By Phil Wahba
(Reuters) - Wal-Mart Stores Inc
He will take the reins at a time sales growth in the United States is tepid and the company is trying to improve profitability at its international stores.
McMillon, 47, who has spent his whole career at Wal-Mart, was widely considered by Wall Street investors to be the front runner to succeed CEO Mike Duke, 63.
Since January 2009, he has headed Walmart International, the company's second-largest operating unit. Prior to that, he was CEO of the company's retail warehouse chain, Sam's Club.
"McMillon has done just about every job there is (at Wal-Mart)," said Joe Feldman, analyst with Telsey Advisory Group. "He's a good fit culturally and, as a young 47-year-old, there's an opportunity to be there for a long time," he said.
The retailer's shares closed up 0.8 percent to $80.43, an all time high.
McMillon, who has also worked at Walmart U.S., the company's biggest division, has long been believed to have the support of the Walton family, which controls almost half of the company's shares, according to Cowen & Co analyst Faye Landes.
"This was McMillon's to lose," said Telsey's Feldman.
Landes said the move will likely lead to some changes in Wal-Mart's top echelons. Among those who may be affected is Bill Simon, CEO of Walmart U.S. and also a top candidate for the job.
During Duke's time as CEO, Wal-Mart shares have risen 69.3 percent, underperforming both the S&P 500 <.SPX>, which rose 118.5 percent during that period, and the S&P Retail Index <.SPXRT>, which gained 253 percent.
McMillon will start in his new role on February 1, while Duke will continue as chairman of the executive committee of the board and stay on as an adviser to McMillon for a year.
Originally from Jonesboro, Arkansas, McMillon joined Wal-Mart in 1984 as a summer employee at a distribution center. After studying for an MBA degree, he rejoined the company in a Tulsa, Oklahoma store in 1990.
A retailer of Wal-Mart's size and reach - its U.S. sales are equivalent to about 1.7 percent of gross domestic product - can only grow so much. But Stifel Nicolaus & Co analyst David Schick said Wal-Mart can increase sales by opening more of its successful smaller format stores to spur U.S. sales and doing more to integrate e-commerce and its physical stores to offer shoppers conveniences that Amazon.com Inc
In McMillon's first three years as head of Walmart International, sales rose about 35 percent, compared with 6.4 percent at the U.S. unit. But much of that gain came from its 2012 acquisition of Massmart, a South Africa-based retailer.
Elsewhere, Walmart International has struggled to grow more recently, with comparable sales down last quarter in key markets such as Britain, Canada, China and Mexico, and an operating profit that declined in the first nine months of the fiscal year. McMillon has said in recent quarters the retailer must do more to control costs in international markets.
Still, international sales have outpaced those in the United States.
"McMillon was responsible for the growth area for Wal-Mart - international sales - and that's why he got the nod," said Walter Loeb, president of retail consultancy Loeb Associates.
The company became embroiled in a bribery scandal on McMillon's watch. In 2011, Wal-Mart began an internal probe into alleged violations of the U.S. Foreign Corrupt Practices Act and whether the company had handled such matters appropriately. U.S. authorities are also investigating.
A Wal-Mart spokeswoman said the CEO change was not related to the FCPA probe.
Wal-Mart has spent hundreds of millions on the probe.
At the same time, Walmart U.S. has faced slow growth, hurt by consumers' curbing spending and the growth of dollar store chains. Wal-Mart has reported declining U.S. comparable sales for three quarters in a row. Comparable sales include sales at stores open at least one year, as well as online sales.
The company was slow to react to the threat from Amazon.com, which has in recent years vastly increased its assortment of products that shoppers can buy online, selling items such as toys at low prices. It also shortened delivery times.
Wal-Mart has invested heavily in e-commerce in the last few years but still only generates about 2 percent of sales online.
Wal-Mart said it would announce a new head for its international division before January 31, the end of its fiscal year, and Landes predicted it would be Cathy Smith, the division's second in command
Despite the company's modest growth, analysts said, McMillon's deep understanding of the company will be more beneficial than a radical overhaul.
"This is a tank - I would get nervous if there a big change in direction," said Shawn Kravetz, president of Esplanade Capital, an investment firm.
(Additional reporting by Aditi Shrivastava and additional writing by Robin Paxton; Editing by Joyjeet Das, Ted Kerr and Steve Orlofsky)