WMT: Income Statement Analysis for the January 2011 Quarter

Wal-Mart Stores (NYSE: WMT) earned $1.70 per diluted share on a GAAP basis in the January-ending fourth quarter of fiscal 2011, up 36 percent from $1.25 in the same three months of the previous year.

It might be more meaningful to consider "underlying" earnings from continuing operations, which is a non-GAAP measure that excludes restructuring charges, certain tax benefits, and the results of non-continuing operations.  Walmart's underlying earnings from continuing operations rose 11 percent in the January 2011 quarter, from $1.21 in the previous year to $1.34 per share. 

This post examines Walmart's Income Statement for the quarter and compares the entries on each line to our "look-ahead" estimates.  Underlying earnings were $0.03 better than the $1.31 per share we had forecast.

The principal sources for this income statement analysis were the earnings announcement and the transcript [pdf] of management's pre-recorded review of the quarter.

In a second article, we will report Walmart's scores as measured by the GCFR financial gauges.  The follow-up post will also provide the latest figures for the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

Before getting into the details, we will take a step back to introduce the subject of today's analysis.

Retailing behemoth Wal-Mart Stores, Inc., operates 4434 stores in the U.S. (including Sam's Club) and 8838 worldwide, at last count.

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WMT: Look Ahead to January 2011 Quarterly Results

This post describes our model of Wal-Mart's (NYSE: WMT) Income Statement for fiscal 2011's fourth quarter, which will end on 31 January 2011.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about Walmart and the business environment in which it is currently operating.

Retailing behemoth Wal-Mart Stores, Inc., operates 4404 stores in the U.S. (including Sam's Club) and 8838 worldwide, at last count.

In fiscal 2010, which concluded in January 2010, Walmart earned over $14 billion on net sales of $405 billion.  Although net sales rose only 1.0 percent, income continuing operations increased 8.8 percent.

These financial results enabled Walmart to regain the top position from Exxon Mobil (NYSE: XOM) on the Fortune 500 list of America's largest corporations.  A drop in energy prices in 2009 cut into the oil giant's revenue.

Economies of scale and ruthless efficiencies allow Walmart to sell many products for prices lower than competitors, which include Target (NYSE: TGT), Kohl's (NYSE: KSS), and Sears Holdings (NASDAQ: SHLD).  Walmart also purchases goods directly from manufacturers to reduce its costs.

Critics of Wal-Mart abound.

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WMT: Financial Gauge Analysis for the October 2010 Quarter

Walmart (NYSE: WMT) earned $0.95 per diluted share on a GAAP basis in the October-ending third quarter of fiscal 2011, up 16 percent from $0.81 in the same three months of last year. 

A special tax benefit added $0.05 per share to reported earnings in the most recent quarter.

A previous article examined Walmart's Income Statement for the October quarter in some detail.  Excluding the tax benefit, adjusted earnings nearly matched the $0.90 per share we had forecast. 

We have now updated the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.  This post reports on the metrics for Walmart and the associated financial gauge scores.  The metrics were calculated using data from Walmart's current and historical financial statements, including those in the latest 10-Q report.

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WMT: Income Statement Analysis for the October 2010 Quarter

Wal-Mart Stores (NYSE: WMT) earned $0.95 per diluted share on a GAAP basis in the October-ending third quarter of fiscal 2011, up 16 percent from $0.81 in the same three months of last year. 

A special tax benefit of $0.05 per share lifted reported earnings.  With this benefit excluded, earnings were close to $0.90 per share and were consistent with Walmart's guidance, issued last August, to expect diluted EPS from continuing operations between $0.87 to $0.91.

This post examines Walmart's Income Statement for the quarter and compares the entries on each line to our "look-ahead" estimates.  Adjusted earnings nearly matched the $0.90 per share we had forecast. 

The principal sources for this income statement analysis were the earnings announcement and the transcript [pdf] of management's pre-recorded review of the quarter.

In a second article, we will report Walmart's scores as measured by the GCFR financial gauges.  The follow-up post will also provide the latest figures for the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

Before getting into the details, we will take a step back to introduce the subject of today's analysis.

Retailing behemoth Wal-Mart Stores, Inc., earned over $14 billion on net sales of $405 billion in fiscal 2010, which concluded last January.  The Revenue figure, along with a drop in energy prices, enabled Walmart to regain from Exxon Mobil (NYSE: XOM) the top position on the Fortune 500 list of America's largest corporations. 

