Walmart reports Q2 EPS of $1.24, up 5.1 percent, and adds $2.7 billion in net sales

Walmart reports Q2 EPS of $1.24, up 5.1 percent, and adds $2.7 billion in net sales

• Wal-Mart Stores, Inc. (Walmart) reported second quarter diluted earnings per share (EPS) of $1.24, a 5.1 percent increase compared to last year's $1.18. EPS for the quarter was impacted by approximately $0.01 due to a charge for a certain non-income tax matter recorded in operating expenses within Walmart International.

• Walmart U.S. comp sales declined 0.3 percent in the 13-week period from Apr. 27 to Jul. 26, 2013. Comp traffic, while negative, improved approximately 130 basis points from the first quarter. Walmart U.S. gained market share¹in the measured category of "food, consumables and health & wellness/OTC."

• Comp sales, without fuel,²at Sam's Club were up 1.7 percent during the 13-week period.

• Walmart International grew net sales 2.9 percent to $33.0 billion. On a constant currency basis,²net sales would have increased 4.4 percent to $33.4 billion.

• Consolidated net sales reached $116.2 billion, an increase of $2.7 billion, or 2.4 percent. Currency exchange rate fluctuations had a negative impact on net sales of $680 million.

• Consolidated operating income was $6.8 billion, an increase of 1.4 percent over last year. Walmart U.S. grew operating income by 5.2 percent. Sam's Club grew operating income, without fuel,²by 8.0 percent.

• Walmart reported free cash flow²of $5.2 billion for the six months ended Jul. 31, 2013.

• The company returned $3.4 billion to shareholders through dividends and share repurchases.

• Walmart updated full-year EPS guidance to a range of $5.10 to $5.30 from the previous range of $5.20 to $5.40. This new range includes third quarter EPS guidance of $1.11 to $1.16.

• Walmart U.S. expects comp sales for the 13-week period ending Oct. 25 to be relatively flat. Last year's comp for the comparable period was 1.5 percent.

• Sam's Club expects comp sales, excluding fuel,²for the 13-week period ending Oct. 25 to be between flat and 2 percent. Last year's comp, excluding fuel,²for the comparable period was 2.7 percent.

¹ Source: The Nielsen Company, 13-weeks ended Jul. 20, 2013.

² See additional information at the end of this release regarding non-GAAP financial measures.

BENTONVILLE, Ark.--(BUSINESS WIRE)-- Wal-Mart Stores, Inc. (NYS: WMT) today reported financial results for the second quarter ended Jul. 31, 2013. Net sales were $116.2 billion, an increase of 2.4 percent over last year. On a constant currency basis,¹ net sales would have increased 2.8 percent to $116.7 billion. Membership and other income decreased 4.3 percent versus last year. Total revenue was $116.9 billion, an increase of $2.7 billion, or 2.3 percent over last year.

Consolidated net income attributable to Walmart was $4.1 billion, up 1.3 percent. Diluted earnings per share attributable to Walmart (EPS) were $1.24, a 5.1 percent increase, compared to $1.18 last year. EPS for the quarter was impacted by approximately $0.01 due to a charge for a certain non-income tax matter recorded in operating expenses within Walmart International.

"We delivered a solid increase in earnings per share for the second quarter," said Mike Duke, Wal-Mart Stores, Inc. president and chief executive officer. "Consolidated net sales and our Walmart U.S. comp were below expectations. While the retail environment was challenging across all of our markets, the Walmart U.S. and Sam's Club businesses improved comp sales from the first quarter, and the growth of International sales was consistent.

"I'm encouraged by our position to execute in the second half of the year, particularly with the steps we're taking to improve performance," said Duke. "There are areas of our business where we can do a better job, and we will. I'm confident in our associates' abilities to deliver for our customers with EDLP and for shareholders with improved expense savings."

The company did not leverage operating expenses during the second quarter, due to softer than expected sales and higher investment in key areas.

"We are pleased that our U.S. segments leveraged expenses for the first half," said Duke. "While it will be difficult, we believe the steps we're taking to control costs, especially in International, will bring us closer to our full-year leverage goal. We will continue to invest in leverage initiatives, compliance and e-commerce as we focus on future growth."

"We were pleased with our Q2 growth in earnings per share, especially in light of the current retail environment," said Charles Holley, executive vice president and chief financial officer. "The company generated solid cash flows from operations, and we continue to deliver strong consistent returns to shareholders."

During the second quarter, the company repurchased approximately 24 million shares for $1.9 billion. In addition, the company paid $1.5 billion in dividends.

