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Wal-Mart's U.K. Business Is Getting 'Battered' By Competition, Bloomberg Says

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Wal-Mart's U.K. Business Is Getting 'Battered' By Competition, Bloomberg Says

Wal-Mart Stores, Inc. (NYSE: WMT)'s turnaround story appears to be playing out as planned, and the company is well positioned for continued growth, especially in the domestic business.

However, with a lot of the focus on the domestic business, many investors may be ignoring Wal-Mart's international problems, especially in the United Kingdom where its grocery store, Asda, accounted for 8 percent of Wal-Mart's total sales in 2014.

As noted by Bloomberg Gadfly's Chris Hughes, Wal-Mart bought the U.K.-based supermarket in 1999 for roughly $9 billion. Today, its same-store sales have plunged to nearly negative 8 percent compared to nearly 4 percent position in the first quarter of 2013.

While Wal-Mart has a reputation of delivering low prices to consumer, in Europe, the German-based discounted no-frills supermarket chain Aldi and Lidl hold that reputation, and consumers are flocking towards the German brands.

Related Link: Wal-Mart's Turnaround Story May Be The Real Deal

Asda has tried to fight back, but it is losing a price war, not only against the German chains, but against the U.K.'s other large chains, J Sainsbury, WM Morrison Supermarkets and Tesco.

So Now What

Wal-Mart hired a new CEO, Sean Clarke, to oversee Asda and his priority is to increase market share rather than protecting profit. A sale of the company to a private equity firm that offers Wal-Mart a quick out from the market is "probably the last thing" on the company's mind right now.

However, a sale would make sense, Hughes suggested, but it may have to come from an overseas firm. International private equity firms are "flush with funds," and a potential turnaround opportunity in Asda is attractive.

Nevertheless, Hughes added that it is "hard to identify a foreign buyer that really needs to enter the U.K."

Bottom line, Hughes stated Asda isn't yet a "big enough problem" for Wal-Mart to make a decision on how to proceed today, but the "sell-by date " for any deal could drift away.

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Latest Ratings for WMT

DateFirmActionFromTo
Aug 2019MaintainsOutperform
Aug 2019MaintainsOverweight
Jul 2019Initiates Coverage OnBuy

View More Analyst Ratings for WMT
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