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WMT: Look Ahead to October 2010 Quarterly Results

This post describes our model of Wal-Mart's (NYSE: WMT) Income Statement for fiscal 2011's third quarter, which will end on 31 October.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about Walmart and the business environment in which it is currently operating.

Retailing behemoth Wal-Mart Stores, Inc., earned over $14 billion on net sales of $405 billion in fiscal 2010, which concluded last January.  The Revenue figure, along with a drop in energy prices, enabled Walmart to regain from Exxon Mobil (NYSE: XOM) the top position on the Fortune 500 list of America's largest corporations. 

Although the discounter's net sales rose only 1.0 percent in fiscal 2010, income continuing operations increased a healthy 8.8 percent.

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WMT: Financial Gauge Analysis for the July 2010 Quarter

Wal-Mart Stores (NYSE: WMT) earned $0.97 per diluted share on a GAAP basis in fiscal 2011's second quarter, which ended on 31 July 2010.  Earnings per share were 9 percent more than the $0.89 Walmart made in the same quarter of the year earlier.

A previous article examined Walmart's Income Statement for the July quarter in some detail.  Reported Net Income of $3.596 billion exactly matched our estimate (a rarity!), but fewer shares outstanding allowed earnings per share to exceed by $0.01 the $0.96 we had forecast.

We have now updated the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.  This post reports on the metrics for Walmart and the associated financial gauge scores.  The metrics were calculated using data from Walmart's current and historical financial statements, including those in the latest 10-Q report.


Before getting into the details, we will take a step back to introduce the subject of today's analysis.

A retailing behemoth, Wal-Mart Stores, Inc., earned over $14 billion on net sales of $405 billion in the fiscal year that concluded last January.  The Revenue figure, along with a drop in energy prices, enabled Walmart to regain from Exxon Mobil (NYSE: XOM) the top position on the Fortune 500 list of America's largest corporations. 

Walmart has three reportable business segments: Walmart U.S., International and Sam’s Club.  At last count, Walmart operated 4304 stores in the U.S. (including Sam's Club) and 8416 in other countries.

Net sales by Walmart U.S. grew 1.1 percent last year, but comparable store sales declined 0.7 percent.  Concerned about slow sales at home, Walmart replaced the leader of Walmart U.S.

Additional background information about Walmart and the business environment in which it is currently operating can be found in the look-ahead.

In summary, Walmart's latest quarterly results produced the following changes to the gauge scores:

• Cash Management: 13 of 25 (unchanged from April)
• Growth: 12 of 25 (up from 8)
• Profitability: 11 of 25 (up from 10)
• Value: 10 of 25 (up from 7)

• Overall: 44 of 100 (up from 37)

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.  Readers are encouraged to verify these figures and calculate others as they see fit using the filings available at the SEC's web site and elsewhere.

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WMT: Income Statement Analysis for the July 2010 Quarter

Wal-Mart Stores (NYSE: WMT) earned $0.97 per diluted share on a GAAP basis in fiscal 2011's second quarter, which ended on 31 July 2010.  Earnings per share increased 9 percent when compared to the $0.89 Walmart made in the same quarter of 2009.

This post examines Walmart's Income Statement for the quarter and compares the entries on each line to our "look-ahead" estimates.  Reported Net Income of $3.596 billion exactly matched our estimate (a rarity), but fewer shares outstanding allowed earnings per share to exceed by $0.01 the $0.96 we had forecast.

The principal sources for this income statement analysis were the earnings announcement and the transcript [pdf] of management's audio review of the quarter.

In a second article, we will report Walmart's scores as measured by the GCFR financial gauges.  The follow-up post will also provide the latest figures for the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

Before getting into the details, we will take a step back to introduce the subject of today's analysis.

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WMT: Look Ahead to July 2010 Quarterly Results (Revised 14 July)

This post describes our model of Wal-Mart's (NYSE: WMT) Income Statement for fiscal 2011's second quarter, which will end on 31 July.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about Walmart and the business environment in which it is currently operating.

A retailing behemoth, Wal-Mart Stores, Inc., earned over $14 billion on net sales of $405 billion in the fiscal year that concluded last January.  The Revenue figure, along with a drop in energy prices, enabled Walmart to regain from Exxon Mobil (NYSE: XOM) the top position on the Fortune 500 list of America's largest corporations. 

