Wal-Mart Income Statement Analysis for July 2009 Quarter

by: Neil Carvin

Wal-Mart Stores (NYSE: WMT) earned $0.88 per share in the three months that ended 31 July 2009, which was the second quarter of fiscal 2010. Although Net Income did not change significantly from the comparable period last year, earnings per share increased by $0.01 because fewer shares were outstanding.

Number 2 on the Fortune 500 list of America's largest corporations, Walmart sold over $400 billion of merchandise last year in its discount stores.

This post examines Walmart's Income Statement for the quarter and compares it to our "look-ahead" estimates. Our target for Net Income in the latest quarter was $0.82 per share, $0.06 less than the reported amount.

In a second article, we will report Walmart's scores as measured by the GCFR Financial Gauges. The follow-up post will also provide the latest figures for the financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

The principal sources for this post were the earnings announcement and the conference call transcript at SeekingAlpha. Our summary of background information about Wal-Mart Stores and the business environment in which it is currently operating can be found in the look-ahead.

Please click here to see a full-sized, normalized depiction of the actual and projected results for the just-concluded quarter, as well as the quarterly Income Statements for the last couple of years. Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats. The standardization facilitates cross-company comparisons.

Revenue (Net sales and some other income) in the recent quarter was 1.4 percent less than in the same quarter of 2008. Variations in currency exchange rates reduced the reported Revenue by 4.1 percent.

Revenue exceeded our $100 billion estimate by less than one percent. We were pleasantly surprised to see such a small prediction error since July was the first quarter we didn't have Walmart's monthly sales data. We estimated that Revenue in the July quarter would be about 6 percent greater than April's $94.2 billion. In actuality, July's Revenue surpassed April's by 7.1 percent.

Sales at the company's eponymous U.S. stores increased just slightly, 0.3 percent, relative to the second quarter of last year. Same-store sales edged down 1.5 percent, which was a little disappointing. The situation was more complicated with respect to international stores, where reported Revenue declined 5.1 percent but increased, according to the company, 11.5 percent on a constant currency basis. Sam's Club sales slipped 3.2 percent.

The Cost of Goods Sold (CGS) was 74.5 percent of Revenue, which translates into a Gross Margin of 25.5 percent. The margin was 24.6 percent in the July 2008 quarter. Walmart beat our 24.5-percent margin by a full point.

Sales, General, and Administrative (SG&A) expenses in the quarter were 19.7 percent of Revenue, up from 19.0 percent last year. We had estimated that these expenses would be 19.0 percent of Revenue.

Operating Income, as we define it, rose 1.2 percent. Our estimate was 6.5 percent too low because both Revenue and Gross Margin were better than we expected.

The net Interest expense was 3.7 percent more than last year, but only 0.6 percent greater than our target.

The Income Tax Rate was 34.3 percent, which was consistent with the predicted 34.0 percent. Minority interest and loss from discontinued operations were also very close to our estimates.

Net Income attributable to Walmart was 0.2 percent less than in the July 2008 quarter. It was, however, 7.4 percent greater our forecast. EPS surpassed our prediction by a hefty $0.06.

In summary, Walmart's Operating and Net Income figures were nearly unchanged in the July 2009 quarter, when compared to the July 2008 quarter. Revenue and Gross Margin were a little better than we expected, but SG&A costs were a little higher.

Full disclosure: Long WMT at time of writing.