Walmart reports Q3 EPS of $1.08, reaffirms top end of full-year EPS guidance; Company is well positi

Walmart reports Q3 EPS of $1.08, reaffirms top end of full-year EPS guidance; Company is well positioned for Q4 holidays

Q3 Highlights:

• Wal-Mart Stores, Inc. (Walmart) reported third quarter diluted earnings per share from continuing operations of $1.08, within guidance of $1.04 to $1.09. This was an 11.3 percent increase from the $0.97 per share reported for the third quarter last year.

• The company updated its full year earnings guidance, narrowing the range by five cents to $4.88 to $4.93. The top of the range remains unchanged from the guidance provided last quarter, when the company tightened the range and increased it by a penny.

• Net sales were $113.2 billion, a 3.4 percent increase over last year. Currency exchange rate fluctuations negatively impacted net sales by approximately $1.7 billion. Without the currency impact¹, net sales would have been $114.9 billion, a 4.9 percent increase.

• Walmart U.S. comparable ("comp") store sales increased 1.5 percent in the 13-week period ended Oct. 26, 2012.

• Sam's Club comp sales, without fuel, increased 2.7 percent for the same 13-week period.

• Walmart International grew net sales 2.4 percent to $33.2 billion; on a constant currency¹basis, net sales would have increased 7.6 percent to $34.8 billion.

• The company leveraged operating expenses for the quarter.

• Consolidated operating income was $6.1 billion, up 4.0 percent from last year, and grew faster than sales.

• Walmart generated free cash flow¹of $7.0 billion for the nine months ended Oct. 31, 2012.

• Return on investment¹(ROI) for the trailing 12 months ended Oct. 31, 2012 was 18.0 percent.

• Year to date, the company returned $8.7 billion to shareholders through dividends and share repurchases.

BENTONVILLE, Ark.--(BUSINESS WIRE)-- Wal-Mart Stores, Inc. (NYS: WMT) today reported financial results for the quarter ended Oct. 31, 2012. Net sales for the third quarter of fiscal 2013 were $113.2 billion, an increase of 3.4 percent from $109.5 billion in the third quarter last year. Net sales for this quarter included a negative currency exchange rate impact of approximately $1.7 billion. Without the currency impact, net sales would have been $114.9 billion. Membership and other income increased 2.1 percent to $725 million. Total revenue was $113.9 billion, an increase of 3.4 percent from last year.

Income from continuing operations attributable to Walmart for the quarter was $3.6 billion, up 8.7 percent from the third quarter last year. Diluted earnings per share from continuing operations attributable to Walmart (EPS) for the third quarter of fiscal 2013 were $1.08. By comparison, last year's reported EPS were $0.97.

The current quarter benefited from a 31.3 percent effective tax rate. This benefit was mostly offset by approximately $105 million in pre-tax charges which are included in operating expenses:

• an approximate $69 million for changes in estimated contingent liabilities related to employment claims in Brazil; and

• an approximate $36 million for damages from Superstorm Sandy, mainly in the Walmart U.S. business.

Solid earnings performance

"We're very pleased with our financial performance for the third quarter and the dedication and hard work of our associates serving Walmart customers and communities around the world," said Mike Duke, Wal-Mart Stores, Inc. president and chief executive officer. "Earnings per share were $1.08, which represents an 11.3 percent increase over the third quarter last year."

The company leveraged operating expenses for the third quarter, delivering on its commitment to reduce costs, improve productivity and invest in price.

"Our disciplined approach to operating the business and to the productivity loop drove profitability and expense leverage," said Duke. "Our fundamentals are strong, and we are well-positioned for the fourth quarter, including innovative plans to drive traffic, especially in our U.S. stores.

"Price will continue to be a major factor for U.S. customers over the holidays. Our strong price position and broad assortment are clear competitive advantages," he explained. "Across all of our markets, we are seeing the same price consciousness as we do in the United States. More customers are part of a growing global middle class, looking for quality, value and a better life, and our EDLP model matters to these customers."

Duke also noted that the company continues to invest in e-commerce to build the anywhere, anytime relationship that customers want.

"We made significant progress this quarter in enhancing our walmart.com site for U.S. customers, and we are expanding e-commerce opportunities for shoppers in our key markets, including China, the U.K. and Brazil," said Duke. "We also increased our position in China e-commerce retailer Yihaodian to 51 percent."

Returns

Walmart delivered free cash flow of $7.0 billion for the nine months ended Oct. 31, 2012, compared to $3.4 billion the previous year. Return on investment (ROI) for the trailing 12 months ended Oct. 31, 2012 was 18.0 percent, compared to 18.2 percent for the same prior year period. The company's capital discipline benefitted ROI. However, this benefit was mostly offset by currency exchange rate fluctuations.

