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Wal-Mart to Name China Head as CEO of its UK Chain ASDA

Zacks Equity Research

In order to save its struggling U.K. division Asda, Wal-Mart Stores Inc. WMT is reportedly planning to appoint China head Sean Clarke as the Chief Executive Officer (‘CEO’) of Asda this week. Clarke will take over the new position on Jul 11.

Clarke will replace Andy Clarke, who had said in an earlier Retail Week interview that Roger Burnley from rival Sainsbury Plc will serve as the Chief Operating Officer of Asda. Burnley will take up this role in October. Andy Clarke, who has served Asda for 20 long years, will take up an advisory role to the retailer for the remainder of 2016.

We note that Asda’s underlying sales performance has declined since the past seven quarters amid a price war with other discounters that has squeezed its profits. The expansion of these discounters also took away Asda’s position of U.K.’s cheapest mainstream grocer.

The CEO of Wal-Mart’s international unit has entrusted Clarke with a big responsibility, given his experience and expects him to turn around Asda’s results. He has worked for retailers in Japan, Canada, and most recently, China.

WAL-MART STORES Price and Consensus

WAL-MART STORES Price and Consensus | WAL-MART STORES Quote

Wal-Mart operates more than 11,500 retail units under 72 different banners in 28 countries and e-commerce websites in 11 countries. Wal-Mart’s stores offer almost everything which is of day-to-day use, enabling it to keep the number one spot (on the basis of revenues) on the Fortune 500 list for the fourth year in a row.

However, we note that the Bentonville, AR-based company is facing severe challenges and has been showing signs of acute weakness since the past few quarters. While increased investments in technology in order to compete with Amazon.com, Inc. AMZN and an increase in pay for its workers are helping to boost sales of this Zacks Rank #2 (Buy) company, it is also increasing its expense burden.

The retail giant is making efforts to understand the evolving needs of its customers to regain their confidence, and thus boost sales. However, higher labor costs along with the company’s efforts to overhaul its stores and invest in its online operations will weigh on its earnings in the near term.

Stocks to Consider

Investors interested in the broader retail space may also consider Destination XL Group, Inc. DXLG and The Children's Place, Inc. PLCE. Both of them hold a Zacks Rank #2.

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