Walmart’s Sales and Earnings Up in Q2

Wal-Mart Stores, Inc. reported net sales during the second fiscal quarter were $116.2 billion, an increase of 2.4 percent over last year. On a constant currency basis, net sales would have increased 2.8 percent to $116.7 billion. Membership and other income decreased 4.3 percent versus last year. Total revenue was $116.9 billion, an increase of $2.7 billion, or 2.3 percent over last year.

Consolidated net income attributable to Walmart was $4.1 billion, up 1.3 percent. Diluted earnings per share attributable to Walmart (EPS) were $1.24, a 5.1 percent increase, compared to $1.18 last year. EPS for the quarter was impacted by approximately $0.01 due to a charge for a certain non-income tax matter recorded in operating expenses within Walmart International.

“We delivered a solid increase in earnings per share for the second quarter,” said Mike Duke, Wal-Mart Stores, Inc. president and chief executive officer. “Consolidated net sales and our Walmart U.S. comp were below expectations. While the retail environment was challenging across all of our markets, the Walmart U.S. and Sam's Club businesses improved comp sales from the first quarter, and the growth of International sales was consistent.”

“I'm encouraged by our position to execute in the second half of the year, particularly with the steps we're taking to improve performance,” said Duke. “There are areas of our business where we can do a better job, and we will. I'm confident in our associates' abilities to deliver for our customers with EDLP and for shareholders with improved expense savings.”

The company did not leverage operating expenses during the second quarter, due to softer than expected sales and higher investment in key areas.

“We are pleased that our U.S. segments leveraged expenses for the first half,” said Duke. “While it will be difficult, we believe the steps we're taking to control costs, especially in International, will bring us closer to our full-year leverage goal. We will continue to invest in leverage initiatives, compliance and e-commerce as we focus on future growth.”
Returns

“We were pleased with our Q2 growth in earnings per share, especially in light of the current retail environment,” said Charles Holley, executive vice president and chief financial officer. “The company generated solid cash flows from operations, and we continue to deliver strong consistent returns to shareholders.”

During the second quarter, the company repurchased approximately 24 million shares for $1.9 billion. In addition, the company paid $1.5 billion in dividends.

Return on investment1 (ROI) for the trailing 12-months ended Jul. 31, 2013 was 17.9 percent, compared to 18.1 percent for the prior trailing 12-months ended Jul. 31, 2012. The decline was primarily the result of acquisitions, along with an increase in fixed assets within Walmart's base business.

Free cash flow was $5.2 billion for the six months ended Jul. 31, compared to $6.1 billion in the prior year. The timing of the tax payments and growth of capital expenditures were the primary drivers of the decline.

Net sales guidance

“The retail environment remains challenging in the U.S. and our international markets, as customers are cautious in their spending. Net sales in the first six months were below our expectations, so we are updating our forecast for net sales to grow between 2 and 3 percent for the full year versus our previous range of 5 to 6 percent,” said Holley. “This revision reflects our view of current global business trends, and significant ongoing headwinds from anticipated currency exchange rate fluctuations.”

EPS guidance

“Diluted earnings per share for the third quarter of fiscal year 2014 are expected to range between $1.11 and $1.16. This compares to $1.08 per share last year,” said Holley. “For the full year, we are updating our EPS guidance to range between $5.10 and $5.30 per share. This compares to our previous range of $5.20 to $5.40. This guidance takes into account the challenging sales and operating environment. As we've seen in the past, discrete tax items have had a meaningful impact on our effective tax rate and reported results in the back half of our fiscal years. We anticipate that a wider range of between 31 and 33 percent is now possible for our full year effective tax rate, versus our previous range of 32 to 33 percent. In addition, we believe expenses for FCPA matters and compliance programs will be between $75 and $80 million for both the third and fourth quarters.”

Net sales results

Net sales, including fuel, were as follows:

“Across our International markets, growth in consumer spending is under pressure,” said Doug McMillon, Walmart International president and CEO. “Consumers in both mature and emerging markets curbed their spending during the second quarter, and this led to softer than expected sales. While this creates a challenging sales environment, we are the best equipped retailer to address the needs of our customers and help them save money.

“We expect the third and fourth quarters to be better than our results in the first half, and we are working hard to deliver operating expense leverage for Walmart International,” added McMillon.