Walmart (WMT) sold Japanese supermarket chain Seiyu ahead of a Q3 earnings report that is expected to show further gains from its shift to e-commerce. Walmart stock broke out into buy range.
The world’s top retailer is selling most of its stake in Seiyu, with private equity fund KKR (KKR) acquiring a 65% stake and Rakuten taking 20%. Meanwhile, Walmart will retain a 15% stake.
Seiyu has 331 stores, but the new partnership will focus on expanding its e-commerce. The company expects to close the deal in the first quarter of 2021. The agreement values Seiyu at $1.6 billion including debt, far lower than Walmart reportedly sought in 2018 ($2.7 billion to $4.4 billion), according to Japanese media reports.
Walmart had long struggled to break through in the highly competitive and saturated supermarket business in Japan. It first invested in Seiyu in 2002, reportedly spending more than $1 billion on the company.
Walmart’s exit from Japan comes after it sold its U.K.-based supermarket chain Asda last month to a private investment group for $8.8 billion.
Estimate: Analysts see Walmart earnings up 2.6% at $1.19 a share for the third quarter of fiscal 2021, according to Zacks Investment Research. They see revenue of $132.4 billion, a 3.4% increase from the same period last year.
Same-store sales, excluding fuel and currency impacts, are seen up 4.3%, with Walmart U.S. comps up 3.8% and Sam’s Club comps up 7.1%.
Results: Check back on Tuesday before the market opens. The Street expects Walmart earnings to get another lift from strong online sales. In Q2, e-commerce climbed 39%.
“We think the service could be a game-changer for WMT, particularly given its size and scale in the U.S. grocery market, and U.S. consumers in general, eliminating the need for frequent trips to the grocery store,” said CFRA analyst Garrett Nelson in a recent note.
Nelson also views favorably Walmart’s deal to secure a 7.5% stake in Tik Tok for a reported price of $4.5 billion.
Shares rose 1.3% to 152.44 on the stock market today, breaking out of a flat base with a 151.43 buy point, according to MarketSmith chart analysis. However, investors might have used 146.70 as the more active entry.
Rival Target (TGT), which reports earnings Wednesday, rose 1.3%, and Amazon was flat.
Walmart is expected to benefit from an early start to the holiday shopping season this year. Retailers began offering promotions in early October. They’re expected to spread out the deals as shoppers won’t be able to crowd stores on a single day, like Black Friday, as they’ve done in the past.
The extended holiday shopping season offers Walmart the opportunity to build on the momentum it achieved shortly after the pandemic hit. Walmart was largely spared during the lockdowns as its stores were quickly deemed essential, since they sell groceries and health supplies. Its stores remained open while department stores like Kohl’s and Macy’s were closed.
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