Although the discounter's net sales rose only 1.0 percent in fiscal 2010, the company achieved an 8.8-percent increase in the income attributable to its shareholders from continuing operations.

Walmart has three reportable business segments: Walmart U.S., International and Sam’s Club.  Walmart U.S. had net sales of $258 billion in fiscal 2010, or nearly 64 percent of the overall amount.  The International segment had sales of $100 billion, and sales at Sam's Club totaled nearly $47 billion.  At last count, Walmart operated 4304 stores in the U.S. (including Sam's Club) and 8416 in other countries.

Net sales by Walmart U.S. grew 1.1 percent last year, but comparable store sales declined 0.7 percent.  Concerned about slow sales at home, Walmart recently replaced the leader of Walmart U.S.

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WMT: Financial Gauge Analysis for the April 2010 Quarter

Wal-Mart Stores (NYSE: WMT) earned $0.88 per diluted share on a GAAP basis in fiscal 2011's first quarter, which ended on 30 April 2010.  Earnings per share were 14 percent more than the $0.77 Walmart made in the same quarter last year.

In our earlier review of Walmart's Income Statement, we compared the actual results to our "look-ahead" estimates.  Reported earnings were $0.02 better than the $0.86 per share we had forecast.

We have now updated the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value for Walmart.  This post reports on the metrics and the associated financial gauge scores.  The metrics were calculated using data from Walmart's current and historical financial statements, including the latest 10-Q report.

A retailing behemoth, Wal-Mart Stores, Inc., earned $14 billion on net sales of more than $400 billion in the fiscal year that concluded January 2010.  Walmart regained from Exxon Mobil (NYSE: XOM) the top position on the Fortune 500 list of America's largest corporations.   Additional background information about Walmart and the business environment in which it is currently operating can be found in the look-ahead.

In summary, Walmart's latest quarterly results produced the following changes to the gauge scores:

• Cash Management: 13 of 25 (up from 12 in January)
• Growth: 7 of 25 (unchanged)
• Profitability: 10 of 25 (down from 11)
• Value: 7 of 25 (down from 9)

• Overall: 36 of 100 (down from 39)

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.  Readers are encouraged to verify these figures and calculate others as they see fit using the filings available at the SEC's web site and elsewhere.

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WMT: Income Statement Analysis for the April 2010 Quarter

Wal-Mart Stores (NYSE: WMT) earned $0.88 per diluted share on a GAAP basis in fiscal 2011's first quarter, which ended on 30 April 2010.  Walmart's latest EPS was 14 percent more than the $0.77 it made in the same quarter last year.

This post examines Walmart's Income Statement for the quarter and compares the entries on each line to our "look-ahead" estimates.  Reported earnings were $0.02 better than the $0.86 per share we had forecast.

The principal sources for this income statement analysis were the earnings announcement and the transcript [pdf] of management's audio review of the quarter.

In a second article, we will report Walmart's scores as measured by the GCFR financial gauges.  The follow-up post will also provide the latest figures for the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

A retailing behemoth, Wal-Mart Stores, Inc., earned $14 billion on net sales greater than $400 billion in the fiscal year that concluded January 2010.  Walmart regained from Exxon Mobil (NYSE: XOM) the top position on the Fortune 500 list of America's largest corporations.    Additional background information about Walmart and the business environment in which it is currently operating can be found in the look-ahead.

Please click here to see a full-sized, normalized depiction of the actual and projected results for the just-concluded quarter, as well as the quarterly Income Statements for the last couple of years.  Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

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WMT: Look Ahead to April 2010 Quarterly Results

This post describes our model of Wal-Mart's (NYSE: WMT) Income Statement for fiscal 2011's first quarter, which will end on 30 April.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about Walmart and the business environment in which it is currently operating.

A retailing behemoth, Wal-Mart Stores, Inc., earned over $14 billion on net sales of $405 billion in the fiscal year that concluded last January.  The Revenue figure enabled Walmart to regain from Exxon Mobil (NYSE: XOM) the top position on the Fortune 500 list of America's largest corporations. 

