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Wal-Mart (WMT) Q4 Earnings, Revenues Beat on Strong Comps

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Wal-Mart Stores Inc. (WMT - Free Report) reported better-than-expected fourth-quarter fiscal 2017 results, wherein both earnings and revenues exceeded the Zacks Consensus Estimate driven by higher comparable store sales (comps). Shares rallied about 1.7% in the pre-market trading session.

Wal-Mart’s fourth-quarter fiscal 2017 adjusted earnings (excluding discontinued real estate projects and severance costs of 8 cents) of $1.30 per share beat the Zacks Consensus Estimate of $1.29 by 0.8% on higher comps. However, the figure declined 12.8% from the year-ago adjusted earnings of $1.49 per share. Though the company reported higher comps, unfavorable currency and higher investments in wages and e-commerce activities resulted in the year-over-year fall in earnings.

Quarter in Detail

Total revenue of the retailer came in at $130.9 billion (including membership and other income). The figure beat the Zacks Consensus Estimate of $130.6 billion by 0.23% and increased 1.0% year over year. Currency dampened sales by approximately $2.65 billion. The decline in the International business was more than offset by growth in sales at Wal-Mart U.S and Sam’s Club divisions.

On a constant currency basis, revenues improved 3.0% to $133.6 billion. E-commerce sales increased approximately 29.0% at Wal-Mart U.S. However, e-commerce growth was higher than the preceding quarter’s improvement of 20.6%.

Total revenue comprised net sales of $129.8 billion (up 0.8% from the year-ago quarter and up 2.9% on a constant currency basis) and membership and other income of $1.2 billion (up 20.7% year over year).

Operating income declined 6.6% to $6.21 billion in the reported quarter as the company continued to invest in people and technology. Higher investment in e-commerce initiatives to compete with the online retailer, Inc. (AMZN - Free Report) and in associates through higher wages and training seem to have dampened the operating income. The negative currency also had an impact on the same. On a constant currency basis, operating income decreased 3.4%.

Coming to the share price movement, Wal-Mart’s shares have increased 5.7% in the past one year, little higher than the Zacks categorized Retail-Supermarkets industry’s growth of 4.1%.

Segment Details

Wal-Mart U.S.: The segment posted net sales growth of 2.8% to $83.7 billion in the reported quarter, including the impact of fuel sales. Operating income, however, declined 2.5% to $4.9 billion, as the company incurred huge expenses as a result of e-commerce initiatives and higher wages and training.

U.S. same-store sales (comps) for the 13-week period ended Jan 27 increased 1.8% compared with 0.6% comps growth in the prior-year quarter. This was the 10th consecutive quarter of positive comps. Comp sales growth exceeded the company’s expectations of 1−1.5% increase. While comp traffic improved 1.4%, average ticket inched up 0.4% in the quarter. The impact of rising consumer spending was seen in improved traffic during the quarter.

Neighborhood Market comps also increased approximately 5.3%, with strong customer growth. E-commerce sales positively impacted comp sales in the quarter at Wal-Mart U.S. by 0.40%.

Wal-Mart International: Segment net sales, including fuel sales, declined 5.1% year over year to $31.0 billion. The same, however, increased 3.0% on a constant currency basis to $33.7 billion. Operating income declined 8.9% to $1.5 billion. On a constant currency basis, it grew 3.8%.

Sam’s Club: The segment, which comprises membership warehouse clubs, posted net sales growth, including fuel impact, of 3.0% to $15.0 billion. Sam’s Club operating income, however, decreased 8.5% to $390 million in the quarter.

Sam’s Club comps, excluding the impact of fuel sales, rose 2.4% compared with a decline of 0.5% in the prior-year quarter. Comp sales growth was better than the company’s expectations of 1–1.5% growth. Both comp traffic and ticket increased 1.2%. E-commerce sales positively impacted comps by approximately 0.8% in the quarter.

Fiscal 2017 Results

Adjusted earnings in fiscal 2017 were $4.32 per share, which beat the Zacks Consensus Estimate of $4.31 by 0.23%. However, the figure declined 5.9% from the year-ago adjusted earnings of $4.59 per share.

Total revenue came in at $485.9 billion (including membership and other income). The figure beat the Zacks Consensus Estimate of $485.1 billion by 0.16% and increased 0.8% year over year. Currency dampened sales by approximately $11.05 billion. On a constant currency basis, revenues grew 3.1% to $496.9 billion.

Wal-Mart Stores, Inc. Price, Consensus and EPS Surprise


Wal-Mart Stores, Inc. Price, Consensus and EPS Surprise | Wal-Mart Stores, Inc. Quote

Other Financial Updates

Wal-Mart ended the quarter with cash and cash equivalents of $6.87 billion, total long-term debt of $36.0 billion, long-term capital lease obligations of $6.0 billion and shareholders’ equity of $80.5 billion.

At the end of fiscal 2017, Wal-Mart generated cash flow from operations of $31.5 billion and incurred capital expenditures of $10.6 billion, resulting in free cash flow of $20.9 billion.

Wal-Mart paid $6.2 billion in dividends during the fiscal year. The company repurchased about 120 million shares worth $8.3 billion in the fiscal year, with shares worth $9.2 billion remaining out of $20 billion authorized in Oct 2015.


First-Quarter Fiscal 2018

Wal-Mart expects U.S. comp sales growth in the range of 1−1.5% for the 13-week period ending Apr 28. Sam’s Club comp sales, without the impact of fuel sales, are expected to increase around 1%. The company expects earnings in the range of 90 cents to $1.00 per share.

Fiscal 2018

The company expects its adjusted earnings in the range of $4.20−$4.40 per share, assuming full-year effective tax rate around 32%.

Our Take

Despite the company’s efforts to boost sales and regain investors’ confidence, it still faces many headwinds, which are likely to impact earnings in the near term. Higher expenses, lower margins at Wal-Mart U.S. and currency headwinds are also expected to negatively impact the results.

Zacks Rank and Key Picks

Wal-Mart currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the retail sector are Zumiez, Inc. (ZUMZ - Free Report) and Genesco Inc. (GCO - Free Report) . Both these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While Zumiez carries an expected long-term earnings growth of 15.0%, Genesco has an expected earnings growth of 9.5%, for the next three to five years.

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