Wal-Mart’s U.S. Stores About Twice as Valuable as International Stores

Wal-Mart (NYSE:WMT) is the world’s largest retailer, competing with companies like Target (NYSE:TGT), Costco (NASDAQ:COST), Amazon (NASDAQ:AMZN) and Best Buy (NYSE:BBY). Our price estimate for Wal-Mart stands at $70.75, which implies a roughly 35% premium to market price. Wal-Mart is the biggest retailer in the world and has operations spread across the U.S and international markets. It sells a variety of merchandise ranging from groceries to apparel and electronics products.

U.S. Stores Almost Twice As Valuable As International Stores

Despite ample growth potential in international markets, the U.S. still remains a very valuable territory to Wal-Mart. We estimate that Wal-Mart’s U.S. stores constitute about 61% of the company’s equity value, vs. a 33% contribution from international stores.

So why is the U.S. business so much more valuable?

Interestingly, this difference is not driven by revenue per square foot. This figure stood at around $401 for international stores in 2010 compared to $427 for U.S. stores.

See our full analysis and $70.75 price estimate for Wal-Mart

The answer is not store count either. Wal-Mart has a higher international than domestic store count. The company’s U.S. store count stood at about 3,800 at the end of 2010, vs. over 4,500 for international stores.

So what is the key metric that differentiates U.S. vs. international stores?

As it turns out, the answer lies within square footage per store. Wal-Mart’s international stores are much smaller than their U.S. counterparts. Square footage per U.S. store stood at about 162,000 in 2010, whereas international store square footage was around 63,000.

See our full analysis and $70.75 price estimate for Wal-Mart

Why Are International Stores Smaller?

The typical big box model may not be appropriate for emerging markets. There have been several instances where western retailers have tried to follow the “one size fits all” approach in emerging markets and failed. Smaller formats that appeal to consumers in emerging markets might be more appropriate to connect with consumers and establish brand presence.

Wal-Mart has actually been emphasizing efficiency in its U.S. stores, and will likely cut down retail space for these stores through remodeling. It is likely that new international stores will be smaller in size as well. Additionally, since smaller stores require less capital, the company can optimally utilize available capital to expand into new markets.