WMT: Earnings Report for the Quarter Ending January 31, 2021

Walmart reported before the market opened on February 18, 2021, it lost $0.74 per diluted share in the quarter that ended on January 31, 2021, down from earnings of $1.45 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). 

Adjusted earnings, a non-GAAP figure, rose 1 percent to $1.39 per share from $1.38 one year earlier. The most significant exclusions contributing to the $2.13 per share difference in the latest quarter between the GAAP and Non-GAAP earnings were: Loss on international operations held for sale [($2.66) per share], Gain on equity investments [$0.49 per share], and Tax item and officer compensation charge [$0.04 per share].  Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's primary, ongoing operations, are intended to be cleaner measures of corporate profits.

This post compares the quarterly Income Statement published by Walmart to the estimates I made in a previous “Look Ahead” post.  My estimates were based on publicly available guidance provided by Walmart's management to financial analysts, news reports, and trends in the company's historical results.  Unless otherwise mentioned, all reported values mentioned below are GAAP figures.

First, a little background about the company:  Walmart is large retailer known for keeping its costs and prices low.  In addition to its many eponymous storers, Walmart also owns Sam's Club warehouses.  To fight off competition from Amazon and other online retailers, Walmart has invested significant sums to improve Walmart.com.  This strategy is starting to pay off, and the company's online sales are growing rapidly.  The person that led Walmart's ecommerce efforts, Marc Lore, left the company on January 31, 2021, so that might be a concern.  Walmart's reputation for low prices, especially for groceries, cleaning products, and other consumer staples, paid off in the early days of the pandemic when home-bound consumers were stocking up on supplies.  Walmart is now 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.

The following table is a simplified version of Walmart's Income Statement for the quarter that ended in January 2021, with company-reported numbers along side my predictions.  Figures from the year-earlier quarter are also provided to facilitate comparisons.

Revenue in the January 2021 quarter totaled $152.1 billion, 7 percent more than last year.  The Walmart U.S. business was responsible for 65 percent of overall revenue, and this unit's revenue grew by 7.9 percent compared to the year-earlier result.  The Walmart International business contributed 23 percent of revenue, and this unit's revenue increased by 5.5 percent.  The Sam's Club unit supplied 11 percent of revenue, and this business's revenue rose by 8.1 percent.

Based on an extrapolation of Census Bureau data on U.S. Retail and Food Service Sales, I was expecting Walmart to report revenue of $145.0 billion for the January 2021 quarter.  The actual amount surpassed my estimate by $7.1 billion (4.9 percent).  

The Cost of Revenue (also known as Cost of Goods Sold) was $115.3 billion in the latest quarter, which translates into a Gross Margin of 24.2 percent of revenue. Since it was higher than the 23.9 percent Gross Margin achieved in the year-earlier quarter, it signifies that Walmart sold its products and services at more profitable prices relative to production costs. I was expecting the Gross Margin to be 25.0 percent in the January 2021 quarter, and Walmart missed that prediction by 0.8 percent.  Perhaps costs were higher than expected because of additional labor and cleaning expenses due to COVID-19.

Sales, General, and Administrative expenses totaled $31.3 billion in the January 2021 quarter, up 9.5 percent from one year ago.  SG&A expenses increased from 20.2 percent to 20.6 percent of quarterly revenue, which shows Walmart spent more per dollar of sales on indirect operational costs, such as marketing. I had estimated that SG&A expenses would be 20.3 percent of revenue, and the actual percentage turned out to be higher than the prediction.

Walmart's Operating Income was $5.5 billion in the quarter, up 3.1 percent from the year-earlier period.  Despite better-than-expected Revenue, Operating Income fell short of my $6.9 billion estimate by $1.4 billion because expenses were even higher.

The Interest expense was consistent with expectations, but other non-operating expenses far, far exceeded what I had predicted.  The principal reason for this discrepancy was that Walmart recorded a $7.3 billion charge for selling certain international businesses, and I was expecting only $2.4 billion.

