Walmart Inc. (formerly Wal-Mart Stores, Inc.) — Form 10-Q
Reporting period: Three and six months ended July 31, 2012; fiscal year ends January 31. Amounts are in U.S. dollars. Comparisons are with the corresponding 2011 periods unless stated otherwise.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Net sales | $113.5 billion, up 4.5% | $225.8 billion, up 6.5% |
| Operating income | $6.7 billion, up 4.9% | $13.1 billion, up 6.6% |
| Income from continuing operations attributable to Walmart | $4.0 billion, versus $3.8 billion | $7.8 billion, versus $7.2 billion |
| Diluted earnings per share | $1.18, versus $1.09 | $2.27, versus $2.06 |
| Gross profit rate | 24.6%, down 18 basis points | 24.3%, down 23 basis points |
| Operating income as a share of net sales | 5.9%, unchanged | 5.8%, unchanged |
U.S. comparable sales rose 1.9% in the quarter and 3.1% year to date; Sam’s Club comparable sales rose 3.2% and 5.3%, respectively. International sales growth included fiscal 2012 acquisitions, while currency movements reduced consolidated sales by $2.2 billion for the quarter and $3.0 billion year to date. Walmart cited price investments and acquisitions as contributors to lower gross profit rates; expense leverage helped offset this pressure.
Cash flow, debt and liquidity
- Six-month operating cash flow was $11.6 billion, up from $9.7 billion. Capital expenditures were $5.5 billion; company-defined free cash flow was $6.1 billion, versus $4.0 billion.
- Cash and cash equivalents were $7.9 billion at July 31, 2012. The company reported a $12.1 billion working-capital deficit, compared with $9.2 billion at July 31, 2011, primarily reflecting more long-term debt due within one year.
- Short-term borrowings were $6.1 billion; long-term debt was $41.2 billion, including $4.0 billion due within one year. These amounts exclude capital-lease obligations. The company’s debt-to-total-capitalization ratio was 43.7%, versus 45.7% a year earlier.
- Financing cash outflows included $2.7 billion in dividends paid and $3.4 billion in share repurchases. The company had $7.9 billion remaining under its $15 billion repurchase authorization.
Outlook, commentary and risks
- Management expected fiscal 2013 capital expenditures of $12.6 billion to $13.5 billion and the effective tax rate at the lower end of its prior 32.5%–33.5% guidance. The filing does not provide a full-year earnings or sales forecast.
- Management said operating cash flows and short-term borrowing capacity should fund seasonal inventory needs and other cash requirements. Continued favorable debt-market access depends in part on maintaining credit ratings; lower ratings could raise financing costs or constrain access.
- The board increased the fiscal 2013 annual dividend to $1.59 per share, approximately 9% above fiscal 2012. Management also described continued investment in price leadership, productivity and global e-commerce.
- The company’s ongoing FCPA-related internal and government investigations and shareholder litigation have uncertain outcomes. Related costs were $34 million for the quarter and $51 million year to date; further costs, enforcement actions or other consequences are possible, and management could not predict the outcome.
- Other disclosed proceedings include a wage-and-hour class action pending further appeal and hazardous-materials investigations. The company said it did not believe potential losses in those matters would be material, while noting that some proceedings could result in material liabilities if decided adversely. Management reported no material change to the risk factors in the prior Form 10-K.
- Other comprehensive income attributable to Walmart was negative $1.1 billion for the quarter, primarily reflecting currency translation and derivative losses; this reduced comprehensive income but did not represent a comparable decline in quarterly net income.
Important facts for investors to verify
- Whether sales growth and operating-income gains persist as price investments weigh on gross profit rates.
- International performance on a constant-currency basis, including acquisition contributions and exposure to exchange-rate movements.
- The progress, costs and potential financial or operational consequences of the FCPA investigations and related lawsuits.
- Debt maturities, short-term borrowing use, working-capital trends and continued access to credit markets.
- Whether planned capital expenditures, dividend payments and share repurchases remain supported by operating cash flow.