04 May 2008

WMT: Look Ahead to April 2008 (1Q FY09) Results

The first quarter of the Wal-Mart's 2009 fiscal year ended on 30 April 2008. The company will report its results for this period on 13 May 2008.

We've made estimates for the quarter's Income Statement. The intent of this exercise was to produce a baseline for identifying any deviations, positive or negative, in the actual data. Our estimates are derived from trends in the company's historical financial results and guidance provided by company management.

Discounter Wal-Mart Stores, Inc. (WMT) has annual sales of $375 billion, or about 10 percent of U.S. retail sales. It squeezed ahead of Exxon Mobil (XOM) to garner the top spot on the 2008 edition of the Fortune 500 list of America's largest corporations. Most retailers are challenged by the slowing U.S. economy, in which consumers weakened by high food and energy prices are nervous about their jobs and homes. In this environment, super-efficient Wal-Mart has something of a competitive advantage. The company sells the merchandise consumers can't do without, and it does so at prices hard for competitors to match. To bolster store traffic, Wal-Mart has shown it is willing to implement price reductions that squeeze already razor-thin profit margins.

Wal-Mart has already reported its sales for January, February, and March of 2008. It's easy enough to calculate that Net Sales for these three months totaled $93.4 billion, up 8.2 percent from the comparable months of 2007. Because the monthly and quarterly periods don't coincide exactly, we need to make a slight negative adjustment to the monthly figures to come up with our $92.4 billion estimate for Net Sales in the quarter.

When reporting March sales, Wal-Mart also provided earnings guidance about Sales and Earnings:
“Inventory in Wal-Mart Stores U.S. has been well managed and has resulted in lower markdowns, expense leverage and reduced shrink,” said Schoewe. “Therefore, we are raising our guidance for earnings per share from continuing operations for the first quarter of fiscal year 2009 to a range of $0.74 to $0.76. This is an increase from the previous earnings guidance of $0.70 to $0.74 per share from continuing operations.”

This gives us a pretty good indication of the Income Statement's top- and bottom-line figures. We have estimated the numbers in between.

Wal-Mart's Gross Margin has been around 23 percent of Revenue. There is some seasonality to the figures, but in the April 2006 and April 2007 quarters, the margin was 23.5 and 23.6 percent. If we set 23.5 percent as the target for the April 2008 quarter, our estimate for Cost of Goods Sold (CGS) in the January quarter is (1 - 0.235) * $92.4 billion = $70.7 billion.

Sales, General, and Administrative (SG&A) expenses as a percentage of Revenue has crept up to about 19 percent, and the ratio has been very close to 19.0 percent in the two previous April quarters. Therefore, our estimate for this expense is 0.19 * $92.4 billion = $17.6 billion.

These expense estimates would lead to an Operating Income of $4.2 billion, which is 8.7 percent greater than the value in the year-earlier quarter.

We will assume a charge for Minority interests of $100 million, which is a typical value. Similarly, historical data are the basis for our $620 million estimate for Net Interest and other income. These values would increase pre-tax income to $4.7 billion.

If we project an Income Tax Rate of 35 percent, the provision for income taxes will be $1.6 billion. Net Income will be $3.04 billion ($0.76 per share). Note that this matches the high end of the company's guidance.

Please note that the tabular format below, which we use for all analyses, can and often does differ in material respects from company-used formats. A common difference is the classification of income and expenses as Operating and Non-Operating. The standardization is simply for convenience and to facilitate cross-company comparisons.

($ M)

April 2008
April 2007
Revenue (1)

Op expenses

CGS (70695)

SG&A (17558) (16249)

Operating Income
Other income

Investments (2)

Interest, etc. (3)
Pretax income

Income tax

Net Income

$0.76/sh $0.68/sh
Shares outstanding

1. Revenue "predictions" for Wal-Mart are based on the company's publicly announced monthly sales reports.
2. Minority interests
3. Includes some income Wal-Mart considers to be operating income.


  1. flash_os@walla.comMon May 05, 08:26:00 AM PDT

    What about cash flow and long term debt?

  2. what about the supercenter Walmart decided not to build in liverpool ny due to budget reasons and what about the store manager that hits an customer in the amherst store in amherst ny and walmart does nothing about it but laugh huh.........

  3. We will evaluate Cash Flow, Debt, and a host of other metrics when the company publishes its Earnings report. We limit our forecasts to the Income Statement. There typically isn't enough public information available for an outsider to produce credible estimates of the entries on the Balance Sheet and Cash Flow Statement.