Barclays Sees Upside For Wal-Mart In Canada

Shares of Wal-Mart (WMT) were recently down 0.2%, but Barclays analyst Robert Drbul sees the stock reaching $65 on the robust outlook of its international arm.

Drbul attended the company�s International Meeting in Toronto and noted that Wal-Mart has made impressive strides in the Great White North, reaching nine out of ten Canadians, and yet still has runways for growth ahead of it, as it adjusts to Canada�s changing demographics and shopping habits.

Here are highlights from his note:

�Walmart International strives to drive growth through increases in comp store sales, store expansion, e-commerce initiatives, and acquisitions, while continuing to transition its remaining geographies to the EDLP model. We believe one of the greatest opportunities to improve leverage internationally will be managing inventory growth toward a target rate of half the rate of sales. The company is targeting at least 300 bps of improvement in ROI by 2017. Walmart entered the Canadian market in 1994, and today 9 out of 10 Canadians shop at Walmart. The Canadian retail market shares many similarities with the US, enabling the leverage of Walmart US programs and processes, but it also has some important distinctions. In fact, there is only a 20% SKU overlap between Walmart Canada and US. The Canadian consumer typically places a large emphasis on value (high participation in loyalty programs, shopping for best price as a “hobby”), has an emerging minority population which is expected to account for 70% of growth in consumer spending in the next 10 years, has a higher average level of household debt, and has been slower to embrace online shopping.

�In order to cater to these characteristics, Walmart Canada has worked to tailor its assortment to the diverse customer groups it serves, while maintaining opening price points in order deliver the highest amount of value driving an 11% price gap on a like-for-like basket of goods. An important aspect of this strategy is carrying a broad private label offering in stores. Walmart Canada aims to double the penetration of its private label sales by 2015. The company has already switched to a mono-brand private label strategy for apparel (George), so the majority of this growth is expected to come from food and other general merchandise.

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