Walmart Inc. Form 10-K Summary
Business context and reporting period. Walmart operates Walmart U.S., Walmart International and Sam’s Club, serving customers through stores and eCommerce. This 10-K reports fiscal 2019, ended January 31, 2019; fiscal 2018 is the principal comparison. The filing also reports fourth-quarter results for the quarter ended January 31, 2019.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Total revenue | $514.4 billion | $500.3 billion |
| Net sales | $510.3 billion | $495.8 billion |
| Gross profit rate | 24.5% | 24.7% |
| Operating income | $22.0 billion | $20.4 billion |
| Consolidated net income | $7.2 billion | $10.5 billion |
| Net income attributable to Walmart | $6.7 billion | $9.9 billion |
| Diluted EPS attributable to Walmart | $2.26 | $3.28 |
| Operating cash flow | $27.8 billion | $28.3 billion |
| Free cash flow (company-defined, non-GAAP) | $17.4 billion | $18.3 billion |
- Net sales grew 2.9%; U.S. calendar comparable sales increased 4.0%, including 3.7% at Walmart U.S. and 5.4% at Sam’s Club. Walmart U.S. eCommerce contributed about 1.3 percentage points to its comparable-sales growth.
- Operating margin was 4.3%, compared with 4.1%. Selling, general and administrative expenses were $107.1 billion, up 0.6%, and 21.0% of net sales versus 21.5%.
- Annual net income fell chiefly amid $8.4 billion of other losses: a $4.8 billion pre-tax loss on the majority-stake sale of Walmart Brazil and a $3.5 billion pre-tax unrealized loss on the JD.com investment. Effective tax rate rose to 37.4% from 30.4%.
- By segment, net sales were Walmart U.S. $331.7 billion, International $120.8 billion and Sam’s Club $57.8 billion. Operating income was $17.4 billion, $4.9 billion and $1.5 billion, respectively.
- Fourth-quarter revenue was $138.8 billion and net sales were $137.7 billion. Consolidated net income was $3.8 billion and diluted EPS attributable to Walmart was $1.27; the prior-year quarter reported $2.4 billion and $0.73, respectively.
- Cash and cash equivalents were $7.7 billion. Working capital was negative $15.6 billion, which Walmart says is typical of its operating model. Short-term borrowings were $5.2 billion; long-term debt including amounts due within one year was $45.4 billion. Cash flow from investing was negative $24.0 billion, primarily reflecting the Flipkart acquisition.
- Capital expenditures were $10.3 billion. Total assets were $219.3 billion and Walmart shareholders’ equity was $72.5 billion. Dividends declared were $2.08 per share.
Material changes versus prior period
- Revenue increased 2.8%; U.S. comparable-sales growth strengthened from 2.2% to 4.0%. Operating income rose $1.5 billion, while gross profit rate declined 0.2 percentage points.
- Annual attributable net income declined from $9.9 billion to $6.7 billion, substantially reflecting the Brazil disposal loss and JD.com fair-value decline. The JD investment’s fair-value decrease was recognized in earnings following adoption of a new accounting standard.
- Long-term debt increased to $45.4 billion from $33.8 billion, primarily following $15.9 billion of debt issuance to fund part of Flipkart and for general corporate purposes. Net cash used in investing rose to $24.0 billion from $9.1 billion.
- Flipkart was acquired in August 2018 for approximately $16 billion; Walmart consolidated its results beginning in the third quarter. Walmart sold an 80% stake in Walmart Brazil and divested Walmart Chile banking operations.
Outlook, risks and unusual items
- Management projected fiscal 2020 capital expenditures of approximately $11.0 billion, about 300 new Walmart International stores, primarily in Mexico, Central America and China, and fewer than 10 Walmart U.S. stores. It expected Flipkart’s operations to continue negatively affecting fiscal 2020 net income.
- The Board approved a fiscal 2020 annual dividend of $2.12 per share, up from $2.08. Walmart said it expected liquidity to remain adequate for operations, investment, dividends and repurchases; this is management’s expectation, not a guarantee.
- The proposed Sainsbury/Asda combination remained subject to uncertain regulatory review and did not qualify as held for sale at year-end. Walmart stated it could recognize a loss if the disposal criteria are later met.
- Brazil-sale terms include indemnification for specified pre-closing matters; the recorded liability was $0.8 billion. The company also may receive up to approximately $250 million in contingent consideration.
- Material unresolved exposures include the FCPA investigation (a $283 million accrual was recorded in fiscal 2018), nearly 30,000 Asda equal-value claims with no estimable loss range, and opioid-related litigation for which Walmart could not reasonably estimate a loss range. A $160 million securities class-action settlement was expensed in fiscal 2019.
- Key risks identified include retail and eCommerce competition, execution and cost of omni-channel investment, cybersecurity and data privacy, labor and supplier costs, currency and trade-policy changes, pharmacy reimbursement, regulation, and litigation. Walmart highlighted foreign-exchange and interest-rate exposure; a 100-basis-point interest-rate change was estimated to change annual interest cost by about $110 million.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The control assessment excluded most Flipkart controls, apart from goodwill and intangible-asset recognition.
Investor verification priorities
- Assess recurring earnings and cash generation separately from the Brazil disposal loss and JD.com mark-to-market loss; verify the assumptions behind any adjusted measures.
- Track Flipkart’s operating losses, integration, acquisition accounting and the effect on International segment margins and cash needs.
- Review debt growth, maturities, interest-rate exposure, lease commitments and the sustainability of dividends and share repurchases alongside free cash flow.
- Monitor outcomes and potential financial exposure from FCPA matters, Asda equal-value claims, opioid litigation, Brazil indemnities and the proposed Asda transaction.
- Check subsequent filings for progress against fiscal 2020 capital-investment and store-opening plans and for changes in comparable sales, eCommerce economics and gross margin.