Walmart Inc. — Form 10-Q Summary
Business context and reporting period: The report covers the quarter and nine months ended October 31, 2021, Walmart’s fiscal third quarter and first nine months of fiscal 2022. Walmart operates through Walmart U.S., Walmart International and Sam’s Club. Comparisons below are with the corresponding 2020 periods unless noted. Amounts are in U.S. dollars.
Financial performance
| Metric | Three months | Nine months |
|---|---|---|
| Total revenue | $140.5 billion, up 4.3% | $419.9 billion, up 3.1% |
| Net sales | $139.2 billion, up 4.1% | $416.2 billion, up 3.0% |
| Operating income | $5.8 billion, broadly flat | $20.1 billion, up 17.5% |
| Gross profit rate | 24.6%, down 42 basis points | 24.7%, up 15 basis points |
| Net income attributable to Walmart | $3.1 billion; diluted EPS $1.11 | $10.1 billion; diluted EPS $3.59 |
| Net cash from operating activities | Not presented separately in the supplied cash flow statement | $16.3 billion, versus $22.9 billion |
| Free cash flow | Not presented separately | $7.7 billion, versus $16.4 billion |
Quarterly net income attributable to Walmart declined from $5.1 billion and diluted EPS of $1.80. Nine-month net income declined from $15.6 billion and diluted EPS of $5.48. The comparisons include significant non-operating items, including debt extinguishment and fair-value changes in equity investments.
Quarterly net sales growth was led by Walmart U.S. (+9.3%) and Sam’s Club (+19.7%); International sales fell 20.1%, largely reflecting the Asda and Seiyu divestitures. U.S. comparable sales rose 9.4% at Walmart U.S. and 19.6% at Sam’s Club. Management cited transaction and average-ticket growth, consumer spending and some inflation. E-commerce contributed to comparable sales growth over the nine-month period, though Walmart U.S. e-commerce growth was slower than total comparable sales in the quarter.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $16.1 billion at October 31, 2021. Working capital was negative $4.7 billion; management said Walmart generally operates with a working capital deficit.
- Long-term debt, including amounts due within one year, was $38.0 billion, down from $44.3 billion at January 31, 2021. Short-term borrowings were $0.4 billion. Lease obligations are reported separately.
- Walmart issued $6.9 billion of long-term notes and repaid $13.0 billion of debt in the nine months. Early retirement of higher-rate debt resulted in a $2.4 billion extinguishment loss, including $2.3 billion of premiums.
- U.S. committed credit lines totaled $15.0 billion and were undrawn. Cash from operations fell primarily due to inventory purchasing and wage-payment timing. Capital expenditures were $8.6 billion; management projected approximately $13 billion for fiscal 2022, focused on supply chain, automation, customer initiatives and technology.
- Cash used in financing was $18.1 billion, including $7.4 billion of share repurchases and $4.6 billion of dividends paid. The fiscal 2022 annual dividend was set at $2.20 per share. At quarter-end, $13.1 billion remained under the $20 billion repurchase authorization.
Material changes, outlook and risks
- Gross profit rate declined in the quarter, with management citing higher supply-chain costs and fuel mix; wage investments also offset expense leverage. For the nine months, lower incremental COVID-related costs and sales growth helped reduce operating expenses as a share of sales.
- Other gains and losses were a $1.2 billion gain in the quarter, primarily from equity-investment fair-value changes; for the nine months they were a $2.3 billion net loss, primarily reflecting $1.8 billion of investment losses and $0.4 billion of incremental divestiture losses.
- Asda and Seiyu were sold in February and March 2021 for net consideration of $9.6 billion and $1.2 billion, respectively. Their divestitures reduced International sales; proceeds helped lower investing cash outflow.
- Management said liquidity should be adequate for operations, investment, dividends and repurchases. It cited continuing uncertainty from COVID-19, supply-chain disruption, labor availability and costs, inflation, consumer confidence, currency movements and competition. No specific revenue or earnings guidance is provided in the supplied filing text; the fiscal-year capital expenditure estimate is approximately $13 billion.
- Opioid litigation is a significant contingency. A jury found Walmart and other defendants liable in an MDL case on November 23, 2021, after the quarter-end; Walmart said it would appeal. The company could not reasonably estimate a loss or range of loss and gave no assurance against a material adverse effect. Other disclosed matters include DOJ opioid litigation, Asda equal-value claims, money-transfer investigations, and a foreign-investment notice relating to Flipkart.
- The company reported no material change in the risk factors from its fiscal 2021 Form 10-K. Management stated that disclosure controls were effective and that no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- How much of reported earnings reflects recurring retail operations versus investment fair-value movements, divestiture effects and the $2.4 billion debt-extinguishment loss.
- Whether supply-chain and labor-cost pressures, inflation and inventory investment affect future gross margins and operating cash flow.
- The continuing effect of Asda and Seiyu sales on International segment growth and comparability.
- Developments and potential exposure in opioid litigation, particularly the post-quarter jury verdict, along with other legal and regulatory matters; losses remain unestimable in the filing.
- Execution of the $13 billion fiscal 2022 capital expenditure plan and the balance among investment, dividends, debt reduction and share repurchases.