"Despite current economic conditions, we continue to produce solid operating results with strong cash flow from operations," said Charles Holley, executive vice president and chief financial officer. "The strength of our free cash flow allows us to provide good returns to our shareholders through dividends and share repurchases."

Company updates full-year EPS guidance

"Current macroeconomic conditions continue to pressure our customers," said Holley. "The holiday season is predicted to be very competitive, but we are well prepared to deliver on the value and low prices our customers expect.

"We consider the competitive retail environment and economic factors, among others, when we provide guidance. Based on these considerations, we expect fourth quarter fiscal 2013 diluted earnings per share from continuing operations to range between $1.53 and $1.58. This compares to last year's fourth quarter reported EPS of $1.51, which benefitted $0.07 from certain items," said Holley. "Net of those items, earnings per share for last year's fourth quarter would have been $1.44.

"For the full year, we are tightening and reaffirming the top end of our earnings per share guidance to a range of $4.88 to $4.93. This compares to our previous guidance of $4.83 to $4.93," Holley said. "Last year's full-year EPS was $4.54."

Operating segment details and analysis

Net sales

Net sales, including fuel, were as follows (dollars in billions):

The following explanations provide additional context to the above table for the third quarter.

• Constant currency consolidated net sales would have increased by 4.9 percent to $114.9 billion during the third quarter.

• Walmart International net sales, on a constant currency basis, would have increased 7.6 percent to $34.8 billion.

• Sam's Club net sales, excluding fuel, were $12.2 billion, an increase of 3.6 percent from last year's third quarter results.

Segment operating income

Segment operating income was as follows (dollars in billions):

The following explanations provide additional context to the above table for the third quarter.

• Consolidated operating income, which includes other unallocated, was $6.1 billion, up 4.0 percent from last year. On a constant currency basis, consolidated operating income would have increased 4.5 percent.

• All three segments grew operating income faster than sales, a company priority.

• On a constant currency basis, Walmart International's operating income would have increased 6.8 percent. Currency exchange rate fluctuations negatively impacted operating income by approximately $29 million.

• Sam's Club operating income, excluding fuel, increased 14.2 percent.

"We were pleased that our constant currency sales and operating income were both up approximately 7 percent for the third quarter," said Doug McMillon, president and CEO of Walmart International. "We gained market share in almost all of our markets, indicating that our underlying business is performing well. We are working hard to improve execution where it's needed, and we're ready with great merchandise and price investments for the fourth quarter."

U.S. comparable store sales review and guidance

The company reported U.S. comparable store sales based on its 13-week and 39-week retail calendar periods ended Oct. 26, 2012 and Oct. 28, 2011, as follows:

During the 13-week period, the Walmart U.S. comp was driven by an increase in average ticket of 1.4 percent. Traffic was positive by 0.1 percent. All three geographic regions had positive comp sales.

"We again delivered strong sales across the business, adding $2.3 billion in revenue. Comp sales increased 1.5 percent this quarter, as we lapped a 1.3 percent comp last year," said Bill Simon, Walmart U.S. president and chief executive officer. "We're excited about the fourth quarter. November sales started ahead of plan. Our Black Friday plans are innovative and designed to drive additional traffic in our stores. We expect strong performance through Thanksgiving weekend."

For the 4-5-4 period from Oct. 27, 2012 through Jan. 25, 2013, Walmart U.S. expects comp store sales to range from 1.0 percent to 3.0 percent. The Walmart U.S. 13-week comp for last year's fourth quarter rose 1.5 percent.

For Sam's Club, comp traffic and ticket, excluding fuel, increased for both Business and Advantage members for the 13-week period ended Oct. 26.

"Sam's Club comp sales, while a solid 2.7 percent, fell short of our guidance. Business members in particular, continued to be pressured economically," said Rosalind Brewer, Sam's Club president and chief executive officer. "Inflation was lower than last quarter and much less than a year ago. While lower costs are good for our members, deflation impacted comp sales more than expected. Sam's Club is stepping up price investment for the holidays, and we are well prepared for our members' gifting and entertaining needs."

Sam's Club expects comp sales, without fuel, for the current 13-week period ending Jan. 25, 2013, to increase between 1.5 percent and 3.5 percent. Last year, Sam's Club comp, without fuel, for the fourth quarter comparable 13-week period rose 5.4 percent.

To align with the company's internal operating systems, Walmart will report comp sales for the fourth quarter of fiscal year 2013 on a 4-5-4 basis and will not recognize a 53-week retail calendar this year. For fiscal year 2014, Walmart will report comp store sales on a 53-week basis, with 4-5-5 reporting for the fourth quarter.

