Walmart Inc. 10-Q Summary
Business context and period: Walmart reported the three months ended April 30, 2022, the first quarter of fiscal 2023. Its reportable segments are Walmart U.S., Walmart International and Sam’s Club. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Key financial results
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Total revenue | $141.6 billion | $138.3 billion |
| Net sales | $140.3 billion | $137.2 billion |
| Operating income | $5.3 billion | $6.9 billion |
| Consolidated net income | $2.1 billion | $2.8 billion |
| Net income attributable to Walmart | $2.1 billion | $2.7 billion |
| Diluted earnings per share | $0.74 | $0.97 |
| Gross profit margin as a percentage of net sales | 23.8% | 24.7% |
| Operating income as a percentage of net sales | 3.8% | 5.0% |
| Operating cash flow | $(3.8) billion | $2.9 billion |
| Free cash flow | $(7.3) billion | $0.6 billion |
Cash and cash equivalents were $11.8 billion at April 30, 2022, versus $22.8 billion a year earlier. Inventory was $61.2 billion, up from $46.4 billion a year earlier. Short-term borrowings were $11.4 billion; long-term debt, including amounts due within one year, was $35.8 billion. The company had $15.0 billion in committed U.S. credit lines, all undrawn. Working capital deficit was $13.3 billion, compared with $4.3 billion at April 30, 2021.
Material changes and segment performance
- Revenue increased 2.4%, while operating income declined $1.6 billion and Walmart-attributable net income declined $676 million year over year. Walmart said the net income decline reflected lower operating income and other factors.
- Gross margin contracted 87 basis points; operating expenses rose 4.5%, faster than net sales growth of 2.3%, and expenses as a percentage of net sales increased 45 basis points. Management cited higher supply-chain costs, product and fuel mix, inflation and increased U.S. wage costs.
- Other gains and losses were a net loss of $2.0 billion, primarily from fair-value changes in equity investments. The prior-year net loss was $2.5 billion, including equity investment losses and losses associated with the U.K. and Japan divestitures.
- Walmart U.S.: Net sales rose 4.0% to $96.9 billion; comparable sales increased 4.0%. Operating income fell to $4.5 billion from $5.5 billion. Grocery sales and higher average tickets supported sales; transactions were relatively flat.
- Walmart International: Net sales fell 13.0% to $23.8 billion, primarily reflecting the prior-year-period comparison with the U.K. and Japan businesses, which had been divested. Operating income declined to $772 million from $1.2 billion.
- Sam’s Club: Net sales increased 17.5% to $19.6 billion and comparable sales rose 17.4%, including fuel. Operating income declined to $460 million from $575 million; management cited lower gross margin from supply-chain costs, inflation and markdowns related to inventory delays.
Cash flow, capital allocation and outlook
Operating cash flow swung to an outflow of $3.8 billion, which management attributed primarily to higher inventory costs and purchases, lower operating income, and timing of payments and payables. Capital expenditures increased to $3.5 billion from $2.2 billion. Financing cash flow was $5.3 billion, principally reflecting a $11.0 billion net increase in short-term borrowings. The company paid $1.5 billion in dividends and repurchased $2.4 billion of stock during the quarter.
The board approved a fiscal 2023 annual dividend of $2.24 per share, up from $2.20. As of April 30, $8.3 billion remained under the $20 billion share repurchase authorization. Walmart stated that it expects liquidity sources to be sufficient for operations, investment, dividends and repurchases for at least the next 12 months and thereafter for the foreseeable future. The filing provides no specific consolidated earnings or sales guidance for the year.
Management highlighted uncertainty from inflation, supply-chain disruptions, labor availability and costs, consumer confidence, COVID-19-related conditions, currency movements, fuel prices and competition. It also noted that higher inventories and investment spending pressured free cash flow. The company said its risk factors were not materially changed from its FY2022 Form 10-K.
Contingencies and unusual items
- Opioid litigation: A jury found Walmart liable in one multidistrict litigation case; the abatement phase concluded in May 2022, with a court ruling pending. Walmart intends to appeal and said it cannot reasonably estimate a loss or range of loss. Related government, state, securities and derivative proceedings are also ongoing.
- Money transfer matters: Walmart disclosed an FTC investigation into its anti-fraud program. The FTC authorized a complaint on June 1, 2022 seeking monetary and injunctive relief; the company said it cannot reasonably estimate potential loss.
- The filing also discusses Asda equal-value claims, an India foreign-investment notice concerning Flipkart, and a California environmental proceeding. Outcomes and potential liabilities for these matters are uncertain.
Important facts for investors to verify
- Whether inventory levels normalize and operating cash flow recovers, given the quarter’s substantial inventory-related cash use.
- Whether inflation, supply-chain costs, wage increases and merchandise mix continue to pressure margins and operating income.
- The outcome and potential financial exposure of the opioid cases and FTC money-transfer proceeding; the filing does not provide clear loss estimates.
- How the company funds planned capital spending, dividends and repurchases while short-term borrowings are elevated and cash is lower year over year.
- The continuing effects of the U.K. and Japan divestitures, currency movements and other international market conditions on reported results.