Net income attributable to Walmart was ($2.1) billion, ($0.74) per share in the quarter ending January 2021.  The figures for the year-earlier quarter were $4.1 billion, $1.45/share. My earnings estimate for  the latest quarter was $3.6 billion ($1.25/share), so Walmart earned $1.99 per share less than I had expected.

In conclusion, the following list shows where the reported results differed from my expectations:

      – Better than expected:  Revenue growth 

      – Worse than expected:  Gross Margin + SG&A + Misc non-operating items 

      – Met or close to expectations:  SG&A/Revenue + Interest + Non-controlling interests 

This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed.  Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company.  These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).

 #walmart    #wmt    #gauges  #gcfr  #gcfr2 #QtrlyRpt   #nac_financialanalysis

WMT: Look Ahead to January 2021 Quarterly Results

This "look-ahead" post discusses how I came up with an estimate for Walmart's earnings for fiscal year 2021's fourth quarter, which ended on January 31, 2021, by predicting each element of its Income Statement, from top-line Revenue to bottom-line Earnings Per Share (EPS) and everything in between.

Once the company’s official results become available on February 18, 2021, I will compare the published Income Statement to the prediction and identify any surprises, positive or negative.  Examining these differences can identify what factors (e.g., profit margins, non-GAAP expenses, tax rates, share buybacks) are driving changes to a company's financial performance.

But, before getting into the details, let's take a step back and start with background information about Walmart.

Walmart is large retailer known for keeping its costs and prices low.  In addition to its many eponymous storers, Walmart also owns Sam's Club warehouses.  To fight off competition from Amazon and other online retailers, Walmart has invested significant sums to improve Walmart.com.  This strategy is starting to pay off, and the company's online sales are growing rapidly.  The person that led Walmart's ecommerce efforts, Marc Lore, left the company on January 31, 2021, so that might be a concern.  Walmart's reputation for low prices, especially for groceries, cleaning products, and other consumer staples, paid off in the early days of the pandemic when home-bound consumers were stocking up on supplies.  Walmart is now 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.

Shares of Walmart now trade for about $144 each, giving the company a market value of $411 billion. These shares can be found in the Dow Jones Industrial Average, Standard and Poors 500, Standard and Poors 100, Standard and Poors Dividend Aristocrats, New York Stock Exchange Composite, and Russell 1000 stock indices.

Walmart recorded profits of $20 billion on revenue of $549 billion during the last year. In the quarter that ended on October 31, 2020, Walmart earned $1.34 per share (excluding certain items), which significantly beat the $1.18 Wall Street consensus forecast. 

Revenue in the October 2020 quarter totaled $134.7 billion, 5 percent more than last year.  The Walmart U.S. business was responsible for 66 percent of overall revenue, and this unit's revenue grew by 6.2 percent compared to the year-earlier result.  The Walmart International business contributed 22 percent of revenue, and this unit's revenue increased by 1.3 percent.  The Sam's Club unit supplied 12 percent of revenue, and this business's revenue rose by 8.3 percent.

My starting point, if available, when estimating earnings is guidance provided by the company's management to financial analysts.  It's true that the company may downplay expectations somewhat to avoid disappointments, but the top managers ought to know better than anyone else how well their products and services are selling.  I also look for other information about the company in the news, and I take advantage of trends in the company's historical results.  While it makes my task a little more difficult, I also try to estimate earnings that conform to Generally Accepted Accounting Principles (GAAP).  Non-GAAP results, which most professionals focus on, are somewhat arbitrary and often exclude meaningful items.

Walmart did not provide any guidance about the fourth quarter when the company reported results last November.  I have had to rely on historical trends and national economic data to estimate Walmart earnings.

