Walmart Inc. 10-Q Filing Summary
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for Walmart Inc. for the three-month period ended April 30, 2009 (First Quarter of Fiscal Year 2010). The company operates retail stores in the United States and internationally, including wholly-owned subsidiaries, majority-owned subsidiaries, and joint ventures. The report includes unaudited condensed consolidated financial statements.
Key Financial Metrics
| Metric | Q1 2010 (Apr 30, 2009) | Q1 2009 (Apr 30, 2008) |
|---|---|---|
| Total Net Sales | $93,471 million | $94,042 million |
| Operating Income | $5,217 million | $5,317 million |
| Net Income Attributable to Wal-Mart | $3,022 million | $3,022 million |
| Diluted EPS (Continuing Ops) | $0.77 | $0.76 |
| Operating Cash Flow | $3,571 million | $3,779 million |
| Free Cash Flow | $964 million | $1,332 million |
| Cash and Equivalents | $6,578 million | $8,042 million |
| Total Debt | $43,171 million | $48,072 million |
| Dividends Declared Per Share | $1.09 | $0.95 |
Margins: Gross profit margin increased to 24.7% from 24.1% in the prior year. The effective tax rate was 33.7% compared to 34.2% in the prior year.
Material Changes vs. Prior Period
- Revenue: Total net sales decreased 0.6% year-over-year. This decline was primarily driven by a $4.8 billion unfavorable impact from currency exchange rates on the International segment and one extra selling day in the prior year's leap year.
- Segment Performance:
- Walmart U.S.: Net sales increased 3.8% and operating income increased 3.3%, driven by comparable store sales growth of 1.6% and expansion.
- International: Net sales decreased 11.1% and operating income decreased 16.2%, heavily impacted by the strengthening U.S. dollar.
- Sam's Club: Net sales decreased 1.4% due to a 2.2% decline in comparable club sales, largely driven by lower fuel sales.
- Costs: Operating expenses as a percentage of net sales increased 0.5 percentage points, primarily due to higher health benefit costs in the U.S. and expenses related to the Chile acquisition and Canadian store closures.
- Liquidity: Cash and cash equivalents decreased by $1.46 billion. Commercial paper outstanding decreased significantly from $5.92 billion to $1.46 billion.
Guidance, Outlook, and Risks
- Dividends: The Board approved a 15% increase in the annual dividend to $1.09 per share for Fiscal 2010.
- Share Repurchases: The company repurchased $886 million of stock in the quarter. On June 4, 2009, the Board replaced the existing $15 billion program with a new $15 billion authorization.
- Tax Outlook: Management expects the Fiscal 2010 annual effective tax rate to be approximately 34-35%.
- Legal Proceedings:
- Wage-and-Hour: Settlements for 63 class actions are pending court approval, with potential payments between $352 million and $640 million. Significant cases remain, including Dukes v. Wal-Mart (gender discrimination) and Savaglio v. Wal-Mart (meal/rest breaks).
- Environmental: Ongoing criminal and civil investigations regarding hazardous waste handling and transportation (RCRA, Clean Water Act) in California and other jurisdictions. Management does not currently believe these will have a material effect on financial condition.
- Discontinued Operations: The company recognized an $8 million loss from discontinued operations related to the restructuring of its Japanese subsidiary, The Seiyu Ltd.
Investor Verification Checklist
- Currency Impact: Verify the sensitivity of International segment results to U.S. dollar fluctuations, which caused a $4.8 billion sales reduction this quarter.
- Legal Exposure: Monitor the status of the Dukes v. Wal-Mart gender discrimination class certification appeal and the final approval of the 63 wage-and-hour settlements.
- Healthcare Costs: Assess the trajectory of rising health benefit costs in the U.S. segment, which pressured operating margins.
- Capital Allocation: Review the execution of the new $15 billion share repurchase program and the timing of dividend payments.
- Environmental Liabilities: Track the outcomes of ongoing hazardous materials investigations in California and Missouri.