Walmart Third Quarter Earnings Per Share Exceeds Guidance and First Call Consensus

Pre-Recorded Phone Call

Download Transcript

- Q3 EPS of $0.84 Exceeds First Call Consensus of $0.81
- Income from Continuing Operations Increases 7 Percent
- Raises Range of Full-Year EPS Guidance to $3.57 to $3.61

BENTONVILLE, Ark. , Nov. 12 -- Wal-Mart Stores, Inc. (NYSE: WMT) today reported diluted earnings per share from continuing operations for the third quarter of fiscal year 2010 of $0.84 , exceeding the company's guidance of $0.78 to $0.82 . Walmart earned $0.77 per share from continuing operations in the third quarter last year.

Net sales for the third quarter were $98.667 billion , an increase of 1.1 percent from $97.619 billion in the third quarter last year. On a constant currency basis (which assumes currency exchange rates remained the same as the prior year), net sales for the third quarter would have been $2.617 billion higher, increasing 3.8 percent to approximately $101.284 billion . Income from continuing operations increased to $3.246 billion from $3.033 billion in the same period last year, on a reported basis.

"Walmart's record third quarter earnings of 84 cents per share exceeded our guidance and were well above First Call consensus," said Mike Duke , Walmart president and chief executive officer. "Increased productivity and improved inventory management led to a better customer experience and contributed to our strong financial performance.

"The sales environment continued to be difficult this quarter, but customer traffic is up throughout the company. We gained market share, especially in the United States , the United Kingdom and Mexico , as customers around the globe continued to count on Walmart for quality and low prices," Duke said. "During the recession of the last two years, we delivered year-over-year sales and EPS growth on a constant currency basis.

"We are encouraged by both our traffic and market share gains across the company," he added. "Few companies have the momentum or opportunity that Walmart has around the world."

The company continues to generate strong free cash flow - nearly $3.6 billion through the first three quarters of fiscal year 2010. A reconciliation of free cash flow (a non-GAAP measure) to net cash provided by operating activities is included at the end of this release.

Net Sales

Net sales were as follows (dollars in billions):

                            Three Months Ended         Nine Months Ended
                                October 31,               October 31,
                        ------------------------- ---------------------------
                                          Percent                     Percent
                        2009      2008    Change    2009     2008     Change
                        ----      ----     -----    ----     ----     ------
    Net Sales:
     Walmart U.S.     $61.807   $61.075     1.2% $187.260  $184.055     1.7%
     International     25.307    24.905     1.6%   70.535    74.089    -4.8%
     Sam's Club        11.553    11.639    -0.7%   34.425    35.063    -1.8%
                       ------    ------    ----    ------    ------    ----
       Total Company  $98.667   $97.619     1.1% $292.220  $293.207    -0.3%

Reported International sales for the three months ended Oct. 31, 2009 were reduced by $2.617 billion as a result of the effect of currency exchange rates. On a constant currency basis, International sales increased 12.1 percent to $27.924 billion in the third quarter, compared to the same quarter last year.

Segment Operating Income

Segment operating income was as follows (dollars in billions):

                         Three Months Ended            Nine Months Ended
                             October 31,                   October 31,
                       -------------------------    --------------------------
                                         Percent                       Percent
                       2009      2008    Change     2009       2008     Change
                       ----      ----    -------    ----       ----    -------
    Segment Operating
     Income:
      Walmart U.S.    $4.525    $4.232     6.9%    $13.890    $13.219     5.1%
      International    1.119     1.182    -5.3%      3.142      3.450    -8.9%
      Sam's Club       0.395     0.374     5.6%      1.207      1.208    -0.1%

Reported International operating income for the three months ended Oct. 31, 2009 was reduced by $172 million because of the effect of currency exchange rates. On a constant currency basis, International operating income increased 9.2 percent to $1.291 billion in the third quarter, compared to the prior year's third quarter.

Comparable Store Sales

The company reports U.S. comparable store sales in this earnings release based on its 13-week retail calendar periods ended Oct. 30, 2009 and Oct. 31, 2008 , as follows:

                        Without Fuel         With Fuel          Fuel Impact
                       ------------          ---------          -----------
                      13 Weeks Ended      13 Weeks Ended      13 Weeks Ended
                    10/30/09  10/31/08  10/30/09  10/31/08  10/30/09  10/31/08
                    --------  --------  --------  --------  --------  --------

     Walmart U.S.     -0.5%      2.2%     -0.5%      2.2%      0.0%      0.0%
     Sam's Club        0.1%      4.1%     -1.9%      6.3%     -2.0%      2.2%
                       ---       ---      ----       ---      ----       ---
       Total U.S.     -0.4%      2.5%     -0.8%      2.9%     -0.4%      0.4%

