Walmart's (WMT) increasingly global base means its investors must take heed of macro factors.
Still, the strong consumer in the U.S. is only part of the puzzle as the company's $16 billion bet in India on Flipkart, grocery endeavor with Asda in the U.K., and partnership in China with JD.com (JD) , a region that represents 10% of total revenues, position the company at the flash point of many macroeconomic movements this year.
Possibly the biggest catalyst, but also the biggest question mark for Walmart is Flipkart, the Indian eCommerce leader the company paid $16 billion to majority acquire during 2018.
"Regarding Flipkart, with any change like this, there can be some disruption to the business, but we feel good about our ability to transition with minimal interruption," CFO Brett Biggs told analysts in a conference call following the earnings release on Tuesday morning. "While there has been some growing uncertainty in the overall macroeconomic and political environment, we're confident in our ability to operate our business and serve customers effectively in most any economic climate."
One of the key uncertainties in India in particular is the imposition of new, protectionist foreign direct intelligence rules that could curtail Walmart's expansion in the region.
The rules state that a company cannot own equity in any company that sells goods and services on its platform.
That rule extends to inventory, stating that no more than 25% of purchases can be from a marketplace entity or its wholesale unit and cannot influence prices by these bulking buying initiatives. The guidelines also prevent eCommerce giants from mandating exclusive product sales on any platform.
These guidelines seek to bring local companies on par with Amazon (AMZN) and Walmart as each seek to dominate the densely populated subcontinent.
Still analysts have suggested that the powerful legal teams at both Amazon and Walmart should be able to sidestep these clauses.
"Reports suggest e-commerce players are rephrasing agreements with vendors that enunciate that the brands are exclusive to the platform as part of their brand strategy and that the marketplace has no control over it (thereby passing the onus of exclusivity on the brand rather than the marketplace)," J.P. Morgan analyst Christopher Horvers wrote on Tuesday. "This will allow e-commerce platforms to sidestep the new FDI rule that a marketplace cannot mandate any seller to sell any product exclusively on its platform."
CEO Doug McMillon noted that there is still room to negotiate with the Modi government on these actions as well.
"In India, we remain optimistic about the eCommerce opportunity, given the size of the market, the low penetration of eCommerce in the retail channel, and the pace at which it's growing," he said. "In terms of the regulatory environment, we were disappointed in a recent change in law and the lack of consultation that the team has worked to ensure we're in compliance with the new rules. We're committed to providing sellers with a world class platform to sell on and customers with a high quality of service. We hope for a collaborative regulatory process going forward, which results in a level playing field."
The development of legislation and sidesteps to restrictions on Walmart's big bet on India will be a pivotal point to watch in 2019 for the more international and eCommerce conscious company.
Possibly even more obvious due to the ongoing trade war is the company's dealings in China.
"Turning to China, we continue to see significant growth opportunities," McMillon told analysts. "Uncertainties with trade or other macro factors can make for a more challenging environment, but I like the things we're doing to position ourselves in this important market."
He noted that the partnerships with both JD.com and Tencent (TCEHY) to utilize WeChat Pay offer expansion opportunities in the market even amidst these headwinds.
Additionally, the company is eyeing the opening of "300 new stores primarily in Walmex and China" which suggests continued confidence in the market.
Analysts have noted that tariffs could create a problem for the company as China is the company's second largest market and also factors into its supply chain.
The idea of furthering slowing Chinese consumers could have major effects on the company's penetration into the market that is currently dominated by the Chinese-based Alibaba (BABA) .
Still, there is optimism remaining that this pressure could be alleviated and provide some brighter models as the year progresses.
"There is growing speculation/optimism the implementation of tariffs on flooring imports from China may be delayed further and potentially suspended altogether," Morgan Stanley analyst Simeon Gutman said on Tuesday.
In any event, these headline risks appear to be largely digested at this point and should serve to only be a catalyst should the trade risks be reduced.
Lastly, and maybe most pressingly due to the looming Brexit deadline, are the risks present in Europe that hit a flash point in the company's investment in Asda grocery stores in the UK.
"In the UK, Brexit and the potential implications of a hard Brexit is increasingly on the mind of everyone," McMillon acknowledged. "No matter the situation, Asda will always work to keep prices as low as possible for its customers."
Asda also saw sales slow in the fourth quarter in an inopportune turn, adding uncertainty to the situation that will be complicated by international negotiation.
It is worth noting that grocery rival Sainsbury's is attempting to merge with Asda, leaving Walmart with a 42% stake of the likely dominant supermarket in the UK.
However, that too may fall apart amid bureaucratic wrangling.
The Competition and Markets Authority in the country are currently investigating the merger that was first proposed in early 2018 for possible violation of anti-trust laws. The authority is working amid complaints that the move would box out any small time competitors and leave only German giants Lidl and Aldi, UK-based Tesco (TSCDY) , and Morrisons (MRWSY) as viable alternatives for consumers.
The UK represents only 2.1% of the company's overall revenues and is the only market in the Eurozone that stands as a top 5 market, so the impact is not overly stated.
Still, the negotiations over this merger and the trajectory of the Asda segment amid Brexit negotiations remains a potential problem to remain cognizant of.
In summation, Walmart is no longer just a U.S. focused company. As such, investors will need to remain cognizant of this shift and widen their focus globally as well.