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WMT: Income Statement Analysis for the January 2010 Quarter

Wal-Mart Stores (NYSE: WMT) earned $1.21 per share in the fourth quarter of fiscal 2010, which ended on 31 January.  This per-share amount is 26 percent more than earnings of $0.96 in the previous January quarter.

This post examines Walmart's Income Statement for the quarter and compares the entries on each line to our "look-ahead" estimates.  Walmart surpassed our EPS target of $1.10 by $0.11 per share.  However, if a $0.10 nonrecurring tax benefit and a $0.04 restructuring charge are excluded, the difference between reported earnings and our target value shrinks to $0.05.

The principal sources for the income statement analysis were the earnings announcement and the ensuing conference call (transcript available from Seeking Alpha).

In a second article, we will report Walmart's scores as measured by the GCFR financial gauges. The follow-up post will also provide the latest figures for the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

Discounter Wal-Mart Stores, Inc., had sales over $400 billion, nearly 10 percent of U.S. retail sales, last year.  This earned Walmart the Number 2 position on the Fortune 500 list of America's largest corporations, behind Exxon Mobil (NYSE: XOM).  Additional background information about Walmart and the business environment in which it is currently operating can be found in the look-ahead.

Please click here to see a full-sized, normalized depiction of the actual and projected results for the just-concluded quarter, as well as the quarterly Income Statements for the last couple of years.  Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.



Revenue (Net sales and some other income) of $113.7 billion was 4.5 percent more than in the same quarter of 2008.  Changes in currency conversion rates added about $1.9 billion to Net Sales.

The reported figure for Revenue was less than our $114.6 billion estimate by 0.8 percent.

Sales at the company's eponymous U.S. stores decreased 0.5 percent, relative to the previous year's fourth quarter.  A slip in same-store sales of 2.0 percent might be more worrisome.  Sam's Club did better: sales increased 3.8 percent.

International stores also did well, recording a 19.5 percent sales increase or 11.9 percent on a constant currency basis.  The International figures benefited (not sure how much) from Walmart's acquisition in Chile.

The Cost of Goods Sold (CGS) was 75.1 percent of Revenue, which translates into a Gross Margin of 24.9 percent.  The margin was 24.6 percent (restated) in the January 2009 quarter.  Walmart beat our margin estimate of 24.3 percent by 60 basis points.

Sales, General, and Administrative (SG&A) expenses increased 3.2 percent, from $20.4 billion to $21.1 billion, which was more than we expected.  Nevertheless, as a percentage of Revenue, SG&A decreased from 18.8 percent to 18.5 percent.  

We had estimated these expenses would be 18 percent of Revenue.

The various operating items combined to produce Operating Income of $7.26 billion, a 13.8 percent gain over the $6.38 billion in the year-earlier quarter.  The improvement was mostly due to the increase in Revenue, but the small margin improvement and cost control also helped. 

Operating Income eked out a 0.5 percent gain over our $7.22 billion estimate.

The Net Interest expense fell 4.7 percent to $469 million.  We had expected $500 million.

The effective Income Tax Rate in the quarter was 28.4 percent, which is significantly less than Walmart's typical rate of around 34 percent.  The explanation is that the company garnered:

$372 million, or $0.10 per share, in net tax benefits primarily from the repatriation of certain non-U.S. earnings that increased U.S. foreign tax credits.

 

Income attributable to noncontrolling interests and a loss from discontinued operations were each about $50 million more than we expected.  Taking these into account, Net Income attributable to Walmart shareholders of $4.6 billion ($1.21 per share) was 22 percent (26 percent) more than in the January 2009 quarter.  Net Income exceeded our $4.3 billion forecast by $344 million.


In summary, Walmart's Revenue, Operating Income, and Net Income all increased in the fourth quarter.  The results benefited to some extent by currency exchange rate variations and to a significant extent by a one-time tax benefit.   The decline in U.S. same store sales is what concerns us the most for the future.

Full disclosure: Long WMT at time of writing.

WMT: Look Ahead to January 2010 Quarterly Results

Wal-Mart Stores (NYSE: WMT) earned $0.84 per share in the third quarter of fiscal 2010, which ended on 31 October 2009, up from $0.80 in the same quarter of last year.  Sales at the company's eponymous U.S. stores increased 1.2 percent, but same-store sales slipped 0.5 percent.

