Business Context and Reporting Period
Walmart Inc.’s unaudited Form 10-Q covers the three months ended April 30, 2021, the first quarter of fiscal 2022, and compares results with the three months ended April 30, 2020. The company operates Walmart U.S., Walmart International and Sam’s Club. Amounts below are in U.S. dollars.
Financial Results and Key Metrics
- Revenue: Total revenue increased 2.7% to $138.3 billion; net sales rose 2.6% to $137.2 billion. Membership and other income was $1.2 billion.
- Profit and margins: Operating income increased 32% to $6.9 billion. Gross margin improved to 24.7% from 23.7% of net sales, and operating margin rose to 5.0% from 3.9%. Walmart-attributable net income declined to $2.7 billion from $4.0 billion; diluted earnings per share fell to $0.97 from $1.40.
- Unusual income-statement items: Other losses were $2.5 billion, versus a $0.7 billion gain a year earlier. The current-period loss primarily reflected $2.1 billion of fair-value losses on equity investments and $0.4 billion of incremental losses on the U.K. and Japan divestitures. The prior-year gain primarily reflected a fair-value change in Walmart’s JD.com investment.
- Cash flow: Operating cash flow was $2.9 billion, down from $7.0 billion. Capital expenditures were $2.2 billion, yielding company-defined free cash flow of $0.6 billion versus $5.3 billion. Investing activities provided $5.9 billion, including $7.9 billion of net proceeds from disposal of operations. Financing activities used $5.4 billion.
- Liquidity and debt: Cash and cash equivalents were $22.8 billion at April 30. The working-capital deficit was $4.3 billion. Long-term debt, including amounts due within one year, was $43.8 billion; short-term borrowings were $0.4 billion. Walmart had $15.0 billion of committed U.S. credit lines, all undrawn.
- Capital returns: The board approved a $20.0 billion repurchase program in February; $17.6 billion remained authorized at quarter-end. The company repurchased $2.8 billion of shares during the quarter. Fiscal 2022’s annual dividend was set at $2.20 per share, paid in quarterly installments of $0.55.
Material Changes Versus the Prior Comparable Period
- U.S. comparable sales, including fuel, increased 6.0%, compared with 10.5% growth a year earlier. Walmart U.S. comparable sales rose 5.3%; Sam’s Club comparable sales rose 10.1%.
- U.S. sales benefited from stimulus-supported average-ticket growth and eCommerce. Walmart U.S. eCommerce sales were approximately $11.3 billion, versus $8.3 billion; Sam’s Club eCommerce sales were approximately $1.5 billion, versus $1.0 billion.
- Revenue growth was partly offset by about $4.2 billion of lower International sales associated primarily with the divestitures of Asda and Seiyu. Those sales closed in February and March 2021, respectively, for net consideration of $9.6 billion and $1.2 billion.
- Operating cash flow and free cash flow fell primarily because inventory purchases increased, partly reflecting comparison with accelerated inventory sell-through in the prior-year quarter; capital spending also increased by $0.5 billion.
- Operating income improved across all three segments: Walmart U.S. reported $5.5 billion, International $1.2 billion and Sam’s Club $0.6 billion. The International sales decline reflected the divestitures, while lower post-held-for-sale depreciation and other factors supported segment operating income.
Outlook, Commentary, Risks and Contingencies
- Management provided no specific earnings or revenue guidance in the filing. It said uncertainty would continue due to the COVID-19 pandemic, economic stimulus, vaccine timing and effectiveness, employment trends and consumer confidence. Management expected available liquidity to be adequate for operations, investment, dividends and repurchases.
- Management cited stimulus, larger customer baskets and fewer shopping trips as factors supporting U.S. sales; transactions declined overall during the quarter but turned positive in April. Wage and technology investment increased, partly offset by lower incremental COVID-related costs.
- Walmart noted exposure to competition, currency and fuel-price movements, labor and product costs, supply-chain disruption, cybersecurity events, changing consumer demand and economic conditions.
- Opioid-related litigation includes more than 2,000 cases in multidistrict litigation as of May 24, 2021, over 200 state-court cases, a DOJ civil complaint and related securities and derivative actions. Walmart said it could not reasonably estimate a loss or range of loss; an MDL trial involving the company was scheduled for October 2021.
- The company reported $1.3 billion of certain legal and tax indemnification liabilities at April 30, with maximum potential future payments of $4.2 billion under those indemnities. It also disclosed Asda equal-value claims and government investigations concerning money-transfer services and anti-money-laundering controls.
- Walmart reported that no material change had occurred in the risk factors disclosed in its fiscal 2021 Form 10-K. Management concluded disclosure controls were effective.
Important Facts for Investors to Verify
- How much of sales growth and comparable-sales performance persists as stimulus effects and prior-year pandemic comparisons change.
- Whether operating-income improvement translates into durable earnings growth, given equity-investment fair-value volatility and divestiture-related items.
- Inventory trends, operating cash flow and free cash flow, including the effects of working capital and planned capital expenditures.
- Potential financial and operational effects of opioid litigation, the DOJ case, Asda-related indemnities and money-transfer investigations; outcomes and potential losses remain uncertain.
- Execution of the capital-allocation plan, including share repurchases, dividends, liquidity needs and the company’s access to credit markets.