Walmart Inc. (then Wal-Mart Stores, Inc.) — Form 10-Q
Reporting period: Three months ended April 30, 2013, the first quarter of fiscal 2014. Comparative figures are for the three months ended April 30, 2012, unless noted. Amounts are in U.S. dollars.
Financial performance
| Metric | Q1 FY2014 | Q1 FY2013 | Change / context |
|---|---|---|---|
| Total revenues | $114.187 billion | $113.010 billion | +1.0% |
| Net sales | $113.429 billion | $112.264 billion | +1.0% |
| Operating income | $6.456 billion | $6.387 billion | +1.1% |
| Consolidated net income | $3.945 billion | $3.894 billion | +1.3% |
| Net income attributable to Walmart | $3.784 billion | $3.742 billion | +1.1% |
| Diluted EPS attributable to Walmart | $1.14 | $1.09 | +4.6% |
| Gross profit margin | 24.2% | 24.1% | +0.1 percentage point |
| Operating margin | 5.7% | 5.7% | Flat, rounded |
Operating cash flow was $4.894 billion, down from $5.434 billion. Capital expenditures were $2.968 billion, up from $2.375 billion; defined free cash flow was $1.926 billion versus $3.059 billion. Management attributed the cash-flow decline mainly to the timing of income tax payments, associated largely with changes in federal bonus depreciation rules, and higher capital spending.
At April 30, 2013, cash and cash equivalents were $8.855 billion. The working-capital deficit was $13.4 billion, versus $11.7 billion at April 30, 2012. Short-term borrowings were $6.255 billion; long-term debt was $41.536 billion, with another $5.967 billion due within one year. Long-term debt including current maturities had a carrying value of $47.503 billion. Debt-to-total capitalization was 44.8%, compared with 44.2% a year earlier.
Business context and changes
Walmart operates Walmart U.S., Walmart International and Sam’s Club. Net sales growth was supported by 3.4% growth in retail square feet and $200 million of sales from prior-year acquisitions. Offsetting factors included negative comparable sales across the company, approximately $1.0 billion of adverse foreign-exchange impact, and the prior-year quarter’s extra leap-year day, which management estimated affected the comparison by approximately 1.0%.
- Walmart U.S.: Sales rose 0.3%, while calendar comparable sales fell 1.9%. Operating income rose 5.9% to $5.329 billion; the segment improved gross margin and reduced operating expenses as a percentage of sales.
- Walmart International: Sales rose 2.9% to $33.005 billion, including store-space growth and acquisition sales, but were reduced by currency effects. Operating income fell 4.7% to $1.256 billion; margin declined from 4.1% to 3.8%.
- Sam’s Club: Sales rose 0.1%; comparable club sales fell 0.9%. Operating income increased 7.4% to $525 million, supported by improved gross margin and expense leverage.
U.S. comparable sales were affected, in management’s view, by lower income-tax refunds, the payroll-tax increase, lower inflation and unfavorable weather. International operating results reflected wage inflation, higher indirect taxes, price investments and e-commerce spending. The company incurred $73 million in FCPA-related costs during the quarter. Walmart said e-commerce initiatives reduced Q1 EPS by approximately $0.02.
Outlook, capital returns and contingencies
- Management expected fiscal 2014 capital expenditures of $12 billion to $13 billion.
- Management expected incremental e-commerce expenses to reduce fiscal 2014 EPS by approximately $0.09 per share. The filing gives no broader earnings forecast.
- The fiscal 2014 annual dividend was increased to $1.88 per share, approximately 18% above the prior fiscal year’s $1.59. The board later authorized a new $15 billion share-repurchase program, replacing the prior program.
- On environmental matters, the company entered plea agreements and an EPA consent agreement requiring approximately $82 million in fines, penalties and community-service payments. The amount had previously been accrued; the company said it would not affect current fiscal-year results materially. Agreements include probation, compliance obligations and monitoring.
- FCPA-related internal and government investigations, including DOJ and SEC investigations, and shareholder litigation remained ongoing. The company said a loss was probable but it could not reasonably estimate a loss or range; it cautioned that future effects could be material. It incurred $73 million of related costs in the quarter.
- Other disclosed proceedings included wage-and-hour and gender-discrimination cases. The company described outcomes as uncertain; certain gender-related matters were not expected by management to be material. No material change to the risk factors in the prior Form 10-K was reported.
Currency movements also drove a $1.392 billion loss in currency translation and other comprehensive income for the quarter. Management reported disclosure controls were effective as of period-end.
Important facts for investors to verify
- Whether weak comparable sales persist, particularly in the U.S., and whether sales growth improves without relying on added store space or acquisitions.
- Whether currency movements, international margin pressure and planned e-commerce investment affect earnings beyond the quarter and stated EPS-cost expectations.
- The timing and magnitude of cash flows, capital spending, debt maturities and shareholder returns, given lower operating cash flow and the working-capital deficit.
- Developments in the FCPA investigations and litigation, including potential costs or penalties that the company said could not yet be estimated.