01—Abstract
Summary
Summary of the 10-K filed April 1, 2015. Cited figures are marked; the original filing is the authoritative source.
Walmart (WMT) reported fiscal 2015 (year ended January 31, 2015) total revenues of $485.7 billiona, up 2.0%, with net sales of $482.2 billion, up 1.9%.
Growth was driven by 3.0% year-over-year growth in retail square feet, positive U.S. comparable sales (up 0.5% including fuel), and higher e-commerce sales, partially offset by $5.3 billionb of negative currency translation impact. Operating income rose only 1.0% to $27.1 billion, so the company did not meet its stated goal of growing operating income at least as fast as net sales. Diluted EPS from continuing operations was $4.99, versus $4.85 in fiscal 2014, and return on investment was 16.9%, roughly flat versus 17.0%.
Profitability pressures were concentrated in a few items: a $249 millionc charge tied to the U.S. wage-and-hour litigation (the Braun/Hummel case), $148 million of costs to close about 30 underperforming Japanese stores, higher U.S. health-care expenses, and continued digital investment. Walmart U.S. operating income fell 2.1% to $21.3 billion on a 3.1% sales increase, while Walmart International operating income rose 19.8% to $6.2 billion after a prior-year charge of nearly $1.0 billion, despite a 0.3% sales decline. Sam's Club operating income grew 7.2% to $2.0 billion.
Management also disclosed that, starting in fiscal 2016, it will raise U.S. associate pay for about 500,000 workers, adding roughly $1.0 billiond of expense that may limit operating leverage. Balance sheet and cash flow strengthened. Operating cash flow rose to $28.6 billion and free cash flow to $16.4 billion, versus $10.1 billion in fiscal 2014, helped partly by the timing of payables and tax payments.
Short-term borrowings fell by $6.3 billion, the debt-to-total-capitalization ratio improved to 38.2% from 42.6%, and the dividend was raised to $1.96 per share for fiscal 2016. Share repurchases were sharply reduced to $1.0 billion from $6.7 billion. Key open risks include the ongoing FCPA investigation by the DOJ and SEC (with $173 million of fiscal 2015 costs and management judging a loss probable but not estimable), and the ASDA "equal value" claims in the UK, which exceed 4,000.
02—Key points
Key Highlights
- Total revenues of $485.7 billion (+2.0%) and net sales of $482.2 billion (+1.9%); U.S. comparable store and club sales rose 0.5%, reversing a 0.5% decline in fiscal 2014.
- Operating income rose only 1.0% to $27.1 billion, below the company's own goal of growing operating income at least as fast as net sales; operating margin slipped to 5.6% from 5.7%.
- Diluted EPS from continuing operations was $4.99, up from $4.85; income from continuing operations was $16.8 billion.
- Operating cash flow of $28.6 billion and free cash flow of $16.4 billion, up sharply from $10.1 billion in fiscal 2014, though partly driven by working-capital timing.
- Walmart International operating income rebounded 19.8% to $6.2 billion after roughly $1.0 billion of one-time charges in fiscal 2014, even as segment sales fell 0.3% on $5.3 billion of currency headwinds.
- Dividend raised to $1.96 per share for fiscal 2016 (from $1.92), while share repurchases fell to $1.0 billion from $6.7 billion; $10.3 billion of buyback authorization remains.
- Material legal and cost overhangs: the $249 million U.S. wage-and-hour judgment charge, the ongoing DOJ/SEC FCPA investigation, the UK ASDA equal-value claims, and roughly $1.0 billion of planned fiscal 2016 associate pay and training investment.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Walmart Inc. kept $0.03.
- Revenue$485.65B100.0%
- Cost of revenue−$365.09B75.2%
- Gross profit$120.56B24.8%
- Operating costs−$93.42B19.2%
- Operating income$27.15B5.6%
- Interest, other & tax−$10.78B2.2%
- Net income$16.36B3.4%
Where FY2015 revenue went
$485.65B- Cost of revenue: $365.09B, 75% of revenue
- SG&A: $93.42B, 19% of revenue
- Net income: $16.36B, 3.4% of revenue
- Interest, other & tax: $10.78B, 2.2% of revenue
Kept 3.4% as net incomeNet income $16.36B · 3.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed April 1, 2015Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $485.65B$476.29B | +2.0% |
| Cost of Revenue | $365.09B$358.07B | +2.0% |
| Gross Profit | $120.56B$118.22B | +2.0% |
| SG&A Expenses | $93.42B$91.35B | +2.3% |
| Operating Income | $27.15B$26.87B | +1.0% |
| Interest Expense | $2.16B$2.07B | +4.3% |
| Net Income | $16.36B$16.02B | +2.1% |
| EPS (Basic) | $1.69$1.63 | +3.5% |
| EPS (Diluted) | $1.68$1.63 | +3.5% |
| Shares Outstanding (Basic) | 9.69B9.81B | −1.2% |
| Shares Outstanding (Diluted) | 9.73B9.85B | −1.2% |
05—Questions
Frequently Asked Questions
Did Walmart's profits grow in fiscal 2015?
Modestly. Operating income rose 1.0% to $27.1 billion and diluted EPS from continuing operations rose to $4.99 from $4.85. Growth lagged sales (up 1.9%), so margins were flat to slightly lower, and management acknowledged it did not achieve its operating leverage objective.
What drove the strong cash flow and reduced debt?
Operating cash flow increased to $28.6 billion, largely due to the timing of accounts payable, accrued liabilities and income tax payments, and lower capital expenditures ($12.2 billion vs. $13.1 billion). Management used the cash to reduce short-term borrowings by $6.3 billion, lowering the debt-to-total-capitalization ratio to 38.2% from 42.6%. Some of the cash-flow improvement reflects timing and may not recur.
How will the new U.S. associate pay initiative affect future results?
Walmart announced in February 2015 raises for more than 500,000 U.S. associates in the first half of fiscal 2016, plus training and scheduling changes. Management estimates about $1.0 billion of additional expense in fiscal 2016, which may limit its ability to grow operating expenses more slowly than sales and could pressure operating margins.
What are the biggest legal and regulatory risks to investors?
The main exposures are the FCPA investigation by the DOJ and SEC, tied to allegations involving Walmex in Mexico and inquiries in Brazil, China and India, which cost $173 million in fiscal 2015 and could bring fines or other penalties; management believes a loss is probable but cannot estimate it. Also significant are the ASDA equal-value pay claims in the UK, which involve over 4,000 claimants and could generate material back pay, and the wage-and-hour litigation in Pennsylvania, for which the company has already recorded $249 million and is seeking U.S. Supreme Court review.
How much of Walmart's business is international, and how is it performing?
Walmart International generated about 28% of fiscal 2015 net sales ($136.2 billion) across 26 countries, but its sales fell 0.3% due to a $5.3 billion currency translation hit. Segment operating income recovered to $6.2 billion, helped by the absence of about $1.0 billion of fiscal 2014 charges. The company expects international operations to account for a growing share of sales, which increases its exposure to currency and political risk.
06—Continue