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Walmart to Invest in Canada, Create Jobs

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In an effort to push into Canada’s key grocery category, world’s largest retailer Wal-Mart Stores Inc. (WMT) plans to invest nearly 500 million Canadian dollars (approximately $451 million) over the next year, as per media sources. With this investment, it plans to complete 35 supercenter projects in Canada. This will take the store count in Canada to 395 by Jan 31, 2015, including 282 supercenters and 113 discount stores.

Of the total investment, more than C$376 million is intended for store projects, C$91 million for distribution networks to expand fresh food capability and C$31 million for e-commerce projects. This expansion plan would strengthen Walmart’s presence in Canada, creating more than 7,500 jobs including construction. Last year, Walmart Canada said that it planned to spend C$450 million to build stores and renovate other locations in Canada.

Walmart’s investment plans come at a time when U.S. retailers are striving hard to capture a higher market share in the profitable Canadian grocery space. Last week, another retailer Target Corp (TGT) also announced its expansion plans in Canada. It plans to open nine new stores across Canada, adding to the 124 it opened last year.

It seems that the supermarket chain is focusing on expanding its stores globally. In Dec 2013, Walmart undertook a major remodeling plan that includes revamping 55 and 65 stores in China in 2014 and 2016, respectively. Earlier in Oct 2013, Walmart announced its plans to open more than 100 facilities in China between 2014 and 2016, which will create approximately 19,000 retail jobs.

Though we are impressed with the company’s business strategy to expand and re-gain consumer confidence by providing jobs, the retail giant remains under stress. The company has been facing severe challenges since the last few quarters and the recently lowered guidance for fiscal 2014 confirms that these problems are indeed serious. Walmart is scheduled to release its fourth quarter and fiscal 2014 results on Feb 20.

For both fourth quarter and fiscal year 2014, earnings and comparable store sales at Walmart U.S. and Sam's Club are expected to be at or slightly below the low end of its previous forecast. The lowered expectation is due to a host of issues related to the restructuring of Sam's Club unit in the United States, food safety allegations, and weakness in the emerging markets, including the closure of stores in Brazil and China.

Lower comp sales are due to reduced food stamp benefits under SNAP (the U.S. government Supplemental Nutrition Assistance Program) and unfavorable weather, which resulted in store closures.

Though we are positive on the company’s sound long-term fundamentals, the current scenario is alarming for its investors. Walmart holds a Zacks Rank #4 (Sell).

Better ranked retailers in the industry include Haverty Furniture Cos Inc (HVT) with a Zacks Rank #1 (Strong Buy) and Tempur Sealy International Inc (TPX) with a Zacks Rank #2 (Buy).  

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