Walmart Beats 4Q EPS Est, Lags Rev

Zacks

The world’s largest retailer, Wal-Mart Stores, Inc. (WMT) reported fourth quarter 2013 earnings of $1.67 per share topping the Zacks Consensus Estimate of $1.57 per share by 6.4%. Earnings were up 10.6% from the prior-year quarter earnings of $1.51 per share.

The fourth quarter fiscal 2013 results were ahead of the company’s earnings guidance range of $1.53 to $1.58 per share. The year-over-year earnings benefited from a lower-than-expected effective tax rate in the quarter. Top-line growth coupled with cost savings also boosted earnings.

Total revenue climbed 3.9% to $127.9 billion (including membership and other income), missing the Zacks Consensus Estimate of $129.2 billion. The company sales were driven by strong comparable store sales growth, which was overshadowed by foreign currency headwinds. Net sales, excluding currency impact, increased 3.7% to $126.8 billion.

Consolidated operating income increased 2.4% to $8.6 billion, driven by productivity improvements. On a constant currency basis, operating income increased 1.4% to $8.5 billion.

Segment Details

Walmart U.S.: The segment posted net sales growth of 2.6% to $74.7 billion in the quarter, including the impact of fuel sales, driven by positive comparable growth. Operating income increased 4.3% to $6.4 billion.

U.S. same-store sales increased 1.0%, driven by an increase in average ticket, offset by a decline in traffic. Same-store sales growth was at the lower end of the company’s guidance range of 1.0% to 3.0%. The growing traffic trend in its stores has helped the company post six consecutive quarters of positive same-store sales in this segment.

Walmart International: Segment net sales, including fuel sales, acquisitions and currency impact, increased 6.9% to $37.9 billion. Excluding currency headwinds, international sales increased 6.0% to $37.6 billion.

Operating income increased 6.1% to $2.4 billion. Taking into account adjustments for constant currency, operating income for the segment grew 2.6% in the quarter.

Sam’s Club: The segment, which comprises membership warehouse clubs, posted net sales growth, including fuel impact, of 3.4% to $14.5 billion. Sam’s Club operating income declined 3.5% to $0.5 billion in the quarter due to a reduction in gross profit margin from price investment strategies.

Sam’s Club's comparable sales, excluding the impact of fuel sales, increased 2.3% in the quarter, driven by increase in average ticket and positive traffic. The same store sales growth was within the guidance range of 1.5% to 3.5%.

Fiscal 2013 Results

Walmart’s fiscal year 2013 earnings were $5.02 per share, which exceeded the Zacks Consensus Estimate of $4.92 per share by 2.0%. Earnings were up 10.6% from the prior-year period, driven by lower-than-expected tax rate.

Earnings were well ahead of the company’s guidance range of $4.88 to $4.93 per share. Total revenue increased 5.0% to $469.2 billion (including membership and other income), missing the Zacks Consensus Estimate of $470.6 billion.

Other Financial Update

The company expects to reduce operating expenses by at least 100 basis points as per its five year plan starting fiscal 2013. The company reduced expenses by 14 basis points in fiscal 2013, driven by strong business in Walmart U.S.

During the quarter, the company repurchased shares worth approximately $2.9 billion, resulting in full year repurchases of $7.6 billion. In addition, the company paid $1.3 billion and $5.4 billion in dividends for the quarter and full year, respectively.

The company also announced an increase of 18% in fiscal year 2014 dividend to $1.88 per share over last year's dividend of $1.59 per share.

Guidance

For the first quarter of 2014, Walmart expects its earnings to range between $1.11 and $1.16 per share, up from the prior-year quarter earnings of $1.09 per share.

Walmart expects U.S. comp sales to be flat for the 13-week period from Jan 26 through Apr 26, due to lower-than-expected February comp sales. The lower February comp sales were due to higher payroll taxes and delayed tax returns. The company expects Sam’s Club comp sales growth, without fuel, for this 13-week period to be flat to 2.0%.

For fiscal 2014, Walmart expects earnings in the range of $5.20 to $5.40, including increased e-commerce costs of 9 cents. The company expects effective tax rates in the range of 32.0% to 33.0%. The Zacks Consensus Estimate for the first quarter and fiscal 2014 are pegged at $1.18 and $5.38 per share, respectively.

Walmart holds a Zacks Rank #3 (Hold). Retail and wholesale stocks that are presently doing favorable business include Dollar Tree Inc (DLTR), Ross Stores Inc (ROST), TJX Companies Inc. (TJX), all of which carry a Zacks Rank #2 (Buy).

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