Walmart Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended July 31, 2021. Comparisons are with the corresponding 2020 periods. Amounts are in U.S. dollars.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Total revenue | $141.0 billion, up 2.4% | $279.4 billion, up 2.6% |
| Net sales | $139.9 billion, up 2.2% | $277.0 billion, up 2.4% |
| Operating income | $7.4 billion, up 21.4% | $14.3 billion, up 26.4% |
| Operating margin on net sales | 5.3%, versus 4.4% | 5.1%, versus 4.2% |
| Gross profit rate | 24.8%, versus 24.9% | 24.8%, versus 24.3% |
| Net income attributable to Walmart | $4.3 billion, versus $6.5 billion | $7.0 billion, versus $10.5 billion |
| Diluted EPS | $1.52, versus $2.27 | $2.48, versus $3.67 |
Quarterly SG&A expenses fell 1.7% to $28.5 billion; as a share of net sales, they declined to 20.4% from 21.2%. Lower incremental COVID-related costs and the absence of a prior-year restructuring charge contributed to the improvement, partly offset by wage investments. Net income and EPS comparisons were heavily affected by other gains and losses: Walmart recorded a $953 million loss in the quarter, primarily from equity investment fair-value changes, versus a $3.2 billion gain in the prior-year quarter. For the six months, the corresponding amounts were a $3.5 billion loss versus a $3.9 billion gain.
Segments and material changes
- Walmart U.S.: Quarterly net sales rose 5.3% to $98.2 billion; comparable sales increased 5.4%. Operating income rose to $6.1 billion from $5.1 billion. U.S. eCommerce contributed about 0.3 percentage points to quarterly comparable sales.
- Walmart International: Quarterly net sales declined 15.2% to $23.0 billion, mainly reflecting the Asda and Seiyu divestitures; operating income increased to $861 million from $812 million. Currency movements added $2.4 billion to quarterly segment sales.
- Sam’s Club: Quarterly net sales grew 13.9% to $18.6 billion and operating income rose to $660 million from $592 million. Comparable sales growth reflected higher transactions and average ticket, with stimulus spending contributing.
Walmart completed the Asda sale in February for net consideration of $9.6 billion and the Seiyu sale in March for $1.2 billion. The divestitures reduced the scale of International operations and contributed incremental pretax losses of about $0.4 billion in the first quarter. In July, majority-owned Flipkart completed a $3.6 billion equity funding; Walmart’s ownership fell to approximately 75% in the third quarter of fiscal 2022.
Cash flow, liquidity, and capital
- Six-month operating cash flow was $12.4 billion, down from $19.0 billion, primarily due to increased inventory purchases and comparison with unusually accelerated inventory sell-through in the prior-year period.
- Six-month capital expenditures were $5.0 billion, up from $3.6 billion. Free cash flow, as defined by Walmart, was $7.4 billion versus $15.4 billion.
- Investing activities provided $2.4 billion, chiefly reflecting divestiture proceeds. Financing activities used $11.6 billion, including $5.2 billion of share repurchases.
- At July 31, cash and cash equivalents were $22.8 billion. Long-term debt, including amounts due within one year, was $41.2 billion; short-term borrowings were $0.7 billion. The company had $15.0 billion of undrawn U.S. committed credit lines.
- Working capital deficit was $2.9 billion. Management said liquidity sources were expected to remain adequate for operations, investment, dividends, and repurchases.
- The board authorized a $20.0 billion repurchase program in February; $15.2 billion remained authorized at July 31. Fiscal 2022 annual dividends were set at $2.20 per share, up from $2.16.
Outlook, risks, and contingencies
The filing provides no quantified earnings or sales guidance. Management cited continued uncertainty from COVID-19, including the pandemic’s duration and intensity, stimulus, vaccine progress, employment trends, and consumer confidence. It also highlighted competitive pressures, inflation or deflation, labor and supply-chain costs, currency and fuel-price volatility, cybersecurity, and changing customer behavior.
Walmart faces opioid-related litigation, including a DOJ civil complaint alleging violations of the Controlled Substances Act, and related securities and derivative cases. The company said it could not reasonably estimate a loss or range of loss and could not assure that the matters would not materially affect its business or results. Other disclosed matters include indemnification obligations for Asda equal-value claims, money-transfer investigations, and an early-stage Indian foreign-investment notice concerning Flipkart. The company reported no material change to the risk factors in its latest Form 10-K.
Important facts for investors to verify
- How much of the earnings decline reflects prior-year equity investment gains versus underlying operating performance.
- Whether inventory investment, operating cash flow, and free cash flow recover in subsequent quarters.
- The ongoing effects of the Asda and Seiyu divestitures, currency changes, and Flipkart’s funding and ownership change.
- Progress and potential financial exposure from opioid litigation and other legal or regulatory matters; the filing does not provide a clear loss estimate.
- Whether wage, supply-chain, inflation, and pandemic-related costs affect margins and the company’s liquidity and capital-return plans.