In November, we examined Walmart's Income Statement for the October quarter and compared the entries on each line to our "look-ahead" estimates.  One month later, we performed a financial gauge analysis of Walmart, which determined that the GCFR Overall gauge rose from 25 to 32 of the 100 possible points. (Year-end adjustments added a point to the results.)

We have now modeled Walmart's Income Statement for the fourth quarter of fiscal 2010, which will end on 31 January.  The intent of this exercise was to produce a baseline for identifying deviations, positive or negative, in the actual data that the company will announce on 18 February.  GCFR estimates are derived from trends in the historical financial results and guidance provided by company management.


First, we set the stage with some background information about Walmart and the business environment in which it is currently operating. 

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WMT: Financial Gauge Analysis for the October 2009 Quarter

We almost forgot about the third-quarter gauge analysis of Walmart!  By 8 December, when Walmart filed its 10-Q, we had already started to gear up for fourth-quarter results.  The quiet of the holidays was an opportunity to dig down into the to-do list.

In a previous article, we examined Wal-Mart Stores (NYSE: WMT) Income Statement for the third quarter of fiscal 2010 and compared the entries on each line to our "look-ahead" estimates.  Earnings in this period, which ended 31 October 2009, rose from $0.80 to $0.84 per share.

Using the financial statements in the earnings announcement and the more detailed 10-Q, we have now updated our usual set of Cash Management, Growth, Profitability and Value metrics.  This post reports on the metrics and the associated financial gauge scores.

Number 2 on the Fortune 500 list of America's largest corporations, Walmart sold over $400 billion of merchandise last year in its discount stores.  Some background information about Wal-Mart Stores and the business environment in which it is currently operating can be found in the look-ahead.

In summary, Walmart's latest quarterly results produced the following changes to the gauge scores:

• Cash Management: 3 of 25 (unchanged from July)
  
• Growth: 5 of 25 (up from 1)
• Profitability: 8 of 25 (up from 6)
• Value: 11 of 25 (up from 9)

• Overall: 32 of 100 (up from 25)

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.

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WMT: Income Statement Analysis for the October 2009 Quarter

Wal-Mart Stores (NYSE: WMT) earned $0.84 per share in the third quarter of fiscal 2010, which ended on 31 October 2009, up from $0.80 in the same quarter of last year.

This post examines Walmart's Income Statement for the quarter and compares the entries on each line to our "look-ahead" estimates.  Our target for Net Income in the latest quarter was $0.83 per share, $0.01 less than the reported amount.  Fewer shares outstanding caused the difference.


In a second article, we will report Walmart's scores as measured by the GCFR financial gauges. The follow-up post will also provide the latest figures for the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

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WMT: Look Ahead to October 2009 Quarterly Results

The GCFR Overall Gauge of Wal-Mart (NYSE: WMT) fell from 36 to 29 of the 100 possible points in July when the second quarter of fiscal 2010 ended.  Our income statement, financial gauge, and gauge update analyses explained in some detail how the score was attained.

Walmart earned $0.88 per share in the July quarter.  Although Net Income did not change significantly from the comparable period last year, earnings per share increased by $0.01 because fewer shares were outstanding.

Sales at the company's eponymous U.S. stores increased just slightly, 0.3 percent, relative to the second quarter of last year.  Same-store sales fell 1.5 percent.  Reported Revenue at international stores declined 5.1 percent, but Revenue at these stores increased 11.5 percent on a constant currency basis.  Sam's Club sales slipped 3.2 percent.

We have now modeled Wal-Mart's Income Statement for the quarter that will end on 31 October 2009.  The intent of this exercise was to produce a baseline for identifying deviations, positive or negative, in the actual data that the company is scheduled to announce on 12 November 2009.  GCFR estimates are derived from trends in the historical financial results and guidance provided by company management.

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WMT: Financial Gauge Analysis (Update) for the July 2009 Quarter

We previously posted Wal-Mart Stores (NYSE: WMT) preliminary Financial Gauge scores for the three months ended 31 July 2009, which was the second quarter of fiscal 2010.

The retailing behemoth sold more than $400 billion last year at its discount stores.

Data from Walmart's press release announcing earnings were used to calculate the preliminary scores.  Subsequently, on 9 September, Walmart filed a 10-Q with more complete financial statements for the quarter. 

We have now reviewed the 10-Q to discover whether the financial metrics that determine the GCFR scores had changed.

