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Wal-Mart Ups Y/Y, Provides Outlook

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Wal-Mart Stores Inc. (WMT - Analyst Report) reported fourth-quarter 2012 results of $1.44 per share, surpassing the prior-year earnings by 7.5%. The fourth quarter results were also within the company's guidance of $1.42 to $1.48 per share. However, the results lagged the Zacks Consensus Estimate by a penny.

In fiscal 2011, Walmart delivered better-than-expected earnings of $4.49 per share, surpassing the Zacks Consensus Estimate by a penny and the year-ago earnings by 42 cents.

Both the fourth-quarter and the fiscal year 2012 earnings excluded net benefits of 7 cents and 5 cents per share, respectively, from certain tax matters and real estate transactions. Fourth-quarter and fiscal year 2011 earnings also excluded net tax benefits of 7 cents and 11 cents per share, respectively.

Including the tax benefit, Wal-Mart exceeded the prior-year quarter’s earnings by 7.1% in the fourth quarter 2012, while it exceeded by 8.6% in fiscal 2011.

For the first quarter of 2013, Walmart expects its earnings to range between $1.01 and $1.06 per share, higher from the reported earnings of 98 cents in fiscal 2012. For fiscal 2013, Walmart expects its earnings to range between $4.72 and $4.92 per share, as compared to the earnings of $4.54 per share reported in fiscal 2012.

For the fiscal 2013, the company forecasts the effective tax rate to range between 32.5% - 33.5%.

Revenue and Margin Details

Wal-Mart’s net sales, including fuel, in the fourth-quarter climbed 5.8% to $122.3 billion from $115.6 billion in the year-ago quarter. It, however, missed the Zacks Consensus Revenue Estimate of $123.6 billion.

Net sales in the quarter included $2.4 billion from the positive impact of acquisitions in the U.K. and South Africa and a negative impact from currency exchange translation of $1.0 billion. Excluding acquisitions, sales surged 4.5% in the quarter to $120.9 billion.

In fiscal 2011, net sales, including fuel, grew 5.9% to $443.9 billion, which included approximately $4.7 billion of positive impact from acquisitions and approximately $4.0 billion of positive impact from currency exchange rates. It however missed the Zacks Consensus Revenue Estimate of $446.7 billion. Excluding acquisitions, sales surged 3.9% to $435.1 billion in the year.

Excluding acquisition, consolidated operating income increased 5.1% in the quarter and 3.2% in the year 2011.

Segment Details

Walmart U.S.: The segment posted net sales growth of 2.4% to $72.8 billion in the fourth quarter and 1.5% to $264.2 billion in fiscal 2012.

Operating income grew 1.4% to $6.1 billion in the quarter and 2.2% to $20.4 billion in the year.

Walmart International: The segment’s net sales, including fuel and acquisitions, increased 13.1% to $35.5 billion in the fourth quarter and 15.2% to $125.9 billion in fiscal 2012.

Operating income grew 15.2% to $2.3 billion in the quarter and 10.8% to $6.2 billion in the year.

Sam’s Club: The segment posted net sales growth of 6.8% to $14.0 billion in the fourth quarter and 8.8% to $53.8 billion in fiscal 2012.

Operating income grew 7.6% to $0.52 billion in the quarter and 9.0% to $1.87 billion in the year.

Same-Store Sales Details

Wal-Mart, widely regarded as a bellwether for the U.S. economy, stated that U.S. same-store sales, with and without fuel, increased from a negative 1.8% to a positive 1.5% in the fourth quarter 2012 results. In fiscal 2011, U.S. same-store sales increased from a negative 1.6% to a positive 0.2%, both with and without fuel.

Sam’s comparable sales, without fuel, increased from 2.7% to 5.4% in the reported quarter for the current 13-week period, while it increased from 4.5% to 6.8% in the current quarter, including fuel. In fiscal 2011, Sam’s comparable sales increased from 1.7% to 5.1% in the reported year for the current 52-week period without fuel, while it increased from 3.7% to 8.4% in the fiscal year, including fuel.

The comps were driven by increased focus on expanded assortment, greater price leadership and improved merchandise offerings.

Walmart forecasts that U.S. comp sales, without fuel, for the current 13-week period from January 28 through April 27, is expected to range from flat to positive 2.0%. In addition, it expects Sam’s Club comp sales, without fuel, for the current 13-week period to increase between 3.0% and 5.0%.

Expansion Update

Walmart has planned to increase its controlling stake in Chinese e-commerce firm Yihaodian to approximately 51%, as the company looks out for new revenue sources in the fastest-growing economy.

Though the terms of the deal were not disclosed and still needs approval from the Chinese regulators, it is expected that the deal will improve Walmart's access to Chinese consumers who increasingly use smartphones and social media to shop. In addition, Walmart, which operates more than 10,000 retail stores under 69 different names in 28 countries, will make the Chinese firm more efficient with its managed supply chain.

Walmart currently has more than 350 stores in China, and has been making continuous progress. Yihaodian, with 5,400 staff, operates a logistics network in Shanghai, Beijing, Guangzhou, Wuhan and Chengdu. It sells more than 180,000 products, ranging from groceries to electronics to clothing at competitive prices.

Other Financial Update

Wal-Mart ended the year with free cash flow of $10.7 billion, compared with $10.9 billion in the year-ago period, primarily due to capital expenditures outpacing the growth in net cash from operating activities. Return on Investment (ROI) was 18.6% during the year compared with 19.2% in the prior year period.

ROI was negatively impacted primarily by additional investments in property, plant and equipment (PP&E), Global eCommerce, and higher inventories, as well as price investment ahead of full realization of productivity improvements.

During the quarter, the company repurchased approximately 22.9 million shares for $1.3 billion, bringing the full year repurchases to 115.3 million shares for $6.3 billion. In addition, the company paid $1.2 billion and $5.0 billion in dividends for the quarter and year, respectively. For the year, Walmart returned $11.3 billion to shareholders through dividends and share repurchases.

Wal-Mart makes 200 million saes per week at 10,130 retail units under 69 different banners in 27 countries. With fiscal year 2012 sales of approximately $444 billion, Walmart employs more than 2 million associates worldwide.

Currently, we hold a Zacks #3 Rank for Walmart implying a short term Hold rating. Over the long-term, we provide a Neutral recommendation on the stock.

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