Earnings Analysis: Wal-Mart Stores, Inc.

| About: Wal-Mart Stores, (WMT)

Wal-Mart Stores Inc. (NYSE:WMT) reports preliminary financial results for the quarter ended 2012-10-31.

Wal-Mart Stores Inc. recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise).

Wal-Mart Stores Inc.'s analysis versus peers uses the following peer-set: Amazon.com Inc. (NASDAQ:AMZN), Costco Wholesale Corp. (NASDAQ:COST), Target Corp. (NYSE:TGT), Dollar General Corp. (NYSE:DG), Macy's Inc. (NYSE:M), Kohl's Corp. (NYSE:KSS), Dollar Tree Inc. (NASDAQ:DLTR), Family Dollar Stores Inc. (NYSE:FDO), Sears Holdings Corp. (NASDAQ:SHLD) and J.C. Penney Co. Inc. (NYSE:JCP). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

For CapitalCube's Earnings Analysis of Macy's Inc. click here.



Quarterly (USD million) 2012-10-31 2012-07-31 2012-04-30 2012-01-31 2011-10-31
Revenues 113,929.0 113,534.0 112,272.0 122,285.0 109,516.0
Revenue Growth % 0.3 1.1 (8.2) 11.7 0.8
Net Income 3,635.0 4,016.0 3,742.0 5,194.0 3,344.0
Net Income Growth % (9.5) 7.3 (28.0) 55.3 (12.0)
Net Margin % 3.2 3.5 3.3 4.2 3.1
ROE % (Annualized) 20.2 23.1 21.3 30.0 19.8
ROA % (Annualized) 7.2 8.2 7.7 10.7 6.9


Valuation Drivers

Wal-Mart Stores Inc. currently trades at a higher Price/Book ratio (3.1) than its peer median (2.3). Wal-Mart Stores Inc.'s operating performance is higher than the median of its chosen peers (ROE of 23.5% compared to the peer median ROE of 18.9%) but the market does not seem to expect higher growth relative to peers (PE of 14.1 compared to peer median of 15.7) but simply to maintain its relatively high rates of return.

The company's median net profit margins of 3.6% and relative asset efficiency (asset turns of 2.3x compared to peer median of 1.7x) give it some operating leverage. Wal-Mart Stores Inc.'s net margin is similar to its five-year average net margin of 3.5%.

Economic Moat

Wal-Mart Stores Inc.'s revenues have changed in-line with its peers (year-on-year change in revenues is 5.9%) but its earnings have lagged (annual reported earnings have changed by 2.7% compared to the peer median of 4.8%), implying that the company has less control over its costs relative to its peers. Wal-Mart Stores Inc. is currently converting every 1% of change in revenue into 0.5% change in annual reported earnings.

Wal-Mart Stores Inc.'s return on assets is above its peer median both in the current period (8.3% vs. peer median 6.3%) and also over the past five years (8.4% vs. peer median 6.1%). This performance suggests that the company's relatively high operating returns are sustainable.

The company's gross margin of 26.3% is around peer median suggesting that Wal-Mart Stores Inc.'s operations do not benefit from any differentiating pricing advantage. In addition, Wal-Mart Stores Inc.'s pre-tax margin of 5.5% is also around the peer median suggesting no operating cost advantage relative to peers.

Growth & Investment Strategy

While Wal-Mart Stores Inc.'s revenues growth has been below the peer median in the last few years (3.4% vs. 4.7% respectively for the past three years), the market still gives the stock an about peer median PE ratio of 14.1. The market seems to see the company as a long-term strategic bet.

Wal-Mart Stores Inc.'s annualized rate of change in capital of 5.1% over the past three years is higher than its peer median of 1.9%. This investment has generated an above peer median return on capital of 13.1% averaged over the same three years. Evidently, the relatively high capital investment was successful given the relatively strong growth in its returns.

Earnings Quality

Wal-Mart Stores Inc.'s reported net income margin for the last twelve months is around the peer median (3.6% vs. peer median of 4.1%). However, the company has also recorded a relatively low level of accruals (2.3% vs. peer median of 3.7%) which suggests possible overstatement of its reported net income.

Wal-Mart Stores Inc.'s accruals over the last twelve months are around zero. However, this modestly positive level is also less than the peer median which suggests some amount of building of reserves.

Trend Charts


Company Profile

Wal-Mart Stores, Inc. operates retail stores in various formats around the world. It operates its business through three reportable segments: Walmart U.S., Walmart International and Sam's Club. The Walmart U.S. segment includes the company's mass merchant concept in the United States and Puerto Rico operating under the Walmart brand as well as walmart.com. It does business in six strategic merchandise units namely Grocery, Entertainment, Hardlines, Health & Wellness, Apparel and Home. The company was founded by Samuel Moore Walton and James Lawrence Walton on July 2, 1962 and is headquartered in Bentonville, AR.



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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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