01—Abstract
Summary
Summary of the 10-K filed March 31, 2017. Cited figures are marked; the original filing is the authoritative source.
Walmart's fiscal 2017 (year ended January 31, 2017) showed modest top-line growth alongside pressure on profitability as the company invested heavily in wages, e-commerce, and technology.
Total revenues rose 0.8% to $485.9 billiona and net sales rose 0.6% to $481.3 billion, supported by U.S. calendar comparable store and club sales growth of 1.4% and e-commerce growth. Those gains were offset by an $11.0 billion (2.3%) currency headwind, mainly from the Walmart International segment, where net sales fell 5.9%. Operating income declined 5.6% to $22.8 billion, and operating margin compressed to 4.7% from 5.0%, reflecting higher associate wage expense from the 2015–2016 pay initiatives, a $370 million charge for discontinued real estate projects and severance, and digital investments.
Diluted EPS from continuing operations was $4.38b, down from $4.57. Cash generation improved meaningfully. Operating cash flow rose to $31.5 billion from $27.4 billion, driven by working capital management and tax benefits, and free cash flow reached $20.9 billion versus $15.9 billion a year earlier.
Management returned capital through $6.2 billionc in dividends and $8.3 billion in share repurchases, and raised the fiscal 2018 annual dividend to $2.04 per share. Long-term debt fell to $38.3 billion, and the company maintains strong credit ratings (AA / Aa2 / AA). The filing also flags significant strategic and legal considerations.
Management plans to increase investment in e-commerce, technology, and remodels while moderating new store openings, with fiscal 2018 capital expenditures projected at about $11.0 billiond. Key acquisitions included Jet.com ($2.4 billion) and a roughly 10% stake in JD.com.
Legal exposures include an ongoing FCPA investigation (where management believes a loss is probable but cannot estimate it), nearly 10,000 UK ASDA equal-value pay claims, and securities and derivative litigation. Investors should weigh the trade-off between near-term margin pressure and the longer-term e-commerce and cash-flow thesis.
02—Key points
Key Highlights
- Total revenues of $485.9 billion (+0.8%) and net sales of $481.3 billion (+0.6%), with U.S. comparable store and club sales up 1.4%, despite an $11.0 billion (2.3%) currency headwind.
- Operating income fell 5.6% to $22.8 billion, and operating margin declined to 4.7% from 5.0%, driven by higher wage costs, a $370 million real estate and severance charge, and digital investments.
- Diluted EPS from continuing operations was $4.38, down from $4.57 in fiscal 2016; income from continuing operations was $14.3 billion versus $15.1 billion.
- Free cash flow strengthened to $20.9 billion from $15.9 billion, supported by operating cash flow of $31.5 billion and improved working capital management.
- Walmart U.S. remains the core earnings engine at 64% of net sales ($307.8 billion) and $17.7 billion in segment operating income, while Walmart International sales declined 5.9% to $116.1 billion.
- Shareholder returns: $6.2 billion in dividends and $8.3 billion in buybacks, with $9.2 billion remaining under the $20.0 billion repurchase authorization; the fiscal 2018 dividend was raised to $2.04 per share.
- Legal and regulatory overhang: the FCPA investigation (loss deemed probable but not estimable), ASDA UK equal-value claims covering nearly 10,000 employees, and shareholder and derivative lawsuits.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Walmart Inc. kept $0.03.
- Revenue$485.87B100.0%
- Cost of revenue−$361.26B74.4%
- Gross profit$124.62B25.6%
- Operating costs−$101.85B21.0%
- Operating income$22.76B4.7%
- Interest, other & tax−$9.12B1.9%
- Net income$13.64B2.8%
Where FY2017 revenue went
$485.87B- Cost of revenue: $361.26B, 74% of revenue
- SG&A: $101.85B, 21% of revenue
- Net income: $13.64B, 2.8% of revenue
- Interest, other & tax: $9.12B, 1.9% of revenue
Kept 2.8% as net incomeNet income $13.64B · 2.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed March 31, 2017Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $485.87B$482.13B | +0.8% |
| Cost of Revenue | $361.26B$360.98B | +0.1% |
| Gross Profit | $124.62B$121.15B | +2.9% |
| SG&A Expenses | $101.85B$97.04B | +5.0% |
| Operating Income | $22.76B$24.11B | −5.6% |
| Interest Expense | $2.04B$2.03B | +0.8% |
| Net Income | $13.64B$14.69B | −7.2% |
| EPS (Basic) | $1.47$1.53 | −3.9% |
| EPS (Diluted) | $1.46$1.52 | −4.2% |
| Shares Outstanding (Basic) | 9.30B9.62B | −3.3% |
| Shares Outstanding (Diluted) | 9.34B9.65B | −3.3% |
05—Questions
Frequently Asked Questions
Why did operating income decline even though sales grew?
Operating expenses rose to 21.2% of net sales from about 20.3%, up roughly 88 basis points. The main drivers were higher associate wage expense from the company's pay initiatives in the U.S., a $370 million charge for discontinued real estate projects and severance, and continued investment in digital retail and information technology. The gross profit rate improved by 36 basis points to 24.9%, which partially offset these costs.
How strong is Walmart's cash generation and does it support the dividend and buybacks?
Yes. Operating cash flow of $31.5 billion comfortably covered $10.6 billion of capital expenditures, leaving $20.9 billion of free cash flow. That covered $6.2 billion of dividends and $8.3 billion of share repurchases in fiscal 2017. Management says it expects a significant majority of ongoing repurchases to be funded from free cash flow. Note that free cash flow in the filing is a non-GAAP measure and does not deduct debt service or acquisitions.
What is the most significant risk to the investment thesis?
The main risks are the FCPA investigation, for which management believes a loss is probable but cannot yet estimate it, and the ASDA equal-value claims, which could involve substantial back pay for a large number of employees. Management believes the FCPA matters are not currently expected to be materially adverse, but it cannot provide assurance. Ongoing currency volatility and margin pressure from wage and digital investments are also important considerations.
What is Walmart's strategy for growth going forward?
Walmart is shifting its growth emphasis from new store openings toward comparable store sales and e-commerce. It plans to moderate new store openings, planning 249 to 279 new stores and clubs in fiscal 2018, and to increase investment in e-commerce, technology, and remodels. Fiscal 2018 capital expenditures are projected at about $11.0 billion, with $6.1 billion for Walmart U.S. The strategy includes the Jet.com acquisition and a strategic alliance with JD.com in China.
How healthy is Walmart's balance sheet?
The balance sheet is solid. Long-term debt declined to $38.3 billion from $41.0 billion, and the company has $12.5 billion in undrawn committed credit lines. It holds $6.9 billion in cash, and its credit ratings are AA (S&P), Aa2 (Moody's), and AA (Fitch). The company operates with a working capital deficit by design, which is typical for large retailers that rely on supplier financing and efficient inventory management.
06—Continue