How Wal-Mart Turbocharges Per-Share Earnings

| About: Wal-Mart Stores, (WMT)

By Jeff Bailey

Wal-Mart (NYSE:WMT), a champ at returning capital to shareholders even as its sales growth has slowed, announced a new, $15 billion stock buyback program, which should help the retailer continue its strong earnings-per-share gains.

Shares outstanding at Wal-Mart have fallen by about 25% over the past decade.

WMT Stock Buybacks Chart
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WMT Stock Buybacks data by YCharts

In addition to buybacks, Wal-Mart has enriched long-term shareholders by continually raising its dividend. Dividend growth, as YCharts has written repeatedly, can be a better characteristic to look for that mere dividend yield.

Over the long haul, Wal-Mart has held costs down admirably, pushing its net income up faster than sales, and the buybacks the push earnings per share up more rapidly than net income.

WMT EPS Diluted Quarterly Chart
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WMT EPS Diluted Quarterly data by YCharts

However, there may be a limit to how aggressively Wal-Mart can attack costs. The retailer has been called out for unstocked shelves in recent months and also for failing to train its workers in price matching, which can alienate customers.

The Wal-Mart way, keeping wages at a bare minimum, is the opposite of Costco's (NASDAQ:COST) approach, detailed in this smart Businessweek article.

WMT Chart
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WMT data by YCharts

Costco's more rapid growth and better stock price performance could as easily be credited to the companies' differing demographic targets - Costco is far more upscale - and to the fact that Costco has more room to expand because, unlike Wal-Mart, is isn't close to saturating the U.S. with stores. Employment practices, though, could be part of the difference.

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.