearing the brunt of consumers’ unfavorable response and intense competition along with macroeconomic hurdles like recession and political disorders. These factors have been hindering Walmart’s operations in this Latin American market, where it has been operating for more than two decades now.

Consequently, the company undertook the aforementioned move of divesting majority stake in Walmart Brazil to Advent. With its robust Brazilian presence and solid experience in the retail investment arena, Advent is most likely to solidify Walmart Brazil’s operations and place it well for long-term growth. Also, with its continued assistance and unmatchable retail experience, Walmart (which will retain the remaining 20% stake) will help its Brazilian business tap opportunities for long-term growth.

Clearly, this reflects Walmart’s continued efforts to correct the slipups made in the international space.  This also became apparent last month, when the company clinched contracts to buy an initial stake of 77% in India’s leading e-commerce player Flipkart for roughly $16 billion. On the other hand, Walmart decided to merge its UK grocery unit, Asda with J Sainsbury plc (JSAIY - Free Report) . Walmart’s Asda had been losing market share to discount chains like Aldi and Lidl for quite some time, thereby weighing on Walmart’s UK operations.

These moves along with Walmart’s previous decision to shut its first-party e-commerce business in Brazil reflect its commitment toward allocating resources in profitable regions only. We expect these endeavors to enhance Walmart’s international segment, which constituted nearly 25% of the company’s total revenues in the first quarter of fiscal 2019.

Walmart currently carries a Zacks Rank #3 (Hold). Investors can count on Burlington (BURL - Free Report) , which flaunts a long-term earnings growth rate of 17.1% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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