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Walmart Earnings & Revs Miss Estimate

Zacks Equity Research

The world’s largest retailer, Wal-Mart Stores, Inc. (WMT) reported fiscal first quarter 2014 earnings of $1.14 per share, missing the Zacks Consensus Estimate of $1.15 per share by 0.9%. Earnings were up 4.6% from the prior-year quarter earnings of $1.09 per share.

The first quarter fiscal 2014 results were within the company’s earnings guidance range of $1.11 to $1.16 per share. Top-line growth coupled with cost savings boosted earnings in the quarter.

Total revenue climbed 1.0% to $114.2 billion (including membership and other income), missing the Zacks Consensus Estimate of $116.6 billion. Membership and other income increased 1.6% on a year-over-year basis, driven by an increase in membership income.

Net revenue, excluding currency impact of $1 billion and membership income of $0.8 billion, increased 1.8% to $114.2 billion. Total e-commerce sales also grew more than 30% in the first quarter.

Consolidated operating income increased 1.1% to $6.46 billion, driven by productivity improvements. On a constant currency basis, operating income increased 1.6% to $6.49 billion.

Segment Details

Walmart U.S.: The segment posted net sales growth of 0.3% to $66.6 billion in the quarter, including the impact of fuel sales. Operating income increased 5.9% to $5.3 billion.

U.S. same-store sales declined 1.4% compared to 2.6% growth in the prior-year quarter due to a delay in tax refund checks, challenging weather conditions and the payroll tax increase. Comp traffic declined while average ticket increased in the quarter.

Walmart International: Segment net sales, including fuel sales, increased 2.9% to $33.0 billion. Excluding currency headwinds, international sales increased 5.4% to $33.8 billion. Walmart’s stores in the U.K., Africa, Mexico, Central America, Brazil, Chile, Argentina, China and India delivered positive comp sales in the quarter, while comps in Japan and Canada declined. Operating income declined 4.7% to $1.3 billion.

Sam’s Club: The segment, which comprises membership warehouse clubs, posted net sales growth, including fuel impact, of 0.1% to $13.9 billion. Net sales, excluding fuel impact, increased 0.5% to $12.2 billion. Sam’s Club operating income grew 7.4% to $0.5 billion in the quarter.

Sam’s Club's comparable sales, excluding the impact of fuel sales, increased 0.2% in the quarter, driven by positive traffic and partially offset by decline in average ticket. The same-store sales growth was within the guidance range of flat to 2.0%.

The company had posted comp sales growth of 5.3% in the prior-year quarter. Including the impact of fuel sales, Sam’s Club comp sales declined 0.2% compared to growth of 6.2% in the prior-year quarter due to unfavorable weather conditions.

Other Financial Update

During the quarter, the company repurchased 30 million shares worth approximately $2.2 billion. In addition, the company paid $1.6 billion in dividends for the quarter. The company had previously announced an increase of 18% in fiscal 2014 dividend to $1.88 per share over last year's dividend of $1.59 per share.


For the second quarter of fiscal 2014, Walmart expects its earnings to range between $1.22 and $1.27 per share, taking into account the impact of its e-commerce initiatives. The guidance is also up from $1.18 per share earned in the second quarter of fiscal 2013.

Walmart expects U.S. comp sales to increase flat to 2% for the 13-week period ending July 26. Sam’s Club comp sales growth, without the impact of fuel sales, is expected to increase from 1% to 3.0% for this 13-week period.

Walmart continues to focus on improving its U.S. and International segments. In addition, the company is focused on reducing its operating expenses in fiscal 2014, which in turn will increase its productivity. However, the company expects a decline in consumer spending going ahead as middle-class consumers struggle to cope with rising gas prices, delayed income tax refunds and higher payroll taxes.

Walmart holds a Zacks Rank #3 (Hold). Retail and wholesale stocks that are presently doing favorable business include The Kroger Co (KR), Harris Teeter Supermarkets Inc (HTSI), TJX Companies Inc. (TJX), all of which carry a Zacks Rank #2 (Buy).

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