Private equity firm Advent International has agreed to invest an 80% majority stake in Walmart Brazil, with Walmart retaining the remaining 20%, the companies said on Monday. The transaction, expected to close later this year, is subject to regulatory approval in Brazil, according to a Walmart press release.
Walmart expects to record a non-cash net loss of some $4.5 billion in the second quarter, due mostly to cumulative foreign currency translation losses, depending on currency exchange fluctuations up to the closing date. But Walmart expects no material impact to earnings in the current fiscal year and a slight positive impact next year.
Just last year Walmart was reportedly mulling boosting its investment in Brazil — some $320 million over three years — to invigorate sales there.
Walmart's move is in stark contrast not just to its previous plans but also to rival Amazon, which in October opened an expanded marketplace there for electronics. Analysts have been divided about how well Amazon will actually do in Brazil, although BTG analyst Fabio Monteiro called it a "new paradigm for Brazilian e-commerce."
The deal, like the April sale of its U.K. Asda grocery operations, will allow the U.S. retail giant to focus on its new Flipkart acquisition, according to comments from Moody's Investors Service emailed to Retail Dive.
"Walmart's announcement ... is a continuation of its long-standing strategy of redeploying assets, both financial and personnel, to concepts and places that have more long-term potential, and as such, is a credit positive for the company," Moody's Lead Retail Analyst Charlie O'Shea said. "Similar to the Asda divestiture in the UK, this decision regarding Brazil continues the repositioning of International assets, and enables the company to make investments such as the Flipkart transaction in India."
The company launched Walmart Brazil in 1995, with headquarters in Sao Paolo and operations under several banners, according to the Walmart website. All in all, Walmart's international operations are immense, its second-largest operating segment, serving more than 100 million customers every week in more than 6,200 retail units, operating abroad with 55 banners in 27 countries. Third quarter net sales at Walmart International rose 4.1% to $29.5 billion, an increase of 2.5%.
The retail giant also has plans to continue to expand in Mexico, despite the fallout from a bribery scandal there that also expanded to Brazil, among other countries. The issue is mostly resolved, as U.S. government officials and the company worked out the consequences a year ago.
The scope of Walmart's operations abroad has apparently made it a favorable training ground for executives: More than one international chief has moved on to take the reins at the overall company, including current CEO Doug McMillon and his predecessor Mike Duke. In February the company promoted Chief Operating Officer Judith McKenna to president and CEO of Walmart International.