01—Abstract
Summary
Summary of the 10-K filed March 26, 2013. Cited figures are marked; the original filing is the authoritative source.
Walmart's fiscal 2013 (year ended January 31, 2013) 10-K shows a company still growing its top line while investing heavily in price, e-commerce, and international expansion.
Total revenues rose 5.0% to $469.2 billiona and net sales rose 5.0% to $466.1 billion. Operating income grew 4.7% to $27.8 billion, slightly slower than sales, as the gross profit rate fell 12 basis points to 24.4% on price investment. Diluted EPS from continuing operations was $5.02, up from $4.54.
U.S. calendar comparable sales rose 2.4%b, with Walmart U.S. at 2.0% and Sam's Club at 4.1%. Walmart International, now 29% of net sales, grew 7.4% and remains the main source of expansion. Cash generation was strong.
Operating cash flow was $25.6 billionc and free cash flow was $12.7 billion, up $2.0 billion year over year. Management used this cash for $13.0 billion in shareholder returns, comprising $5.4 billion in dividends and $7.6 billion in buybacks, and kept leverage manageable, with the debt-to-total-capitalization ratio falling to 41.5% from 42.8%. The board also raised the fiscal 2014 dividend about 18% to $1.88 per share, and management guided fiscal 2014 EPS to $5.20 to $5.40, including roughly $0.09 of incremental e-commerce expense.
The main investor risk in this filing is the ongoing FCPA investigation, which covers Walmex in Mexico and other markets and is being pursued by the DOJ and SEC. Walmart has incurred $157 milliond of related costs in fiscal 2013 and says a loss is probable but cannot yet be estimated.
Additional matters include the Dukes gender discrimination litigation and a wage-and-hour class action with a judgment of roughly $188 million under appeal. Management believes none of these will be material, though the uncertainty is significant.
02—Key points
Key Highlights
- Total revenues grew 5.0% to $469.2 billion; net sales grew 5.0% to $466.1 billion, helped by 3.3% retail square footage growth and $4.0 billion from acquisitions, partly offset by a $4.5 billion currency headwind.
- Operating income rose 4.7% to $27.8 billion, but grew more slowly than sales, reflecting price investment, Global eCommerce spending, and FCPA-related advisory costs.
- Diluted EPS from continuing operations was $5.02, up from $4.54 in fiscal 2012; fiscal 2014 guidance is $5.20 to $5.40.
- Free cash flow was $12.7 billion, up from $10.7 billion, and returned $13.0 billion to shareholders through $7.6 billion of buybacks and $5.4 billion of dividends.
- The quarterly dividend was raised to $0.47 per share for fiscal 2014, an annual rate of $1.88, about 18% above the $1.59 paid in fiscal 2013.
- Walmart International generated 29% of net sales and grew 7.4%, while Walmart U.S. (59% of sales) grew 3.9% with 2.0% comparable sales growth.
- Ongoing FCPA investigations by the DOJ and SEC, including Walmex in Mexico, have cost $157 million so far in fiscal 2013; management believes a loss is probable but cannot estimate its size.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Walmart Inc. kept $0.04.
- Revenue$468.65B100.0%
- Cost of revenue−$352.30B75.2%
- Gross profit$116.35B24.8%
- Operating costs−$88.63B18.9%
- Operating income$27.73B5.9%
- Interest, other & tax−$10.73B2.3%
- Net income$17.00B3.6%
Where FY2013 revenue went
$468.65B- Cost of revenue: $352.30B, 75% of revenue
- SG&A: $88.63B, 19% of revenue
- Net income: $17.00B, 3.6% of revenue
- Interest, other & tax: $10.73B, 2.3% of revenue
Kept 3.6% as net incomeNet income $17.00B · 3.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed March 26, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $468.65B$443.42B | +5.7% |
| Cost of Revenue | $352.30B$334.99B | +5.2% |
| Gross Profit | $116.35B$108.42B | +7.3% |
| SG&A Expenses | $88.63B$85.03B | +4.2% |
| Operating Income | $27.73B$26.49B | +4.7% |
| Interest Expense | $1.98B$2.03B | −2.8% |
| Net Income | $17.00B$15.70B | +8.3% |
| EPS (Basic) | $1.68$1.51 | +11.0% |
| EPS (Diluted) | $1.67$1.51 | +11.1% |
| Shares Outstanding (Basic) | 10.12B10.38B | −2.5% |
| Shares Outstanding (Diluted) | 10.17B10.42B | −2.4% |
05—Questions
Frequently Asked Questions
How healthy is Walmart's core U.S. business?
Walmart U.S. net sales rose 3.9% to $274.5 billion, with calendar comparable sales up 2.0% on higher average ticket and more customer traffic. Operating income grew 5.4% to $21.5 billion, and the segment's operating margin improved to 7.8%. Sam's Club comparable sales rose 4.1%, although fuel helped that figure.
What is the main legal and regulatory risk to the investment case?
The FCPA investigations are the largest open item. The DOJ and SEC are investigating possible violations involving foreign subsidiaries, including Walmex, and shareholder suits and derivative actions have been filed. Walmart says it believes a loss is probable but cannot reasonably estimate its amount, and it expects further costs beyond the $157 million already incurred. Management does not presently expect a material adverse effect, but it has not ruled one out.
Is Walmart's balance sheet and shareholder payout sustainable?
Yes, based on this filing. Free cash flow of $12.7 billion covered the $5.4 billion dividend and left room for buybacks. Long-term debt fell to $38.4 billion, and the debt-to-capitalization ratio improved to 41.5%. Credit ratings are AA (S&P), Aa2 (Moody's) and AA (Fitch). The company does run a working capital deficit of $11.9 billion, which it describes as a deliberate result of efficient cash use.
Where is future growth coming from?
Management plans fiscal 2014 capital expenditures of $12.0 to $13.0 billion, with about $4.5 to $5.0 billion going to Walmart International, which is expected to add 20,000 to 22,000 thousand square feet of retail space. Global eCommerce is also a priority, with growth in U.S. and international online sales. Management is also working to cut operating expenses as a percentage of sales by at least 100 basis points over five years, starting in fiscal 2013, having achieved 14 basis points in the first year.
What margin pressures should investors watch?
The gross profit rate fell 12 basis points to 24.4%, mainly because Walmart U.S. has invested in price to support its low-price leadership. Operating income grew more slowly than sales, and the company expects continued e-commerce investment to weigh on earnings. Currency fluctuations cut net sales by $4.5 billion, and the effective tax rate fell to 31.0% from 32.6%, helped by discrete items that may not recur.
06—Continue