                        Without Fuel         With Fuel          Fuel Impact
                       ------------          ---------          -----------
                      39 Weeks Ended      39 Weeks Ended      39 Weeks Ended
                    10/30/09  10/31/08  10/30/09  10/31/08  10/30/09  10/31/08
                    --------  --------  --------  --------  --------  --------

     Walmart U.S.      0.5%      2.9%      0.5%      2.9%      0.0%      0.0%
     Sam's Club        1.6%      3.7%     -2.3%      6.5%     -3.9%      2.8%
                       ---       ---      ----       ---      ----       ---
       Total U.S.      0.6%      3.0%      0.0%      3.4%     -0.6%      0.4%

Data in the condensed consolidated financial statements included in this news release are based on the calendar quarters ended Oct. 31, 2009 and 2008.

Operating Segments Review

During the third quarter, Walmart U.S. delivered very strong operating performance, fueled by productivity initiatives and efficient inventory management. Operating income increased 6.9 percent on a sales increase of 1.2 percent. Comparable store sales were below expectations, but continued increases in customer traffic and market share gains, especially in grocery and health and wellness, underscore the strength of the underlying business.

Walmart U.S. expects comparable store sales during the 13-week period from Sat., Oct. 31, 2009 through Fri., Jan. 29, 2010 to be flat, plus or minus one percent - as compared to the 2.4 percent comp for the same period last year. The company will report this comparable store sales result when it reports fourth quarter earnings on Feb. 18, 2010 .

During the third quarter, Sam's Club upgraded and added memberships, driven by its eValues program. Gross margin increased from improved margin mix. Sam's also improved operating profits and expense management. Comparable club sales were within its guidance, due to strong performance in food, consumables and health and beauty aids.

Sam's Club expects comparable club sales during the fourth quarter 13-week period to be approximately flat, plus or minus one percent, and also will report its comparable club sales result on Feb. 18, 2010 .

International remains Walmart's fastest-growing segment, with strong sales performances in the United Kingdom , Mexico and Brazil . Including the Chilean acquisition, sales increased 12.1 percent and operating income increased 9.2 percent, both on a constant currency basis. Price leadership and strong underlying operating performance continue to drive market share gains in every major market.

Earnings Guidance

"We continue to operate in a very challenging economy and remain dedicated to provide the lowest prices to our customers around the world," said Tom Schoewe , Walmart executive vice president and chief financial officer. "We believe Walmart is positioned better than any other retailer to succeed with customers this holiday season.

"Based on our view of the business, we expect diluted earnings per share from continuing operations for the fourth quarter of fiscal year 2010 to be between $1.08 and $1.12 ," Schoewe said. "As a result, we are raising the range of our guidance for diluted earnings per share from continuing operations for the full fiscal year to $3.57 to $3.61 , from $3.50 to $3.60 ."

Notes

After adoption of a new accounting standard, Walmart has made modifications to its financial statement presentation for minority interests (now referred to as "noncontrolling interests") in its majority-owned subsidiaries. These changes are reflected in Walmart's third quarter condensed consolidated financial statements included in this release. As a result, all references to income from continuing operations or earnings per share from continuing operations in this release refer to income from continuing operations attributable to Walmart, or diluted income per share from continuing operations attributable to Walmart, respectively.

In addition to these changes, beginning Feb. 1, 2009 , the company changed the classification of certain revenue and expense items within the financial statements. These changes are reflected in the third quarter condensed consolidated statements of income for all periods presented and did not have an impact on the company's consolidated operating or net income.

After this earnings release has been furnished to the SEC , a pre-recorded call offering additional comments on the quarter will be available to all investors. Callers may listen to this call by dialing 800-778-6902, or 585-219-6420 outside the U.S. and Canada . Information included in this release, including reconciliations, and the pre-recorded phone call is available in the investor information area on the company's Web site at www.walmartstores.com/investors.

Wal-Mart Stores, Inc. (NYSE: WMT) serves customers and members more than 200 million times per week at more than 8,000 retail units under 53 different banners in 15 countries. With fiscal year 2009 sales of $401 billion , Walmart employs more than 2.1 million associates worldwide. A leader in sustainability, corporate philanthropy and employment opportunity, Walmart ranked first among retailers in Fortune Magazine's 2009 Most Admired Companies survey. Additional information about Walmart can be found by visiting www.walmartstores.com. Online merchandise sales are available at www.walmart.com and www.samsclub.com.