Both Walmart U.S. and Sam's Club will report comp sales for the 13-week period on Feb. 21, 2013, when the company reports fourth quarter results.

Wal-Mart Stores, Inc. (NYS: WMT) helps people around the world save money and live better - anytime and anywhere - in retail stores, online, and through their mobile devices. Each week, more than 200 million customers and members visit our 10,500 stores under 69 banners in 27 countries and e-commerce websites in 10 countries. With fiscal year 2012 sales of approximately $444 billion, Walmart employs more than 2 million associates worldwide. Walmart continues to be a leader in sustainability, corporate philanthropy and employment opportunity. Additional information about Walmart can be found by visiting http://corporate.walmart.com, and on Facebook at http://facebook.com/walmart and on Twitter at http://twitter.com/walmart. Online merchandise sales are available at http://www.walmart.com and http://www.samsclub.com.

Notes

After this earnings release has been furnished to the Securities and Exchange Commission (SEC), a pre-recorded call offering additional comments on the quarter will be available to all investors. Please note: Walmart has a new phone number for accessing the pre-recorded call. Callers within the U.S and Canada may dial 877-523-5612 and enter passcode 9256278. All other callers can access the call by dialing 201-689-8483 and entering passcode 9256278. Information included in this release, including reconciliations, and the pre-recorded phone call are available in the investor information area on the company's website at www.stock.walmart.com.

Editor's Note: High resolution photos of Walmart's U.S. business, Sam's Club and international operations are available for download at: www.stock.walmart.com.

¹ See additional information at the end of this release regarding non-GAAP measures.

Forward-looking statements

This release contains statements as to Walmart management's forecasts of the company's earnings per share for the fiscal quarter and fiscal year to end Jan. 31, 2013 (and certain assumptions underlying such forecasts), and management's expectations regarding the comparable store sales of the Walmart U.S. segment and comparable club sales, excluding fuel, of the Sam's Club segment of the company for the 13-week period from Oct. 27, 2012 through Jan. 25, 2013, and management's expectations that the Walmart U.S. operating segment will have strong performance through Thanksgiving weekend that the company believes are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements are intended to enjoy the protection of the safe harbor for forward-looking statements provided by that act. Those statements can be identified by the use of the word or phrase "based on," "consider," "expect," "expects," "guidance," "we'll offer" and "will implement" in the statements or relating to such statements. These forward-looking statements are subject to risks, uncertainties and other factors, domestically and internationally, including: general economic conditions; economic conditions affecting specific markets in which we operate; competitive pressures; inflation and deflation; consumer confidence, disposable income, credit availability, spending patterns and debt levels; the seasonality of Walmart's business and seasonal buying patterns in the United States and other markets; geo-political conditions and events; weather conditions and events and their effects; catastrophic events and natural disasters and their effects on Walmart's business; public health emergencies; civil unrest and disturbances and terrorist attacks; commodity prices; the cost of goods Walmart sells; transportation costs; the cost of diesel fuel, gasoline, natural gas and electricity; the selling prices of gasoline; disruption of Walmart's supply chain, including transport of goods from foreign suppliers; trade restrictions; changes in tariff and freight rates; labor costs; changes in employment laws and regulations; the cost of healthcare and other benefits; casualty and other insurance costs; accident-related costs; adoption of or changes in tax and other laws and regulations that affect Walmart's business, including changes in corporate tax rates; developments in, and the outcome of, legal and regulatory proceedings to which Walmart is a party or is subject; currency exchange rate fluctuations; changes in market interest rates; conditions and events affecting domestic and global financial and capital markets; and other risks. The company discusses certain of these factors more fully in certain of its filings with the SEC, including its most recent annual report on Form 10-K filed with the SEC, and this release should be read in conjunction with that annual report on Form 10-K, together with all of the company's other filings, including its current reports on Form 8-K, made with the SEC through the date of this release. The company urges readers to consider all of these risks, uncertainties and other factors carefully in evaluating the forward-looking statements contained in this release. As a result of these matters, changes in facts, assumptions not being realized or other circumstances, the company's actual results may differ materially from the expected results discussed in the forward-looking statements contained in this release. We discuss our existing FCPA investigation and related matters in the filed portion of our Nov. 15, 2012 Form 8-K, as well as in our Form 10-Q filed on Sept. 6, 2012 and investors are referred to those SEC reports for information concerning those matters. The forward-looking statements made in this release are made only as of the date of this release, and Walmart undertakes no obligation to update them to reflect subsequent events or circumstances.