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WMT: Financial Gauge Analysis for the July 2009 Quarter

In an earlier post, we examined Wal-Mart Stores (NYSE: WMT) Income Statement for the second quarter of fiscal 2010 and compared the figures to our "look-ahead" estimates.   Earnings in this period, which ended 31 July 2009, rose from $0.87 to $0.88 per share.


The retailing behemoth sold more than $400 billion last year at its discount stores.

We have since mined Walmart's financial statements in the earnings announcement to update the metrics we use to assess Cash Management, Growth, Profitability and Value. This post reports on these metrics and the Financial Gauge scores.

When Walmart files a 10-Q, with more complete financial statements and notes, we will re-examine the analysis and make any necessary adjustments. 

In the mean time, Walmart's estimated GCFR gauge scores are as follows:

• Cash Management: 6 of 25 (down from 9 in April)
  
• Growth: 1 of 25 (down from 10)
• Profitability: 6 of 25 (down from 8)
• Value: 10 of 25 (up from 9)

• Overall: 29 of 100 (down from 36)

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.

Cash Management	Jul 2009	Apr 2009	Jul 2008	5-Yr Avg
Current Ratio	0.9	0.8	0.9	0.9
LTD/Equity	48.8%	50.8%	51.2%	46.0%
Debt/CFO (years)	1.8	1.7	1.7	1.9
Inventory/CGS (days)	41.8	41.9	42.5	46.5
Finished Goods/Inventory	N/A	N/A	N/A	N/A
Days of Sales Outstanding (days)	3.1	3.0	2.8	2.5
Working Capital/Invested Capital	-8.0%	-8.9%	-5.3%	-8.3%
Cash Conversion Cycle Time (days)	9.3	10.3	10.2	13.3
Gauge Score (0 to 25)	6	9	10	7

The Cash Conversion Cycle Time hit a record low for Walmart in the recent period, according to our calculations.  Walmart, already the epitome of efficiency, has become more so by this measure.

We need to reconsider the penalty for negative Working Capital.   Operating profitably with negative Working Capital is another sign of efficiency in handling cash.

Growth	Jul 2009	Apr 2009	Jul 2008	5-Yr Avg
Revenue growth	1.6%	4.5%	9.3%	7.7%
Revenue/Assets	239.9%	245.4%	244.9%	245.3%
Operating Profit growth	5.2%	5.8%	9.4%	6.9%
CFO growth	-7.0%	1.6%	30.3%	10.7%
Net Income growth	-0.5%	1.7%	7.3%	6.7%
Gauge Score (0 to 25)	1	10	16	8

Revenue, CFO, and Net Income growth rates compare the last four quarters to the four previous quarters.  The Operating Profit rate is the annualized rate of growth in Operating Profit after Taxes over the last 16 quarters.

Walmart has been performing better than other retailers during the recession, but its Revenue, CFO and Net Income are either declining or growing much slower. 

The small drop this quarter in the Revenue/Assets ratio had a significant negative effect on the gauge score because the ratio had been improving.

Profitability	Jul 2009	Apr 2009	Jul 2008	5-Yr Avg
Operating Expenses/Revenue	94.3%	94.4%	94.2%	94.2%
ROIC	14.8%	15.1%	15.4%	15.7%
Free Cash Flow/Invested Capital	10.5%	11.4%	11.8%	6.9%
Accrual Ratio	1.5%	1.0%	1.1%	3.6%
Gauge Score (0 to 25)	6	8	11	7

It's remarkable that Wal-Mart has been able to keep Operating Expenses so steady given the change in economic conditions.  ROIC and FCF, which have mostly held up well, weakened a little in the latest quarter. 

The Accrual Ratio increase could be signaling a degradation in Earnings Quality.  However, potentially anomalous Cash Flow results in 2008, exceptionally bad in one quarter and exceptionally good in the next, is muddying this calculation.  The 10-Q may clear this up.

Value	Jul 2009	Apr 2009	Jul 2008	5-Yr Avg
P/E	14.5	14.8	17.3	17.2
P/E vs. S&P 500 P/E	0.6	0.7	1.0	1.0
PEG	2.8	2.5	1.8	1.6
Price/Revenue	0.5	0.5	0.6	0.6
Enterprise Value/Cash Flow (EV/CFO)	10.0	10.1	10.8	11.6
Gauge Score (0 to 25)	10	9	4	12

Wal-Mart's share price slipped 1.1 percent during the quarter, from $50.40 to $49.88, but the recent market rally then helped the shares retake the $50 level. The PEG ratio (note that our calculation for this ratio is non-standard) will become a concern if earnings growth doesn't rebound.

