Walmart Inc. Form 10-K Summary
Business context and reporting period. This annual report covers the fiscal year ended January 31, 2018 (fiscal 2018); the filing metadata’s “2017 Q4” corresponds to the fiscal fourth quarter ended on that date. Walmart operates Walmart U.S., Walmart International and Sam’s Club, serving nearly 270 million customers weekly through stores and eCommerce. The company’s legal name changed from Wal-Mart Stores, Inc. to Walmart Inc. on February 1, 2018.
Financial performance
| Metric | Fiscal 2018 | Fiscal 2017 |
|---|---|---|
| Total revenues | $500.3 billion | $485.9 billion |
| Net sales | $495.8 billion | $481.3 billion |
| Gross profit rate | 24.7% | 24.9% |
| Operating income | $20.4 billion | $22.8 billion |
| Consolidated net income | $10.5 billion | $14.3 billion |
| Net income attributable to Walmart | $9.9 billion | $13.6 billion |
| Diluted earnings per share | $3.28 | $4.38 |
| Cash from operating activities | $28.3 billion | $31.7 billion |
| Capital expenditures | $10.1 billion | $10.6 billion |
| Free cash flow (company-defined) | $18.3 billion | $21.1 billion |
Net sales grew 3.0%, while operating income declined 10.2%. The 26-basis-point reduction in gross profit rate reflected strategic price investments and eCommerce mix. Operating expenses rose 4.6%, faster than sales, and increased to 21.5% of net sales from 21.2%. Results included a $3.1 billion loss on early debt extinguishment, which management said was intended to reduce future interest expense. The effective tax rate was 30.4%, versus 30.3%; reported diluted EPS includes the debt-extinguishment loss and other items described below.
Fiscal fourth quarter
Fourth-quarter revenue was $136.3 billion, versus $130.9 billion in the prior-year quarter. Consolidated net income was $2.4 billion, compared with $4.0 billion; net income attributable to Walmart was $2.2 billion, versus $3.8 billion. Diluted EPS was $0.73, compared with $1.22. The filing notes that fourth-quarter results are seasonally important; the period’s results also reflect the fiscal-year items discussed below.
Segments and operating indicators
- Walmart U.S.: Net sales rose 3.5% to $318.5 billion; comparable sales increased 2.1%. Operating income edged up to $17.9 billion from $17.7 billion, while segment operating margin declined to 5.6% from 5.8%.
- Walmart International: Net sales increased 1.7% to $118.1 billion; operating income fell to $5.4 billion from $5.8 billion. Currency movements reduced segment operating income by $68 million. Sales also reflected the divestitures of Yihaodian and Suburbia.
- Sam’s Club: Net sales rose 3.2% to $59.2 billion, but operating income fell to $1.0 billion from $1.7 billion. The segment closed 63 clubs during the year, ending with 597.
Debt and liquidity
Cash and cash equivalents were $6.8 billion at year-end. Short-term borrowings were $5.3 billion, and total long-term debt, including amounts due within one year, was $33.8 billion. The company reported a working-capital deficit of $18.9 billion, compared with $9.2 billion a year earlier, attributing the increase partly to short-term borrowing associated with debt extinguishment. Walmart also had $12.5 billion of undrawn U.S. committed credit lines and approximately $4.0 billion outside the U.S. Management stated that liquidity was expected to remain adequate for operations, investment, dividends and share repurchases.
Fiscal 2018 cash dividends were $6.1 billion and share repurchases were $8.3 billion. The board approved a fiscal 2019 annual dividend of $2.08 per share, up from $2.04. At year-end, $18.8 billion remained authorized under the $20 billion share-repurchase program.
Material changes, outlook and risks
- Unusual charges and restructuring: Fiscal 2018 included $1.2 billion in restructuring charges, including $665 million at Sam’s Club, $300 million in corporate severance, and $236 million in Walmart International. Other cited expense items included a $400 million associate lump-sum bonus, a $283 million FCPA accrual, and $244 million for Walmart U.S. discontinued real-estate projects. Total impairment charges were $1.4 billion.
- Tax reform: The Tax Cuts and Jobs Act was enacted in December 2017. Walmart recorded a provisional $1.9 billion transition-tax expense and a $2.1 billion deferred-tax benefit, resulting in a net $0.2 billion tax benefit. The company said estimates remained provisional and could be adjusted during fiscal 2019.
- Strategy and capital spending: Walmart shifted capital toward store remodels, eCommerce, technology and supply chain, and away from new U.S. store openings. Fiscal 2019 capital expenditures were projected at approximately $11.0 billion, including about 1,000 additional U.S. online-grocery locations; management expected approximately 280 new, expanded or relocated stores and clubs globally.
- Key exposures: The filing highlights intense retail and eCommerce competition, execution and cost risks from digital investment, foreign-exchange movements, labor and supplier costs, cybersecurity and supply-chain disruptions, and regulatory and tax uncertainty.
- Contingencies: Walmart recorded a $283 million accrual for ongoing FCPA-related matters but said final timing and resolution were uncertain. ASDA faced more than 10,000 UK equal-value pay claims, and Walmart was named in opioid-related litigation; the company said it could not reasonably estimate losses for these matters. Brazilian tax and legal exposures were also noted.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- How fiscal 2019 results and margins absorb the continuing investments in eCommerce, price and associate compensation.
- The final tax effects of the Tax Act and any adjustments to the provisional fiscal 2018 tax amounts.
- Actual cash needs and borrowing levels given the working-capital deficit, debt maturities, dividends and repurchases.
- Progress and costs associated with the FCPA investigation, ASDA equal-value claims and opioid litigation.
- Whether Sam’s Club closures and Walmart International restructuring improve operating performance, and the ongoing impact of currency changes and divestitures.