10 June 2009

WMT: Financial Analysis through April 2009 (Update)

We have already posted a preliminary analysis of Wal-Mart's reported results, which included earnings of $0.77 per share, for the three months that ended 30 April 2009.  This period was the first quarter of the company's fiscal 2010, which will end next January.

Wal-Mart has now filed a 10-Q quarterly report with the required financial statements and notes, we used the data in the 10-Q to update our evaluation and scores.

This post reports on the update.

Retailer Wal-Mart Stores, Inc. (NYSE: WMT) had sales over $400 billion last year, which earned it the Number 2 spot on the latest Fortune 500 list of America's largest corporations.

Our curiosity was piqued by an easy-to-miss difference between Wal-Mart's financial statements in the 10-Q and those in its earlier press release for the April quarter.  The press release listed a $436 million "investment in international operations" in the Investing Activities section of the Cash Flow Statement.  However, in the 10-Q, the $436 million was reclassified as a Financing Activity transaction with this name: "Purchase of redeemable noncontrolling interest."

The item in question refers to Wal-Mart's $436 million cash payment in March 2009 ...

"to acquire a portion of the redeemable noncontrolling interest in DistribuciĆ³n y Servicio D&S S.A. (“D&S”) through a second tender offer as required by the Chilean securities laws."  

This transaction could very well be additional purchases by Wal-Mart of D&S shares from minority holders after Wal-Mart purchased a controlling 58 percent interest in the Chilean grocer in January 2009. 

Some sort of explanation for the reclassification would have been appreciated.  We would also like to know more about why Wal-Mart accounted for the payment in the the following manner (as opposed to goodwill):

"This transaction resulted in a $148 million acquisition of the redeemable noncontrolling interest and the remaining $288 million is reflected as a reduction of Wal-Mart shareholders’ equity."

Getting back to the matter at hand, the shift of $436 million between sections of the Cash Flow Statement changed one (and only one) of the metrics we use to calculate gauge scores.  We originally reported that the Accrual Ratio increased from 0.6 percent in January to 1.3 percent in April.  With the latest data, the ratio increased only to 1.0 percent.  Since rises in the ratio are not desirable (they suggest lower earnings quality), the smaller increase is actually a positive development.

After factoring in the data from the 10-Q, and after making a couple of minor tweaks, we now report the following gauge scores for Wal-Mart:
  • Overall: 37 of 100 (down from 43)

The 10-Q did not change our evaluation of the April quarter's Income Statement. (Click here to see our normalized depiction of Wal-Mart's Income Statements for the last nine quarters.  Please note that our presentation, which we use for all analyses, can and often does differ in material respects from company-used formats.)

The following tidbits of information were gathered from the 10-Q, but they are not new disclosures:

Wal-Mart sold £1.0 billion of senior, unsecured securities on 27 March 2009.  These notes pay 5.625 percent interest and due in in 2034.  Long-term debt to Equity increased during the first quarter from 47 percent to 51 percent.

Wal-Mart increased the annual dividend for fiscal 2010 to $1.09 per share, an increase of 15 percent.

On 4 June 2009, Wal-Mart replaced one $15.0 billion share repurchase program with a new $15.0 billion share repurchase program.  The company had spent $11.6 billion of its shares under the earlier program.

Full disclosure: Long WMT at time of writing

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