This release contains statements as to Walmart management's forecasts of the company's earnings per share for the fiscal quarter and fiscal year to end January 31, 2010 and the comparable store sales of each of the Walmart U.S. and Sam's Club segments of the company for the 13-week period from October 31, 2009 through January 29, 2010 , and management's expectation regarding Walmart's position to succeed with customers during the holiday season that the company believes are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements are intended to enjoy the protection of the safe harbor for forward-looking statements provided by that act. These statements can be identified by the use of the word or phrase "expect," "expects," "guidance" and "believe," in the statements. These forward-looking statements are subject to risks, uncertainties and other factors, domestically and internationally, including general economic conditions, the cost of goods, competitive pressures, geopolitical events and conditions, levels of unemployment, levels of consumer disposable income, changes in laws and regulations, consumer credit availability, inflation, deflation, consumer spending patterns and debt levels, currency exchange rate fluctuations, trade restrictions, changes in tariff and freight rates, changes in the costs of gasoline, diesel fuel, other energy, transportation, utilities, labor and health care, accident costs, casualty and other insurance costs, interest rate fluctuations, financial and capital market conditions, developments in litigation to which the company is a party, weather conditions, damage to the company's facilities from natural disasters, regulatory matters and other risks. The company discusses certain of these factors more fully in its additional filings with the SEC , including its last annual report on Form 10-K filed with the SEC , and this release should be read in conjunction with that annual report on Form 10-K, together with all of the company's other filings, including current reports on Form 8-K, made with the SEC through the date of this release. The company urges you to consider all of these risks, uncertainties and other factors carefully in evaluating the forward-looking statements contained in this release. As a result of these matters, changes in facts, assumptions not being realized or other circumstances, the company's actual results may differ materially from the expected results discussed in the forward-looking statements contained in this release. The forward-looking statements made in this release are made only as of the date of this release, and the company undertakes no obligation to update them to reflect subsequent events or circumstances.

                                  Wal-Mart Stores, Inc.
                       Condensed Consolidated Statements of Income
                                       (Unaudited)

    SUBJECT TO RECLASSIFICATION
                                    Three Months Ended     Nine Months Ended
                                        October 31,            October 31,
    (Amounts in millions except
    per share data)                    2009      2008         2009      2008
    ---------------                    ----      ----         ----      ----
    Revenues:
      Net sales                      $98,667   $97,619     $292,220  $293,207
      Membership and other income        744       726        2,343     2,420
    -----------------------------        ---       ---        -----     -----
                                      99,411    98,345      294,563   295,627

    Costs and expenses:
      Cost of sales                   73,805    73,621      219,346   222,111
      Operating, selling, general
       and administrative
       expenses                       20,013    19,432       58,525    57,095
     ----------                       ------    ------       ------    ------
    Operating income                   5,593     5,292       16,692    16,421
    ----------------                   -----     -----       ------    ------
    Interest:
      Debt                               442       464        1,337     1,402
      Capital leases                      68        73          206       222
      Interest income                    (35)      (81)        (128)     (216)
    -----------------                    ---       ---         ----      ----
      Interest, net                      475       456        1,415     1,408
    ---------------                      ---       ---        -----     -----

    Income from continuing
     operations before income
     taxes                             5,118     4,836       15,277    15,013

    Provision for income taxes         1,758     1,690        5,214     5,186
    --------------------------         -----     -----        -----     -----
    Income from continuing
     operations                        3,360     3,146       10,063     9,827
    (Loss) income from
     discontinued operations,
     net of tax                           (7)      105          (22)      146
    -----------                           --       ---          ---       ---
    Consolidated net income            3,353     3,251       10,041     9,973
    Less consolidated net
     income attributable to
     noncontrolling interest            (114)     (113)        (338)     (365)
    ------------------------            ----      ----         ----      ----
    Consolidated net income
     attributable to Walmart          $3,239    $3,138       $9,703    $9,608
    ------------------------          ------    ------       ------    ------

    Income from continuing
     operations attributable to
     Walmart:
      Income from continuing
       operations                     $3,360    $3,146      $10,063    $9,827
      Less consolidated net
       income attributable to
       noncontrolling interest          (114)     (113)        (338)     (365)
     -------------------------           ----      ----         ----      ----
     Income from continuing
      operations attributable to
      Walmart                         $3,246    $3,033       $9,725    $9,462
     --------                         ------    ------       ------    ------

