12 November 2009

WMT: Income Statement Analysis for the October 2009 Quarter

Wal-Mart Stores (NYSE: WMT) earned $0.84 per share in the third quarter of fiscal 2010, which ended on 31 October 2009, up from $0.80 in the same quarter of last year.

This post examines Walmart's Income Statement for the quarter and compares the entries on each line to our "look-ahead" estimates.  Our target for Net Income in the latest quarter was $0.83 per share, $0.01 less than the reported amount.  Fewer shares outstanding caused the difference.

In a second article, we will report Walmart's scores as measured by the GCFR financial gauges. The follow-up post will also provide the latest figures for the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

Number 2 on the Fortune 500 list of America's largest corporations, Wal-Mart sold over $400 billion of merchandise last year in its discount stores.  Some background information about Wal-Mart Stores and the business environment in which it is currently operating can be found in the look-ahead.

Please click here to see a full-sized, normalized depiction of the actual and projected results for the just-concluded quarter, as well as the quarterly Income Statements for the last couple of years.  Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

Revenue (Net sales and some other income) in the recent quarter was 1.1 percent more than in the same quarter of 2008.   Changes in currency exchange rates from last year trimmed about 2.6 percent from the reported figure for Net Sales.

Our estimate for Total Revenue, which was derived from the seasonal pattern, was only off by 0.2 percent.

Sales at the company's eponymous U.S. stores increased 1.2 percent, relative to last year's third quarter. Same-store sales slipped 0.5 percent, which at least one observer found disappointing.  The situation was more complicated with respect to international stores, where reported Revenue rose 1.6 percent but increased 12.1 percent on a constant currency basis. Sam's Club sales slipped 0.7 percent.

The Cost of Goods Sold (CGS) was 74.2 percent of Revenue, which translates into a Gross Margin of 25.8 percent.  The margin was 25.1 percent (restated) in the October 2008 quarter. Walmart beat our margin estimate of 25.0 percent by 80 basis points.

Sales, General, and Administrative (SG&A) expenses in the quarter were 20.1 percent of Revenue, up from 19.8 percent (restated) last year. We had estimated these expenses would fall to 19.4 percent of Revenue.

Operating Income, which we define as the difference between Revenue and the operating expenses identified above, was 5.7 percent more than last year.  Our estimate was too low, but by only 0.7 percent.  Slightly better-than-expected Revenue and Gross Margin was offset by greater-than-expected expenses.

By increasing 4 percent, the net Interest expense happened to match our target exactly.

The Income Tax Rate was 34.3 percent, which was a tad higher than the predicted 34.0 percent.  Income attributable to noncontrolling interests and a loss from discontinued operations were also very close to our estimates.

Net Income attributable to Walmart was 3.2 percent more than in the October 2008 quarter.  It met our forecast almost exactly.  EPS fell short of our prediction by $0.01 because fewer shares were outstanding than we had estimated.

In summary, Walmart's Revenue, Operating Income, and Net Income all increased in the third quarter of 2009, when compared to the same quarter of last year.  The reported figures were close to our estimates, which says more about the predictability of this behemoth than our analytical skills. 

Revenue and Gross Margin were slightly better than we expected, but SG&A costs were a little higher.  The only real surprise to us was the decline in shares outstanding, which threw our EPS estimate off by a penny.  From the conference call transcript at Seeking Alpha, we learned Walmart

"repurchased approximately $2.4 billion of our stock during the quarter, which represents about 46.8 million shares."

Full disclosure: Long WMT at time of writing.

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