Walmart Inc. quarterly report, Q3 FY2021

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Walmart Inc. — Form 10-Q Summary

Reporting period: Quarter ended October 31, 2020 (fiscal 2021 third quarter); filed December 2, 2020. Unless otherwise stated, amounts are U.S. dollars.

Financial results

  • Quarter revenue: $134.7 billion, up 5.2% year over year; net sales were $133.8 billion, up 5.3%.
  • Quarter profitability: Operating income was $5.8 billion, up 22.5%; operating margin was 4.3%, versus 3.7%. Gross margin was 25.0%, versus 24.5%. Net income attributable to Walmart was $5.1 billion, versus $3.3 billion; diluted EPS was $1.80, versus $1.15.
  • Nine-month results: Revenue of $407.1 billion, up 6.5%; operating income of $17.1 billion, up 11.9%; net income attributable to Walmart of $15.6 billion, versus $10.7 billion; diluted EPS of $5.48, versus $3.74.
  • Cash flow, nine months: Operating cash flow was $22.9 billion, versus $14.5 billion. Capital expenditures were $6.4 billion, versus $7.8 billion; company-defined free cash flow was $16.4 billion, versus $6.8 billion.
  • Liquidity and debt at October 31: Cash and cash equivalents were $14.3 billion, compared with $8.6 billion a year earlier. Long-term debt, including amounts due within one year, was $45.2 billion; short-term borrowings were $0.2 billion. The company had $15.0 billion of undrawn U.S. committed credit lines. Working capital deficit was $14.5 billion.

Performance and changes versus prior year

  • U.S. comparable sales including fuel rose 6.8% in the quarter. Walmart U.S. eCommerce contributed approximately 5.6 percentage points to its comparable-sales growth; U.S. eCommerce sales were approximately $10.3 billion, versus $5.7 billion.
  • Sam’s Club quarterly net sales rose 8.3% to $15.8 billion and operating income increased to $431 million from $327 million. International net sales rose 1.3% to $29.6 billion, while operating income increased to $1.1 billion from $634 million.
  • Quarter sales growth reflected pandemic-related demand, larger customer baskets and increased eCommerce use. Management cited sourcing initiatives and fewer markdowns as contributors to higher gross margin. COVID-related incremental costs were $0.6 billion for the quarter and $3.0 billion for the nine months.
  • Other gains and losses included a $2.7 billion fair-value increase in equity investments, partly offset by a $1.0 billion Walmart Argentina sale loss. The filing reports a $1.9 billion net gain for the quarter. This non-operating item materially boosted reported earnings.
  • Nine-month operating cash flow benefited from inventory sell-through and the timing of inventory purchases and payments. Capital spending declined, partly because pandemic conditions delayed remodeling and technology projects.

Outlook, risks and unusual items

  • The filing provides no specific numerical sales or earnings guidance. Management expects near-term uncertainty from the pandemic’s duration and intensity, government measures, economic stimulus, employment trends and consumer confidence.
  • Walmart agreed to sell Asda for enterprise value of approximately $9.1 billion; the filing estimated a non-cash loss of approximately $5.5 billion after tax when held-for-sale criteria are met, and anticipated $0.25 of EPS dilution in the first full year after completion. The transaction remained subject to regulatory review.
  • Walmart Argentina’s sale was completed in November 2020; the filing recorded a $1.0 billion loss in the quarter, primarily related to accumulated currency translation losses. The filing’s note describes this as pre-tax, while MD&A describes it as after-tax; the precise tax basis is not clear from the text.
  • In November, Walmart agreed to sell a majority stake in Japan’s Seiyu. It expected an approximately $2.0 billion after-tax non-cash loss in fiscal Q4; completion was expected in fiscal 2022, subject to approvals.
  • Material contingencies include more than 40,000 Asda equal-value employment claims and opioid litigation and investigations. Walmart said it could not reasonably estimate potential losses for these matters and intends to defend the claims.
  • Other risks include foreign-exchange volatility, competition, supply-chain and labor pressures, cybersecurity, changing consumer behavior, credit-rating changes and the uncertain financial effects of COVID-19. Management reported disclosure controls were effective and no material change in internal control over financial reporting.

Important facts for investors to verify

  • How much of earnings growth reflects recurring retail operations versus equity-investment fair-value gains and divestiture-related losses.
  • Whether pandemic-related sales and eCommerce growth, margins and elevated operating cash flow persist as shopping patterns and inventory-payment timing normalize.
  • The final accounting, tax effects, timing and proceeds for the Asda, Argentina and Seiyu transactions, including any changes to estimated losses.
  • Developments in Asda employment claims, opioid litigation and government investigations, for which the filing does not provide a clear estimate of potential losses.
  • Cash accessibility: $3.4 billion of cash was subject to local restrictions or transfer limitations, including approximately $1.4 billion subject to Flipkart minority-shareholder approval for transfer.