Walmart's Q1 Earnings & Revs Miss Ests - Analyst Blog

Wal-Mart Stores Inc. WMT has yet again disappointed its investors by posting weaker-than-expected earnings and revenues. Walmart's fiscal first quarter 2015 adjusted earnings of $1.10 per share lagged the Zacks Consensus Estimate of $1.15 by 4.3% and declined 3.5% from the year-ago earnings of $1.14 per share. Earnings were at the lower end of management's guidance range of $1.10 and $1.20 per share.

Weak sales due to a volatile macro-economic environment and high direct costs related to harsh weather conditions adversely impacted earnings by 3 cents in the reported quarter. Higher-than-anticipated effective tax rate also resulted in the year-over-year decline in earnings. In fact, the company delivered weak results in all the four quarters of fiscal 2014 due to a weak economic environment.

Total revenue of the retailer increased only 0.8% to $114.96 billion (including membership and other income) and missed the Zacks Consensus Estimate of $115.96 billion due to unseasonably cold and disruptive weather. Total revenue comprised net sales of $114.2 billion (up 0.8% year over year or 2.1% on a constant currency basis) and membership and other income of $793 million (up 4.8% on a year over year).

Currency fluctuations reduced sales by $1.6 billion in the quarter. A challenging retail environment in the U.S. as well as in most international markets due to cautious consumer spending also hurt the top line in the quarter. However, e-commerce sales globally increased 27% in the quarter.

Severe weather conditions also eroded operating profits of the company. On a constant currency basis, operating income declined 3.8% to $6.2 billion in the first quarter.

Segment Details

Walmart U.S.: The segment posted net sales growth of 2.0% to $67.9 billion in the quarter, including the impact of fuel sales. Operating income however declined 4.3% to $5 billion due to higher operating expenses related to severe winter storms impacting U.S. businesses.

U.S. same-store sales (comps) for the 13-week period ending May 2, 2014 declined 0.1% versus a decline of 1.4% in the prior-year quarter and a decline of 0.4% in the prior quarter. Comp sales were almost in line with the company's expectations of flat sales for the first quarter. While comp traffic declined 1.4%, average ticket increased 1.3% in the quarter. E-commerce sales positively impacted comp sales by 0.3% in the quarter.

Walmart International: Segment net sales, including fuel sales, declined 1.4% (increased 3.4% on a constant currency basis) to $32.4 billion compared to the prior quarter. The sales decline was higher than a decline of 0.4% in the sequentially preceding quarter due to currency headwinds and sluggish consumer spending environment in both mature and emerging markets. Currency fluctuations impacted international sales by $1.6 billion in the quarter.

Operating income increased 3.4% to $1.2 billion, largely benefiting from its strategic initiatives to increase operating income at a rate greater than sales.

Sam's Club: The segment, which comprises membership warehouse clubs, posted net sales growth, including fuel impact, of 0.1% to $13.9 billion. Sam's Club operating income declined 2.2% to $0.48 billion in the quarter.

Sam's Club's comps, excluding the impact of fuel sales, declined 0.5% in the quarter, more than a decline of 0.1% in the sequentially preceding quarter and compared to 0.2% growth in the prior-year quarter. Comp sales were almost in line with the company's expectations of flat sales for the first quarter. The decline was due to lower average ticket and traffic, which partially offset the positive impact of e-commerce sales.

Other Financial Update

During the quarter, Walmart paid $1.55 billion in dividends and repurchased approximately 8 million shares for $626 million. The company also acquired substantially all of the remaining outstanding shares in Walmart Chile for approximately $1.5 billion during the first quarter.

Second Quarter 2015 Outlook

For the second quarter of fiscal 2015, Walmart expects its adjusted earnings to range between $1.15 and $1.25 per share, lower than last year's earnings of $1.24 per share. Walmart expects U.S. comp sales to be relatively flat for the 13-week period ending Aug 1, as against a decline of 0.3% last year.

Sam's Club comp sales, without the impact of fuel sales, are expected to remain flat compared to a 1.7% increase last year. The company expects second quarter tax rate to be at the higher end of the full year forecasted range of 32%-34%.

In addition, the company expects to enhance its investment in e-commerce and in Sam's Club membership programs in the second quarter. However, higher health care costs in the U.S. are likely to impact results.

Walmart carries a Zacks Rank #4 (Sell).

Other Stocks to Consider

Some better-ranked retailers worth considering include Spartan Stores Inc. SPTN, Citi Trends Inc. CTRN and Finish Line Inc FINL. While Spartan Stores and Citi Trends sport a Zacks Rank #1 (Strong Buy), Finish Line holds a Zacks Rank #2 (Buy).