In particular, data on U.S. Retail and Food Service Sales are published by the Census Bureau and are readily available.  These reports indicated, for example, that sales were up 3.7 percent in November 2020, compared to November 2019.  Walmart is so large that its Revenue correlates fairly well with the national data, and I use this relationship to estimate the company's Revenue.  Although there's no national data yet for January 2021, my preliminary fourth-quarter estimate for Walmart's revenue, using the data that is available, is $145 billion.

In the first three quarters of fiscal year 2021, Walmart's Gross Margin rose from 23.9 percent to 25.4 percent of Revenue.  Counterintuitively, the Gross Margin in the January quarter is usually a little less than in the preceding October quarter.  This history led me to select 25.0 percent as my estimate for the January 2021 quarter.  The corresponding Cost of Goods Sold is (1-0.25) * $145 billion = $108.75 billion.

Sales, General, and Administrative (SG&A) expenses should be a little more than 20 percent of Revenue if history is a valid guide.  To be specific, I used 20.25 percent of Revenue to come up with a $29.4 billion SG&A estimate.

The numbers above combine to produces an estimate for Operating Income of just under $6.9 billion, which is a hefty 29 percent higher than the equivalent quantity in the year-earlier quarter.

I'm aware of two large items items that may be listed as non-operating gains and losses on Walmart's Income Statement for the fourth quarter.  I've estimated using publicly available data that the equity investment in JD.com earned about $1.0 billion, if the size of the Walmart's  stake in the Chinese firm did not change.  On the other side of the ledger, Walmart previously announced it would recognize a non-cash loss of approximately $2.0 billion, after tax, in the fourth quarter of fiscal 2021 on the sale of a majority stake in Seiyu, a retailer in Japan.  On pre-tax basis, this loss could be $2.4 billion.

I used $525 million for the estimate of net interest paid and 26 percent for the effective income tax rate.  With these figures, the estimate for Net Income (GAAP) in the quarter is $3.57 billion (1.25 per share).  

The following Income Statement summarizes the estimates made as discussed above. 

This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed.  Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company.  These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).

#walmart  #wmt  #gauges #gcfr  #gcfr2 #lookahead #nac_financialanalysis

Walmart: Gauge Analysis (updated November 26, 2020)

I have analyzed Walmart's financial statements to determine whether the reported figures suggest that the company's shares are a good value and reasonable risk for prudent investors. The way I performed this analysis was inspired by Benjamin Graham's recommendations in "The Intelligent Investor," which was first published in 1949 and is still one of the best-known books about value investing. I modified Graham's specific suggestions to fit modern times; however, the goal is the same: find stocks that are inexpensive relative to the company's strengths and aren't excessively risky.

The analysis evaluates investment suitability by gauging how well the company satisfies seven criteria.  GREEN, YELLOW, and RED grades indicate whether each gauge is fully satisfied, partially satisfied, or not satisfied at all.  An Overall Score between zero and 100, which takes the details of all gauges into account, is also computed.  While the analysis includes both growth and value criteria, the calculation of the Overall Score has been designed to favor companies that exhibit good value characteristics over fast growing firms that are expensive.  An Overall Score above 60 isn't easy to achieve, and it signifies that the company has enough value-investment appeal to be worth examining in more detail. 

First, a quick review of the company itself.

Walmart, the largest retailer in the U.S., is a discounter known for keeping its costs and prices low.  In addition to its many eponymous storers, Walmart also owns Sam's Club warehouses.  In response to competition from Amazon and other online retailers, Walmart has been investing heavily to make Walmart.com more capable and appealing.  This strategy is starting to pay off now, and Walmart's online sales have been increasing rapidly as COVID-19 accelerated the retail industry's transition from in-store to online shopping.  Walmart's reputation for low prices, especially for groceries, cleaning products, and other consumer staples, paid off in the early days of the pandemic when home-bound consumers were stocking up on supplies.  Walmart is now 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.

