01—Abstract
Summary
Summary of the 10-K filed March 21, 2014. Cited figures are marked; the original filing is the authoritative source.
Walmart's fiscal 2014 10-K (year ended January 31, 2014) reports total revenues of $476.3 billiona, up 1.6%, and net sales of $473.1 billion.
Growth was modest and quality of earnings weakened: U.S. comparable sales fell 0.5%, consolidated operating income declined 3.1% to $26.9 billion, and diluted EPS fell to $4.85b from $5.01. Management acknowledged it missed its own objectives of growing operating expenses slower than sales and operating income faster than sales. Walmart U.S. remains the engine at 59% of net sales and $22.4 billion of operating income, while Walmart International (29% of sales) saw operating income fall 17.6% to $5.5 billion, driven by nearly $1.0 billion of one-time or non-recurring charges in Brazil, China, Mexico and India.
The balance sheet and cash generation remain solid but show some pressure. Free cash flow fell to $10.1 billionc from $12.7 billion, largely due to the timing of income tax payments. Long-term debt rose to $41.8 billion, and the debt-to-total-capitalization ratio increased to 42.6% from 41.5%.
Walmart still carries AA/Aa2/AA ratings and returned $12.8 billiond to shareholders through $6.1 billion in dividends and $6.7 billion in buybacks. The company declared a fiscal 2015 dividend of $1.92 per share, a 2.1% increase, and $11.3 billion remains under its share repurchase authorization. The most significant risk for investors is the ongoing FCPA investigation involving Wal-Mart de Mexico, which has been under DOJ and SEC investigation since November 2011.
The company has incurred $282 million of related costs in fiscal 2014 and states that it believes a loss is probable, though it cannot estimate the amount. Other material risks include gender discrimination class actions (Dukes and related cases), the wage-and-hour Braun/Hummel judgment, and the company's continuing expansion plans, which call for $12.4 to $13.4 billion of fiscal 2015 capital expenditures.
02—Key points
Key Highlights
- Total revenues of $476.3B (+1.6%); net sales of $473.1B, with U.S. comparable store and club sales declining 0.5%
- Operating income fell 3.1% to $26.9B, and operating margin compressed to 5.7% from 6.0%, as the company failed to leverage operating expenses
- Diluted EPS from continuing operations was $4.85, down from $5.01 in fiscal 2013 (-3.2%)
- Walmart International operating income declined 17.6% to $5.5B on nearly $1.0B of non-recurring charges (store closures, Brazil contingencies, India exit costs) and currency headwinds
- Free cash flow dropped to $10.1B from $12.7B, mainly due to timing of income tax payments; debt-to-capitalization rose to 42.6%
- Dividend increased to $1.92/share for fiscal 2015 (from $1.88), and $11.3B of buyback authorization remains
- Ongoing FCPA investigations (DOJ, SEC, Mexico) have cost $282M in fiscal 2014; management believes a loss is probable but cannot estimate its size
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Walmart Inc. kept $0.03.
- Revenue$476.29B100.0%
- Cost of revenue−$358.07B75.2%
- Gross profit$118.22B24.8%
- Operating costs−$91.35B19.2%
- Operating income$26.87B5.6%
- Interest, other & tax−$10.85B2.3%
- Net income$16.02B3.4%
Where FY2014 revenue went
$476.29B- Cost of revenue: $358.07B, 75% of revenue
- SG&A: $91.35B, 19% of revenue
- Net income: $16.02B, 3.4% of revenue
- Interest, other & tax: $10.85B, 2.3% of revenue
Kept 3.4% as net incomeNet income $16.02B · 3.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed March 21, 2014Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $476.29B$468.65B | +1.6% |
| Cost of Revenue | $358.07B$352.30B | +1.6% |
| Gross Profit | $118.22B$116.35B | +1.6% |
| SG&A Expenses | $91.35B$88.63B | +3.1% |
| Operating Income | $26.87B$27.73B | −3.1% |
| Interest Expense | $2.07B$1.98B | +4.8% |
| Net Income | $16.02B$17.00B | −5.7% |
| EPS (Basic) | $1.63$1.68 | −2.8% |
| EPS (Diluted) | $1.63$1.67 | −2.8% |
| Shares Outstanding (Basic) | 9.81B10.12B | −3.1% |
| Shares Outstanding (Diluted) | 9.85B10.17B | −3.1% |
05—Questions
Frequently Asked Questions
Why did Walmart's operating income decline in fiscal 2014 even though sales grew?
Operating income fell 3.1% while net sales rose 1.6%. The main causes were operating expense growth outpacing sales, lower-than-anticipated sales, investments in e-commerce and global leverage, roughly $1.0 billion of expenses in Walmart International (contingency charges, store closures, lease corrections and India joint-venture termination costs), and $282 million of FCPA-related costs. These were partially offset by a 5.6% increase in membership and other income and lower incentive compensation.
How large is the FCPA risk for Walmart investors?
It is the most significant open legal matter. The Audit Committee is conducting an internal investigation, and the DOJ and SEC are investigating possible FCPA violations, including at Wal-Mart de Mexico. Shareholder and derivative lawsuits have also been filed. The company believes a loss is probable but cannot reasonably estimate it, and it expects further costs. Management does not currently believe the matters will have a material adverse effect on the business, but it cannot rule out a material outcome in the future.
Is Walmart's dividend and capital return program still secure?
Yes, on the evidence in this filing. Dividends paid totaled $6.1 billion in fiscal 2014, and the board approved a fiscal 2015 dividend of $1.92 per share, up from $1.88. The company repurchased $6.7 billion of stock during the year and has $11.3 billion of authorization remaining. Operating cash flow of $23.3 billion covered capital expenditures of $13.1 billion, and management states that cash flows, cash position and debt market access will be sufficient to meet its needs. Free cash flow of $10.1 billion, however, was below the prior year's $12.7 billion, so coverage of shareholder returns narrowed.
What is driving Walmart's growth plans and capital spending in fiscal 2015?
Management plans total capital expenditures of $12.4 to $13.4 billion in fiscal 2015, with Walmart U.S. accounting for $6.4 to $6.9 billion and Walmart International $4.0 to $4.5 billion. The company expects to add 35,000 to 39,000 thousand square feet of retail space, with a significant increase in Neighborhood Markets and small formats. It is also expanding e-commerce capabilities. Management's stated objective is to grow operating income faster than sales, but the fiscal 2014 results show this is not yet being achieved.
Are there concerns about Walmart's U.S. business and its labor practices?
Walmart U.S. comparable sales declined 0.6% in fiscal 2014, attributed to slow economic recovery, a 2% increase in the 2013 payroll tax rate, reduced government food benefits and severe winter storms. The Walmart U.S. gross profit rate declined slightly due to price investment. On labor, the company faces the Braun/Hummel wage-and-hour class action, under which a judgment of about $188 million is pending before the Pennsylvania Supreme Court, and the Dukes gender discrimination litigation, which has been narrowed but has spawned several similar regional suits. Management believes it has substantial defenses.
06—Continue