Sales at Walmart’s international division increased 11.5% to $27.9 billion, aided to a large degree by a $1.3 billion currency exchange benefit, without which the sales increase would have been a more modest 6.2%.
International sales would have been stronger except for the fact that the division operates on a different sales calendar than Walmart’s domestic businesses, so sales related to Easter won’t show in the international division’s results until the second quarter. Mexico, China and Chile shined during the quarter, with those countries posting the strongest comp sales growth and the highest increases in year-over-year net sales.
The sales growth the division did experience did not translate into strong profitability as operating income grew 1.2% to roughly $1.1 billion and actually declined 3.3% to $1 billion when measured on a constant currency basis. Inventory growth related to new stores was also an issue.
“Our progress on inventory was disappointing for the first quarter of this year with days on hand increasing over last year in most of our markets,” said Walmart International president and CEO Doug McMillon.
He also noted that much of the 11.4% increase in inventory was due to the addition of 54 new stores before adding, “Our management teams across all countries, especially China and Brazil, have [inventory control] as a priority.”
Speaking of Brazil, McMillon said the company expects to add 80 new stores in that market this year on top of an existing 480 units and operating profit there could suffer due to the ongoing implementation of EDLP.
“Prices on more than 10,000 items, primarily in food, have been reduced, and this number increases each month,” McMillon said. “As I’ve said before and as we saw in Japan, this is a long term initiatives o we expect to experience some pain during the conversion period.”
The bright spot in Brazil was the online business,which grew 41% on top of last year’s growth of 80%. Those gains are coming on a small base as the online business launched at the end of 2008 with 10,000 items in 11 categories and now offers more than 70,000 products in 21 categories.