Walmart Inc. (Wal-Mart Stores, Inc.) — Form 10-Q Summary
Reporting period: First quarter of fiscal 2012, the three months ended April 30, 2011. Comparative results are for the three months ended April 30, 2010. Financial amounts are in U.S. dollars; income and cash-flow amounts are in millions unless stated otherwise.
Business context and results
Walmart operates through Walmart U.S., Walmart International and Sam’s Club. Net sales increased 4.4% to $103.415 billion; management attributed growth to expansion, Sam’s Club comparable-sales growth and a $1.3 billion favorable currency effect on International sales. U.S. comparable store and club sales increased 0.7% including fuel.
| Metric | Q1 FY12 | Q1 FY11 |
|---|---|---|
| Total revenues | $104.189 billion | $99.811 billion |
| Operating income | $5.896 billion | $5.737 billion |
| Income from continuing operations | $3.578 billion | $3.444 billion |
| Net income attributable to Walmart | $3.399 billion | $3.301 billion |
| Diluted EPS attributable to Walmart | $0.97 | $0.87 |
| Gross profit margin | 24.4% | 24.7% |
| Operating margin on net sales | 5.7% | 5.8% |
| Effective tax rate | 33.5% | 34.6% |
Walmart U.S. sales grew 0.6%, while comparable sales declined 0.9%; International sales rose 11.5%, including currency benefits; Sam’s Club sales rose 9.4%, with comparable club sales up 8.8% including fuel. Operating income grew 0.8% in U.S., 1.2% in International and 7.0% at Sam’s Club. International and Sam’s Club operating margins declined year over year.
Cash flow, liquidity and debt
- Operating cash flow was $1.974 billion, versus $973 million; property and equipment payments were $2.389 billion, producing negative free cash flow of $415 million, improved from negative $1.590 billion. Management cited timing of accrued liabilities and working-capital movements.
- Cash and cash equivalents were $9.400 billion at April 30, 2011. Current assets were $55.958 billion and current liabilities $62.051 billion, a working capital deficit of approximately $6.1 billion.
- Short-term borrowings were $3.451 billion; long-term debt, including amounts due within one year, was $48.659 billion. The company issued $5.0 billion of senior unsecured notes in April, with maturities from 2014 to 2041; net proceeds were approximately $4.9 billion.
- Debt-to-total-capitalization was 46.1%, versus 41.6% a year earlier. The company reported a $2.1 billion share repurchase and $1.274 billion of dividends paid during the quarter.
Changes, outlook and notable items
- Net sales growth slowed to 4.4% from 6.0% in the comparable quarter. Gross margin fell 30 basis points, mainly due to International sales mix and price investment, and higher Sam’s Club fuel costs. Operating income grew 2.8%, slower than sales growth.
- Management expected fiscal 2012 capital expenditures of $12.5–$13.5 billion, excluding acquisitions, and an annual effective tax rate of approximately 33.5%–34.5%. It stated operating cash flow and borrowing access should support seasonal and other cash needs; no full-year sales or earnings guidance is provided in the filing text.
- The Board declared a fiscal 2012 annual dividend of $1.46 per share, a 21% increase over fiscal 2011. On June 2, after quarter-end, it replaced the prior repurchase authorization with a new $15 billion program.
- Unusual items included $117 million of foreign-currency derivative mark-to-market gains; a $67 million ASDA pension-related charge; a $51 million Japan earthquake and tsunami loss; and a $51 million gain on sale of an investment in Chile. The quarter also included a $28 million after-tax loss from discontinued operations.
- Netto’s 147 U.K. stores were acquired for £778 million (about $1.3 billion), with conversion to ASDA underway; results were expected to affect the company from Q2 FY12. The proposed 51% Massmart acquisition remained subject to conditions, with closing expected in Q2 FY12. The Bounteous/Trust-Mart transaction remained subject to approvals.
- Material contingencies include the Dukes gender-discrimination class action, then before the U.S. Supreme Court, and the Pennsylvania wage-and-hour judgment of approximately $188 million, then on appeal. Walmart said it could not reasonably estimate a possible loss range for Dukes. It considered the outcome of several hazardous-materials investigations not likely to have a material financial effect.
- Management identified currency and fuel-price volatility, competition, costs, economic conditions, legal proceedings and access to debt markets as risks. It reported disclosure controls effective and no material change in internal control over financial reporting other than ongoing financial-system implementation.
Important facts for investors to verify
- Underlying comparable-sales and operating trends, particularly the U.S. comparable-sales decline and Sam’s Club’s fuel-driven growth.
- Whether gross-margin pressure, currency effects and the identified one-time items persist or reverse in subsequent quarters.
- Cash conversion, inventory and accrued-liability timing, planned capital spending, and the working-capital deficit.
- Debt levels, refinancing needs, credit ratings and the pace of dividends and share repurchases relative to cash generation.
- Developments, potential exposure and any recorded accruals for major litigation and environmental matters; the filing does not provide a clear possible loss range for certain cases.
- Completion, conditions and financial impact of the Massmart and Bounteous transactions, and the integration and conversion of Netto stores.