Wal-Mart's valuation ratios can be compared with other Discount and Variety Retailers.
 

Overall	Jul 2009	Apr 2009	Jul 2008	5-Yr Avg
Gauge Score (0 to 100)	29	36	34	36

The Growth gauge was most affected, in this case to the downside, by the data characterizing the second quarter.  Cash Management and Profitability slipped by lesser amounts, but Value managed to eke out a 1 point gain.  These results caused the Overall gauge to fall rather substantially.

We will make any necessary adjustments to the scores after Walmart files a 10-Q, with more complete financial statements and notes.


Full disclosure: Long WMT at time of writing.

WMT: Income Statement Analysis for the July 2009 Quarter

Wal-Mart Stores (NYSE: WMT) earned $0.88 per share in the three months that ended 31 July 2009, which was the second quarter of fiscal 2010.  Although Net Income did not change significantly from the comparable period last year, earnings per share increased by $0.01 because fewer shares were outstanding. 

Number 2 on the Fortune 500 list of America's largest corporations, Walmart sold over $400 billion of merchandise last year in its discount stores.

This post examines Walmart's Income Statement for the quarter and compares it to our "look-ahead" estimates.  Our target for Net Income in the latest quarter was $0.82 per share, $0.06 less than the reported amount.

In a second article, we will report Walmart's scores as measured by the GCFR Financial Gauges.  The follow-up post will also provide the latest figures for the financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

The principal sources for this post were the earnings announcement and the conference call transcript at SeekingAlpha.  Our summary of background information about Wal-Mart Stores and the business environment in which it is currently operating can be found in the look-ahead.

Please click here to see a full-sized, normalized depiction of the actual and projected results for the just-concluded quarter, as well as the quarterly Income Statements for the last couple of years.  Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.






Revenue (Net sales and some other income) in the recent quarter was 1.4 percent less than in the same quarter of 2008.   Variations in currency exchange rates reduced the reported Revenue by 4.1 percent.

Revenue exceeded our $100 billion estimate by less than one percent.  We were pleasantly surprised to see such a small prediction error since July was the first quarter we didn't have Walmart's monthly sales data.  We estimated that Revenue in the July quarter would be about 6 percent greater than April's $94.2 billion.  In actuality, July's Revenue surpassed April's by 7.1 percent.

Sales at the company's eponymous U.S. stores increased just slightly, 0.3 percent, relative to the second quarter of last year.  Same-store sales edged down 1.5 percent, which was a little disappointing.  The situation was more complicated with respect to international stores, where reported Revenue declined 5.1 percent but increased, according to the company, 11.5 percent on a constant currency basis.  Sam's Club sales slipped 3.2 percent.

The Cost of Goods Sold (CGS) was 74.5 percent of Revenue, which translates into a Gross Margin of 25.5 percent.  The margin was 24.6 percent in the July 2008 quarter.  Walmart beat our 24.5-percent margin by a full point. 

Sales, General, and Administrative (SG&A) expenses in the quarter were 19.7 percent of Revenue, up from 19.0 percent last year.  We had estimated that these expenses would be 19.0 percent of Revenue. 

Operating Income, as we define it, rose 1.2 percent.  Our estimate was 6.5 percent too low because both Revenue and Gross Margin were better than we expected.

The net Interest expense was 3.7 percent more than last year, but only 0.6 percent greater than our target.

The Income Tax Rate was 34.3 percent, which was consistent with the predicted 34.0 percent.  Minority interest and loss from discontinued operations were also very close to our estimates.

Net Income attributable to Walmart was 0.2 percent less than in the July 2008 quarter.  It was, however, 7.4 percent greater our forecast.  EPS surpassed our prediction by a hefty $0.06.


In summary, Walmart's Operating and Net Income figures were nearly unchanged in the July 2009 quarter, when compared to the July 2008 quarter.  Revenue and Gross Margin were a little better than we expected, but SG&A costs were a little higher.





Full disclosure: Long WMT at time of writing.