Wal-Mart Conference Call Highlights

Wal-Mart Stores, Inc. WMT reported its third quarter earnings on Thursday. Shares of the company are up 4 percent. Below are some key highlights from its conference call. Performance Metrics: • Wal-Mart reported solid earnings-per-share of $1.15 in the third quarter and our consolidated net sales increased $3.2 billion over the same period last year to $118.1 billion. • I'm encouraged that Wal-Mart U.S. reported a positive comp for the quarter and that our neighborhood market stores continue to show strong sales. • Sam's Club and International's operating income grew faster than sales growth and global e-commerce sales increased about 21%. • We need to continue to improve the customer experience both in our stores and online to deliver stronger sales growth and strengthen our bottom-line performance. • Wal-Mart U.S. added $2.3 billion in net sales. • I'm encouraged that comp sales were positive in Q3 but we're still not satisfied. • We have areas to improve, including in the customer experience and in our price leadership position and we're taking the steps necessary to fix these areas. • Greg and the leadership team are intensely committed to driving short-term improvement through the urgent agenda items and he will share an update on this important work. • Operating income declined due to increased healthcare expenses, investments in e-commerce, and investments in price. • Wal-Mart U.S. appeals to customers across all income levels and they all want to get the best value. • Our savings catcher program continues to help us reach more of these value-driven customers. • The cost relief from lower fuel prices presents a potential benefit for customers and could continue to help them during this holiday shopping season in addition to helping our own business. • Sam's Club delivered strong operating income growth this quarter due primarily to an increase in membership income and expense leverage. • We'd like to see stronger sales but I'm encouraged by the progress in membership and the strong pace of renewals by our Plus members. • Members are responding to our ongoing investments in merchandise and in services, as well is the overall membership value proposition. • Wal-Mart International turned in a solid performance growing operating income faster than sales, one of our key metrics. • We're investing to provide a shopping experience at Wal-Mart that exceeds customer expectations. Financial Metrics: • Total revenue for the quarter exceeded $119 billion, as consolidated net sales increased $3.2 billion or 2.8%, along with membership and other income growth of 13.9%. • Consolidated operating expenses increased 3.5%, primarily due to continued investments in wages and higher U.S. healthcare-related expenses. • FCPA and compliance-related costs were approximately $41 million. • Represents approximately $30 million for the ongoing inquiries and investigations and approximately $11 million. • Last year, FCPA and compliance-related costs were $69 million for the third quarter. • Through the third quarter of this year, we have spent $137 million on FCPA and compliance-related costs versus our guidance of between $200 million and $240 million. • We expect to be near the low end of the guidance for the full year. • Additionally, the company's effective tax rate was 31.8%, below our previous guidance of around 34% due to certain discrete tax matters. • Net sales grew $2.3 billion or 3.4%. For the 13-week period ended October 31, comparable sales were up 0.5%. • Within store formats we are pleased by the Neighborhood Market performance, particularly in our traditional format, which reported approximately a 5.5% positive comp for the quarter. • We opened 49 Supercenters, including 33 new and 16 conversions, as well is 28 traditional-format Neighborhood Markets in Q3. In Q4, we will shift to a heavier mix of small formats, opening over 100 traditional neighborhood markets and 70 smaller ones. • I'd like to personally thank all of our 1.2 million strong associates who are engaged and energize for the season. This year, our Associates will be easy to spot, as they wear there Wal-Mart vests with pride. • Overall, we had a solid third quarter, once again growing operating income faster than sales and gaining market share most of our largest markets. • While sales growth slowed some on a constant currency basis compared with the first half of the year, sales trends improved in the latter part of the quarter in markets such as Canada and Mexico. • Net sales and comp growth were strong in some of our other markets, including Africa, Argentina, Central America, Chile, and Japan. • We made some progress in reducing inventory levels during the quarter, dropping from 11.2% year-over-year growth in Q2 to 7.2% in Q3. • Sam's Club delivered strong profit growth this quarter with operating income up 5.3%, without fuel, and 12% with fuel. • Lower oil prices contributed to higher fuel profit of $38 million. Guidance: • We see both opportunities and challenges ahead of us. • We lapped the approximately 6% reduction in SNAP benefits on November 1. • Additionally, gas prices are considerably lower this year than a year ago, which may give customers a little more discretionary spending power in the coming months. • We expect this holiday season to be highly competitive, and we are mindful the entertainment business, which comprises a larger percentage of overall Q4 sales, is up against continued deflation and a lack of new product innovation.