    Basic net income per common
     share:
      Basic income per share from
       continuing operations
       attributable to Walmart         $0.84     $0.77        $2.50     $2.40
      Basic income per share from
       discontinued operations
       attributable to Walmart             -      0.03            -      0.04
     -------------------------           ---      ----          ---      ----
      Basic net income per share
       attributable to Walmart         $0.84     $0.80        $2.50     $2.44
     -------------------------         -----     -----        -----     -----

    Diluted net income per
     common share:
      Diluted income per share
       from continuing operations
       attributable to Walmart         $0.84     $0.77        $2.50     $2.39
      Diluted income (loss) per
       share from discontinued
       operations
       attributable to Walmart             -      0.03        (0.01)     0.04
    --------------------------           ---      ----        -----      ----
      Diluted net income per
       share attributable to
       Walmart                         $0.84     $0.80        $2.49     $2.43
    ----------                         -----     -----        -----     -----

    Weighted-average number of
     common shares:
      Basic                            3,851     3,931        3,887     3,944
      Diluted                          3,861     3,944        3,897     3,956

    Dividends declared per
     common share                         $-        $-        $1.09     $0.95

                                    Wal-Mart Stores, Inc.
                            Condensed Consolidated Balance Sheets
                                         (Unaudited)

    SUBJECT TO
     RECLASSIFICATION
                                              October 31,          January 31,
                                          ------------------       -----------
    (Amounts in millions)                 2009          2008          2009
    --------------------                  ----          ----          ----
    ASSETS
    Current assets:
    Cash and cash
     equivalents                         $6,003         $5,920        $7,275
    Receivables                           3,776          3,250         3,905
    Inventories                          38,775         40,416        34,511
    Prepaid expenses and
     other                                3,249          3,245         3,063
    Current assets of
     discontinued operations                145            262           195
    ------------------------                ---            ---           ---
        Total current assets             51,948         53,093        48,949

    Property and equipment,
     at cost:
      Property and equipment,
       at cost                           135,152       125,173       125,820
      Less accumulated
       depreciation                      (36,716)      (31,467)      (32,964)
    ---------------                      -------       -------       -------
        Property and equipment,
         net                              98,436        93,706        92,856

    Property under capital
     lease:
      Property under capital
       lease                               5,618         5,420         5,341
      Less accumulated
       amortization                       (2,833)       (2,581)       (2,544)
    ---------------                       ------        ------        ------
        Property under capital
         lease, net                        2,785         2,839         2,797

    Goodwill                              16,162        15,416        15,260
    Other assets and
     deferred charges                      3,603         2,789         3,567
    -----------------                      -----         -----         -----
        Total assets                    $172,934      $167,843      $163,429
    ----------------                    --------      --------      --------

    LIABILITIES AND EQUITY
    Current liabilities:
      Commercial paper and
       other short-term
       borrowings                         $5,239        $7,932        $1,506
      Accounts payable                    30,920        30,782        28,849
      Dividends payable                    1,021           993             -
      Accrued liabilities                 16,638        15,343        18,112
      Accrued income taxes                   810           355           677
      Long-term debt due
       within one year                     4,169         4,753         5,848
      Obligations under capital
       leases due within one
       year                                  344           314           315
      Current liabilities of
       discontinued operations                38           152            83
    --------------------------               ---           ---           ---
        Total current
         liabilities                      59,179        60,624        55,390

    Long-term debt                        34,394        30,803        31,349
    Long-term obligations
     under capital leases                  3,207         3,268         3,200
    Deferred income taxes
     and other                             6,202         5,575         6,014
    Redeemable
     noncontrolling interest                 310             -           397

    Commitments and contingencies

    Equity:
    Common stock and capital
     in excess of par value                4,134         4,219         4,313
    Retained earnings                     64,105        59,809        63,660
    Accumulated other
     comprehensive (loss)
     income                                 (551)        1,511        (2,688)
    -------                                 ----         -----        ------
        Total Walmart
         shareholders' equity             67,688        65,539        65,285
    -------------------------             ------        ------        ------
    Noncontrolling interest                1,954         2,034         1,794
    -----------------------                -----         -----         -----
        Total equity                      69,642        67,573        67,079
    ----------------                      ------        ------        ------
        Total liabilities and
         equity                         $172,934      $167,843      $163,429
    -----------                         --------      --------      --------

                                   Wal-Mart Stores, Inc.
                     Condensed Consolidated Statements of Cash Flows
                                        (Unaudited)

