Walmart Inc. 10-Q Summary
Reporting period: Fiscal second quarter and six months ended July 31, 2022. Amounts are unaudited; dollar amounts below are in U.S. dollars.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Total revenue | $152.9 billion, up 8.4% year over year | $294.4 billion, up 5.4% |
| Operating income | $6.9 billion, versus $7.4 billion | $12.2 billion, versus $14.3 billion |
| Net income attributable to Walmart | $5.1 billion, versus $4.3 billion | $7.2 billion, versus $7.0 billion |
| Diluted EPS | $1.88, versus $1.52 | $2.61, versus $2.48 |
| Gross profit rate | 23.5%, down 132 basis points | 23.7%, down 110 basis points |
| Operating income as a percentage of net sales | 4.5%, versus 5.3% | 4.2%, versus 5.1% |
Quarterly net sales rose 8.2%. U.S. comparable sales increased 8.7%, including fuel, and Sam’s Club comparable sales increased 17.3%. International net sales rose 5.7% for the quarter, but declined 4.4% for the half year, partly reflecting the prior-year U.K. and Japan divestitures and unfavorable currency movements.
For the six months, operating cash flow was $9.2 billion, down from $12.4 billion. Capital expenditures were $7.5 billion, compared with $5.0 billion, leaving reported free cash flow of $1.7 billion versus $7.4 billion. The company attributed lower operating cash flow mainly to lower operating income, higher inventory costs and purchases, and payment timing.
At July 31, cash and cash equivalents were $13.9 billion. Short-term borrowings were $10.6 billion, compared with $0.4 billion at January 31; long-term debt, including amounts due within one year, was $35.1 billion. The company reported a $15.7 billion working-capital deficit, versus $2.9 billion at July 31, 2021. It had $15 billion of committed U.S. credit facilities, all undrawn.
Material changes and drivers
- Inflation and strong food sales supported revenue and comparable-sales growth, while management said higher merchandise costs, markdowns, product mix, supply-chain costs and inventory write-downs pressured gross margins.
- Inventory was $59.9 billion, up from $56.5 billion at January 31. Management cited continued supply-chain disruption and higher-than-normal inventory levels.
- Sam’s Club operating income fell to $427 million from $660 million for the quarter, despite strong sales growth; the company cited inventory write-downs, an inflation-related LIFO charge, and elevated supply-chain and eCommerce fulfillment costs.
- Quarterly other gains and losses were a net gain of $238 million, compared with a net loss of $953 million a year earlier. The current-quarter result included investment fair-value gains, a gain on the sale of Walmart’s remaining Brazil equity-method investment, and an investment dividend.
- Six-month capital expenditures increased to $7.5 billion, with more spending directed to supply chain, customer-facing initiatives, technology, and remodels.
Outlook, risks and contingencies
The filing provides no specific earnings or revenue guidance. Management expects continued uncertainty from inflation, supply-chain disruption, employment trends, consumer confidence and COVID-19-related uncertainty. It stated that liquidity sources should be sufficient to fund operations, investment, dividends and share repurchases for at least the next 12 months and thereafter for the foreseeable future.
In opioid litigation, a court ordered Walmart and two other defendants to pay approximately $651 million over 15 years, jointly and severally, including approximately $87 million into an abatement fund by October 1, 2022. Walmart said it plans to appeal. The company stated it cannot reasonably estimate a loss or range of loss for its various opioid matters and cannot assure that these matters will not materially affect its business or financial results.
The FTC filed a complaint alleging violations related to Walmart’s money-transfer agent services and seeking non-monetary relief and civil penalties; Walmart moved to dismiss and said it intends to defend the matter. The filing also describes other legal and regulatory proceedings, including Asda equal-value claims, an India foreign-investment notice, and a California environmental case. Management reported no material change to the risk factors in its fiscal 2022 Form 10-K. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether inventory levels normalize and margin pressure from markdowns, mix, inflation and supply-chain costs eases.
- Whether operating cash flow and free cash flow recover as inventory and capital spending remain elevated.
- How increased short-term borrowing and the working-capital deficit evolve, alongside cash needs, dividends and share repurchases.
- Developments in opioid litigation, including the appeal, potential payments and the company’s inability to estimate aggregate exposure.
- Progress against management’s stated uncertainty factors and the absence of quantified forward guidance in this filing.