Executive departures don’t diminish growth potential in China

The resignation of two top executives at Walmart China earlier this week initially seemed a rather stunning development given China’s importance to Walmart’s future and the fact that the company just held an analysts meeting in Shenzhen in late March. However, Walmart is now looking to capitalize on compelling growth prospects in the world’s second largest economy without the services of CFO Roland Lawrence and COO Rob Cissell. Walmart announced their simultaneous departure, but did not identify replacements. Ed Chan currently serves as president and CEO of Walmart China and Scott Price serves as president and CEO of Wal-Mart Stores Asia.

The unexplained departure of top executives always prompts speculation, and this situation is no different, especially since Walmart had disclosed China was a top performing country during the first quarter and had just outlined growth intentions at the late March investor conference. Lawrence was prominently involved in presentations to investors while Cissell was conspicuously absent and did not participate in the Web cast portion of the event.

China currently accounts for about $7.5 billion of Walmart’s total revenues of roughly $420 billion, but its business results in the market have been a bit bumpy of late despite top line growth. Walmart International president and CEO Doug McMillon during a pre-recorded message in which he discussed first quarter results, singled out China, along with Mexico and Chile, as having the highest same-store sales growth and new store activity. Same-store sales in China grew 4.5% during the first quarter, but that gain was entirely due to an 11% increase in transaction size as customer traffic declined 5.8%.

In addition, McMillon noted that operating income declined slightly to an undisclosed level as expenses increased primarily due to higher payroll and tax costs and inventories rose by 11.4%. During the past 12 months, Walmart has opened 49 new stores in China and ended the first quarter with a total of 333 Chinese units.