    SUBJECT TO RECLASSIFICATION
                                                             Nine Months Ended
                                                                 October 31,
                                                                -------------
    (Amounts in millions)                                       2009     2008
                                                                ----     ----
    Cash flows from operating activities:
      Consolidated net income                                 $10,041  $9,973
      Loss (income) from discontinued operations, net of tax       22    (146)
    --------------------------------------------------------      ---    ----
      Income from continuing operations                        10,063   9,827
      Adjustments to reconcile income from continuing
       operations to net cash provided by operating
       activities:
        Depreciation and amortization                           5,255   5,054
        Other                                                     225     637
        Changes in certain assets and liabilities, net of
         effects of acquisitions:
          Decrease in accounts receivable                         540     394
          Increase in inventories                              (3,415) (5,655)
          Increase in accounts payable                          1,028     914
          Decrease in accrued liabilities                      (1,256)   (745)
    -------------------------------------                      ------    ----
    Net cash provided by operating activities                  12,440  10,426

    Cash flows from investing activities:
      Payments for property and equipment                      (8,885) (8,174)
      Proceeds from disposal of property and equipment            265     779
      Proceeds from disposal of certain international
       operations, net                                              -     838
      Investment in international operations, net of cash
       acquired                                                     -     (74)
      Other investing activities                                  (41)   (166)
    ----------------------------                                  ---    ----
    Net cash used in investing activities                      (8,661) (6,797)

    Cash flows from financing activities:
      Increase in commercial paper and other short-term
       borrowings, net                                          3,475   2,949
      Proceeds from issuance of long-term debt                  5,465   5,568
      Payment of long-term debt                                (4,799) (5,064)
      Dividends paid                                           (3,179) (2,814)
      Purchase of Company stock                                (5,105) (3,521)
      Purchase of redeemable noncontrolling interest             (456)      -
      Other financing activities                                 (327)   (165)
    ----------------------------                                 ----    ----
    Net cash used in financing activities                      (4,926) (3,047)

    Effect of exchange rates on cash                             (125)   (231)
    --------------------------------                             ----    ----
    Net (decrease) increase  in cash and cash equivalents      (1,272)    351
    Cash and cash equivalents at beginning of year (1)          7,275   5,569
    --------------------------------------------------          -----   -----
    Cash and cash equivalents at end of period                 $6,003  $5,920
    ------------------------------------------                 ------  ------

    (1) Includes cash and cash equivalents of discontinued operations of 
  
   $77
        million
   at 
  
   January 31, 2008
  .

Free Cash Flow

We define free cash flow as net cash provided by operating activities in a period minus payments for property and equipment made in that period. We generated positive free cash flow of $3.6 billion and $2.3 billion for the nine months ended October 31, 2009 and 2008, respectively. The increase in our free cash flow is primarily the result of improved inventory management.

Free cash flow is considered a non-GAAP financial measure under the SEC's rules. Management believes, however, that free cash flow is an important financial measure for use in evaluating the company's financial performance, which measures our ability to generate additional cash from our business operations. Free cash flow should be considered in addition to, rather than as a substitute for, income from continuing operations as a measure of our performance and net cash provided by operating activities as a measure of our liquidity.

Additionally, our definition of free cash flow is limited, in that it does not represent residual cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our entire statement of cash flows.

Although other companies report their free cash flow, numerous methods may exist for calculating a company's free cash flow. As a result, the method used by our management to calculate free cash flow may differ from the methods other companies use to calculate their free cash flow. We urge you to understand the methods used by another company to calculate its free cash flow before comparing our free cash flow to that of such other company.

The following table sets forth a reconciliation of free cash flow, a non-GAAP financial measure, to net cash provided by operating activities, a GAAP measure, which we believe to be the GAAP financial measure most directly comparable to free cash flow, for the nine months ended October 31, 2009 and 2008, as well as information regarding net cash used in investing activities and net cash used in financing activities in those periods.

                                                  Nine Months Ended
    (Amounts in millions)                 October 31, 2009    October 31, 2008
                                          ----------------    ----------------

    Net cash provided by operating activities   $12,440            $10,426
    Payments for property and equipment          (8,885)            (8,174)
                                                 ------             ------
    Free cash flow                               $3,555             $2,252
                                                 ======             ======

    Net cash used in investing activities       $(8,661)           $(6,797)

    Net cash used in financing activities       $(4,926)           $(3,047)

SOURCE Wal-Mart Stores, Inc.

Investor Relations, Carol Schumacher, +1-479-277-1498
or Mike Beckstead, +1-479-277-9558
or Media Relations, John Simley, 1-800-331-0085
or for Pre-recorded Conference Call, 1-800-778-6902 (U.S. and Canada), +1-585-219-6420 (All other countries), all of Wal-Mart Stores, Inc.