Walmart reported (https://tinyurl.com/y2nm3ozs) before the market opened on 17 November 2020 it earned $1.80 per diluted share in the quarter that ended on 31 October 2020, up 57% percent from earnings of $1.15 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
Walmart is a large discount retailer known for keeping its costs and prices low. In addition to its many eponymous storers, Walmart also runs the Sams Club warehouses. The company has invested heavily to grow the online portion of its business, and this strategy proved to be beneficial when COVID-19 accelerated the transition away from in-store shopping. Walmart has also done well as a source of consumer staples, which were scarce in the early days of the pandemic. Walmart has recently been taking steps to reduce its overseas operations. It announced an agreement to sell its UK subsidiary and business in Argentina. Walmart also made a deal to sell a majority interest in its subsidiary in Japan.
Adjusted earnings, a non-GAAP figure, rose 16% to $1.34 per share from $1.16 one year earlier, a percent change not as robust as seen with the GAAP figures. Adjusted earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits. However, caution is warranted when analyzing these figures because management has considerable leeway in choosing which GAAP-required items to exclude.
The principal exclusions contributing to the $0.46 per share difference in the latest quarter between GAAP earnings and Adjusted earnings were: Unrealized gain on equity investments [$0.80 per share], and Loss on sale of Walmart Argentina [($0.34) per share].
Adjusted earnings of $1.34 per share in the latest quarter significantly beat the $1.18 average ("consensus") of estimates made by Wall Street analysts. See https://tinyurl.com/y3tovnud for Walmart's earnings record and forecasts.
Although Walmart's earnings were better than expected, stock market traders still weren't satisfied. The price of the company's shares fell 1.5% during the trading day following the report.
Comparable-store sales, an important industry measure, rose 6.3 percent at Walmart's U.S. stores relative to the year-earlier quarter. Sam's Club comp sales increased 7.9 percent.
Looking deeper into the GAAP results, "top-line" revenue in the October 2020 quarter totaled $134.7 billion, 5% more than last year's $128.0 billion. The Walmart U.S. business was responsible for 66% of overall revenue, and this unit's revenue grew by 6.2% compared to the year-earlier result. The Walmart International business contributed 22% of revenue, and this unit's revenue grew by 1.3%. The Sam's Club unit supplied 12% of revenue, and the amount grew by 8.3%.
The gross margin strengthened from 25.1% of revenue to 25.5%, a sign that Walmart sold its output and services at more profitable prices relative to production costs. Sales, general, and administrative expenses decreased from 21.4% to 21.2% of quarterly revenue, which shows the company spent less per dollar of sales on other operational costs, such as marketing. The effective income tax rate rose by 2.8% to 26.9%, which had a negative effect on net income.
Walmart's operating activities generated $3.9 billion in cash during the last quarter, up 17.0% from $3.4 billion in the year-earlier period. The cash flow delta was, therefore, not as robust as the change in earnings. Notable uses for cash included $1.5 billion to pay dividends to shareholders, $5 million for corporate acquisitions, $463 million to buy back the company's common shares, and $2.9 billion to acquire property, plant and capital equipment.
Free cash flow over the last 12 months totaled $24.2 billion, or $8.50 per share using the latest share count. At the current market price per share of $150.38, this translates into a decent Free Cash Flow Yield of 5.7%.
The accompanying charts illustrate several trends in Walmart's financial results, taken from data in regulatory filings. The text and the charts are intended to provide some limited historical context for readers interested in the company’s finances. No investment advice is provided, and no investment offer of any kind is made or solicited. The accuracy of the information presented is not guaranteed, and readers are encouraged to independently verify all data.
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