Walmart Inc. Form 10-Q Summary
Business context and reporting period
Reports the quarter and nine months ended October 31, 2022, in Walmart’s fiscal year ending January 31, 2023. Walmart operates Walmart U.S., Walmart International and Sam’s Club, including stores, clubs and eCommerce. Amounts below are in U.S. dollars.
Financial performance
| Metric | Quarter ended October 31, 2022 | Prior-year quarter | Nine months ended October 31, 2022 | Prior-year nine months |
|---|---|---|---|---|
| Total revenue | $152.8 billion | $140.5 billion | $447.2 billion | $419.9 billion |
| Net sales | $151.5 billion | $139.2 billion | $443.1 billion | $416.2 billion |
| Operating income | $2.7 billion | $5.8 billion | $14.9 billion | $20.1 billion |
| Walmart-attributable net income (loss) | $(1.8) billion | $3.1 billion | $5.4 billion | $10.1 billion |
| Diluted earnings (loss) per share | $(0.66) | $1.11 | $1.97 | $3.59 |
Quarterly net sales increased 8.8%, while operating income fell 53.5%. Gross profit margin was 23.7%, down 89 basis points year over year; operating margin was 1.8%, versus 4.2%. For the nine months, gross margin was 23.7% versus 24.7%, and operating margin was 3.4% versus 4.8%. The quarter’s loss included $3.6 billion of other losses, principally fair-value losses on equity and other investments, and an opioid-related legal charge. The filing reports a $4.8 billion net loss from changes in investment fair values for the quarter. Prior-year comparisons also included a $2.4 billion debt-extinguishment loss.
- Segment trends: Quarterly sales rose 8.5% at Walmart U.S., 7.1% at Walmart International and 12.8% at Sam’s Club. U.S. and Sam’s Club comparable sales were up 8.5% and 12.8%, respectively. Quarterly segment operating income increased at Walmart U.S. and Sam’s Club, but edged down at International. For the nine months, operating income declined at all three segments.
- Drivers and margins: Management attributed sales growth mainly to comparable-sales gains, inflation-related increases in average ticket and transaction growth. Gross-margin pressure reflected U.S. markdowns and product mix, supply-chain costs, and inflation-related LIFO charges at Sam’s Club. International sales for the nine months were also affected by currency movements and the prior-year divestitures of U.K. and Japan operations.
Cash flow, debt and liquidity
For the nine months, operating cash flow was $15.7 billion, down from $16.3 billion. Capital expenditures were $12.1 billion, up from $8.6 billion, leaving reported free cash flow of $3.6 billion versus $7.7 billion. Management cited lower operating income, payment timing and increased investment spending; moderated inventory purchases partly offset the operating-cash-flow decline.
At October 31, 2022, cash and cash equivalents were $11.6 billion. Short-term borrowings were $6.8 billion and long-term debt, including amounts due within one year, was $39.4 billion. The balance sheet showed a $13.7 billion working-capital deficit, versus $4.7 billion at October 31, 2021. Walmart said it generally operates with a working-capital deficit and expects its liquidity sources to be sufficient for operations, investment, dividends and repurchases. It had $15 billion of U.S. committed credit lines, all undrawn. Lease obligations are additional to the borrowings above.
Outlook, risks and unusual items
The filing gives no numerical earnings or sales guidance. Management highlighted ongoing uncertainty from inflation, supply-chain disruption, labor availability and costs, consumer confidence, currency movements and COVID-19-related factors. It described efforts to manage prices and costs, improve inventory and productivity, and prioritize supply chain, technology, customer-facing investments and remodels over new-store openings.
In the quarter, Walmart accrued approximately $3.3 billion for an opioid settlement framework and previously agreed settlements. Announced November 15, 2022, the framework could resolve substantially all state, local and tribal opioid claims for up to approximately $3.1 billion, subject to participation thresholds and other conditions; the two-county judgment on appeal is excluded. Walmart said payment timing and whether the framework will be finalized remain uncertain. The company continues to face other opioid proceedings, including DOJ litigation, as well as money-transfer matters and other legal contingencies; outcomes and potential losses may be material, and certain losses cannot be reasonably estimated.
Other notable items include $4.2 billion of nine-month net losses from changes in fair value of equity and other investments, partly offset by gains and other investment income. The company issued $5.0 billion of long-term notes during the nine months. On November 14, 2022, it authorized a new $20 billion share-repurchase program, replacing the prior program. Management reported disclosure controls were effective and that no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- How the opioid settlement framework’s participation conditions, final amounts and payment schedule develop, and how the recorded accrual compares with ultimate liability.
- Whether investment fair-value movements continue to materially affect reported earnings.
- Whether inflation, markdowns, LIFO charges and supply-chain costs continue to pressure gross margins and free cash flow.
- How planned capital spending, inventory levels and working-capital needs affect cash generation and borrowing.
- How currency movements and the absence of U.K. and Japan operations affect International comparisons and future growth.