Walmart recorded profits of $20 billion on revenue of $549 billion during the last year. In the quarter that ended on 31 October 2020, Walmart earned $1.34 per share (excluding certain items), which significantly beat the $1.18 Wall Street consensus forecast. See https://tinyurl.com/y2nm3ozs for Walmart's most recent quarterly report.

Shares of Walmart now trade for about $152 each.  These shares can be found in the Dow Jones Industrial Average, Standard and Poors 500, Standard and Poors 100, Standard and Poors Dividend Aristocrats, New York Stock Exchange Composite, and Russell 1000 stock indices.

Analysis Results:

Walmart's grades on the seven investment criteria are listed below, along with some of the financial figures that influenced these color assignments

1. The Company's Size is Substantial: GREEN

    Market Value: $432.6 billion (mega-cap)

2. The Company is Conservatively Financed: YELLOW

    Current ratio = 0.8 (>2.0 is conservative)

    Long-term debt/Equity = 47% (<100% is conservative)

3. The Company Generates Stable Earnings: YELLOW

    Nineteen positive quarterly earnings reports in last 5 years (almost perfect)

    Earnings variability = 22% (moderate)

4. The Company Exhibits Earnings Growth: YELLOW

    Owner Earnings growth rate (trailing year) = 8% (modest)

    Owner Earnings growth rate (five-year average) = 2% (weak)

    Free Cash Flow growth rate (trailing year) = 74% (terrific)

    Free Cash Flow growth rate (five-year average) = -1% (poor)

5. The Company is Efficiently Profitable: GREEN

    Cash Flow Return On Invested Capital = 25% (very good)

    Operating Profit/Sales = 4.1% (meager)

6. The Company Pays a Healthy Dividend: GREEN

    Dividends paid for the last 7 years or longer

    Dividend 5-year average growth rate = 1.9% (weak)

    Dividend = 25% of last year's FCF (easily sustainable with room to grow)

7. The Company's Shares are Fairly Valued: RED

    Price/Owner Earnings (last year) = 26.0 (high)

    Price/GAAP Earnings (five-year average) = 34.5 (expensive)

    Free Cash Flow/Market Value = 5.6% (modest, less than the five-year average of 6.9%)

    Acquirer's Multiple = 21.0 (expensive)

    Price/Book Value = 4.9 (more expensive than the five-year average of 3.6)

    Price/Sales = 0.8 (more expensive than the five-year average of 0.6)

In summary, the analysis assigned Walmart three GREEN, three YELLOW, and one RED grades.  The resulting Overall Score is 40 of the 100 possible points, which is low.  The score is below the 60-point GCFR threshold, and, therefore, Walmart does not satisfy the GCFR criteria for value-investment consideration at this time.

The share price would theoretically have to fall by 42.4%, from $151.83 to $87.48, all else being equal, to lift the Overall score to the 60-point threshold. Or, perhaps, the next earnings report from Walmart will include results that move the company's score up towards the threshold (or sink the score further).  Check this blog occasionally for updates on Walmart's performance and the resulting GCFR score.

This analysis reported here is a limited evaluation of the subject company.  It does not consider all material facts about the company's operations, finances, or future prospects.  The analysis relies on publicly available financial data assumed, but not guaranteed, to be accurate and consistent.  Readers are strongly encouraged to perform verify all data and perform their own independent analyses.  Other analytical approaches and screening criteria will be more applicable to investors having different goals, circumstances, and tolerance for investment risk.  This post is not and should not be considered investment advice, nor does it constitute an offer or solicitation to buy or sell any security. The author might have a long or short position in the subject company and/or its competitors. The analytical approach, the criteria used, and all calculations are subject to change without notification.

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 #walmart    #wmt    #gauges  #gcfr  #gcfr2 #valueinvesting   #nac_financialanalysis

Walmart: Earnings Report for the Quarter Ending October 31, 2020

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.

 #walmart    #wmt    #gauges  #gcfr  #gcfr2 #valueinvesting   #financialanalysis