1 A Service Strategic Preview: Q2 May - July August 2013 STEPHEN SPRINGHAM Senior Retail Analyst

2 Analyst Comment: Strategic Preview: Walmart Q2 “After the horror show of Q1, we are expecting a return to stability and low growth in Q2. Above all, we are hopeful that the Walmart US business can deliver on management’s guidance of comp growth of 0-2%. Although the US consumer remains challenged, the factors that derailed performance so horribly in Q1 (delays in tax refunds, poor weather and lower inflation in food) have all receded and the operating backdrop in Q2 was far more benign. But this compounds the pressure to deliver on guidance – failure to do so (and continued negative traffic is the main downside risk) will shift the focus to the company’s own operational shortcomings, rather than the external retail environment. Although we are anticipating growth in low single-digits at the international division, trading remains almost universally tough. Mexico, the UK and Canada have been highlighted as the three key drivers of international profitability, but all three markets are challenged – trading has been soft in Mexico, the UK remains a mature and highly competitive environment, while the arrival of Target in Canada has intensified pressure on a business already struggling to achieve comp growth. While acknowledging these challenges (and those in other international markets), we expect Walmart’s management to reiterate the fact that it is growing share in most markets. E-commerce will be flagged as a bright spot, with year-on-year growth likely to have been sustained at around the 30% mark. With a more coherent e-commerce strategy taking shape, investments in businesses such as Yihaodian in China are looking increasingly shrewd.” “After the horror show of Q1, we are expecting a return to stability and low growth in Q2. Above all, we are hopeful that the Walmart US business can deliver on management’s guidance of comp growth of 0-2%. Although the US consumer remains challenged, the factors that derailed performance so horribly in Q1 (delays in tax refunds, poor weather and lower inflation in food) have all receded and the operating backdrop in Q2 was far more benign. But this compounds the pressure to deliver on guidance – failure to do so (and continued negative traffic is the main downside risk) will shift the focus to the company’s own operational shortcomings, rather than the external retail environment. Although we are anticipating growth in low single-digits at the international division, trading remains almost universally tough. Mexico, the UK and Canada have been highlighted as the three key drivers of international profitability, but all three markets are challenged – trading has been soft in Mexico, the UK remains a mature and highly competitive environment, while the arrival of Target in Canada has intensified pressure on a business already struggling to achieve comp growth. While acknowledging these challenges (and those in other international markets), we expect Walmart’s management to reiterate the fact that it is growing share in most markets. E-commerce will be flagged as a bright spot, with year-on-year growth likely to have been sustained at around the 30% mark. With a more coherent e-commerce strategy taking shape, investments in businesses such as Yihaodian in China are looking increasingly shrewd.” STEPHEN SPRINGHAM Senior Retail Analyst

1.Expectations for the Quarter 2.US: Q2 Strategic Changes 3.Global: Q2 Strategic Changes 4.Outlook 5.What’s new at Planet Retail Strategic Preview: Walmart Q2

4 In its Q1 results presentation, Walmart gave guidance of a Q2 comp sales increase “from flat to 2%” – in the light of Q1, this seemed ambitious. Actual Like-for-Like Sales Projected Like-for-Like Sales

5  Walmart has it all to prove in Q2. Q1 left a very bitter taste. To recap, having provided guidance of “around flat” comp store growth, Walmart US actually reported a decline of 1.4% in the first three months of the fiscal year.  Analysts could therefore be forgiven for a degree of wariness over Walmart’s guidance for Q2 of comp store growth “between flat and 2%.” But against a slightly more favourable macroeconomic backcloth, this rate of growth at the domestic business should be achievable.  International will provide a very mixed picture. In the year to date, Walmart has achieved comp store growth in all its international markets, with the exceptions of Canada and Japan. In the latter market, Walmart has invested in price and is looking to drive customer loyalty. Canada is in the midst of a competitive shake-up, with the entry of Target and sale of Safeway to Sobeys enforcing changes in the status quo. A return to comp store growth will be hard to come by.  The turnaround at China is likely to have continued in Q2, driven by a more prudent location planning strategy. The Yihaodian e-commerce operation remains an exciting long-term prospect.  But counterbalancing this is India. Although the government has recently provided welcome clarification and slight reform on multi-brand retail FDI investment, there are still more questions than answers as to the future direction of Walmart’s joint venture with Bharti. Once bitten, twice shy?