Return on investment¹ (ROI) for the trailing 12-months ended Jul. 31, 2013 was 17.9 percent, compared to 18.1 percent for the prior trailing 12-months ended Jul. 31, 2012. The decline was primarily the result of acquisitions, along with an increase in fixed assets within Walmart's base business.

Free cash flow¹ was $5.2 billion for the six months ended Jul. 31, 2013, compared to $6.1 billion in the prior year. The timing of the tax payments and growth of capital expenditures were the primary drivers of the decline.

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

"The retail environment remains challenging in the U.S. and our international markets, as customers are cautious in their spending. Net sales in the first six months were below our expectations, so we are updating our forecast for net sales to grow between 2 and 3 percent for the full year versus our previous range of 5 to 6 percent," said Holley. "This revision reflects our view of current global business trends, and significant ongoing headwinds from anticipated currency exchange rate fluctuations."

"Diluted earnings per share for the third quarter of fiscal year 2014 are expected to range between $1.11 and $1.16. This compares to $1.08 per share last year," said Holley. "For the full year, we are updating our EPS guidance to range between $5.10 and $5.30 per share. This compares to our previous range of $5.20 to $5.40. This guidance takes into account the challenging sales and operating environment. As we've seen in the past, discrete tax items have had a meaningful impact on our effective tax rate and reported results in the back half of our fiscal years. We anticipate that a wider range of between 31 and 33 percent is now possible for our full year effective tax rate, versus our previous range of 32 to 33 percent. In addition, we believe expenses for FCPA matters and compliance programs will be between $75 and $80 million for both the third and fourth quarters."

Net sales, including fuel, were as follows:

The following explanations provide additional context to the above table.

• On a constant currency basis,¹ Walmart International's net sales would have been $33.4 billion, an increase of 4.4 percent over last year.

• Net sales for Sam's Club, excluding fuel,¹ were $12.8 billion, an increase of 2.4 percent from last year.

• Consolidated net sales, on a constant currency basis,¹ would have increased 2.8 percent to $116.7 billion.

"Across our International markets, growth in consumer spending is under pressure," said Doug McMillon, Walmart International president and CEO. "Consumers in both mature and emerging markets curbed their spending during the second quarter, and this led to softer than expected sales. While this creates a challenging sales environment, we are the best equipped retailer to address the needs of our customers and help them save money.

"We expect the third and fourth quarters to be better than our results in the first half, and we are working hard to deliver operating expense leverage for Walmart International," added McMillon.

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

Segment operating income was as follows:

The company reported U.S. comparable store sales based on its 13-week and 26-week retail calendar for the periods ended Jul. 26, 2013 and Jul. 27, 2012 as follows:

During the 13-week period, the Walmart U.S. comp was negatively impacted by lower consumer spending due to the payroll tax increase and lower inflation than expected. Comp traffic decreased 0.5 percent, while average ticket increased 0.2 percent.

"While I'm disappointed in our comp sales decline, I'm encouraged by the improvement in traffic and comp sales as we progressed through the quarter. The 2 percent payroll tax increase continues to impact our customer," said Bill Simon, Walmart U.S. president and CEO. "Furthermore, we also expected an increase in the level of grocery inflation, which did not materialize in a meaningful way. We were pleased that both home and apparel had positive comps.

"We also continued to gain market share across several categories. According to The Nielsen Company, we gained 14 basis points of market share in the measured category of 'food, consumables and health & wellness/OTC' during the 13-weeks ending July 20," added Simon.

For the 13-week period ending Oct. 25, Walmart U.S. expects comp store sales to be relatively flat. Last year, Walmart's comp sales rose 1.5 percent for the comparable period.

"We continue to execute on initiatives to drive our business," said Simon. "Our strategy is sound, our pricing position is solid and our ability to leverage operating expenses is strong."

In the second quarter, Sam's Club comp traffic was up 2.7 percent, while ticket was down 1.0 percent.

"Sam's Club generated a comp of 1.7 percent, without fuel,¹ for the 13-week period," said Rosalind Brewer, Sam's Club president and CEO. "Sales were up, traffic continued to improve, and comp sales were within our guidance. Response to our recent membership enhancements has been favorable, resulting in solid membership income growth and positive response to our Instant Savings Book. We were pleased with our improvement in business member traffic, reversing the decrease from the prior quarter."

Sam's Club expects comp sales, excluding fuel,¹ for the current 13-week period ending Oct. 25, to range between flat and 2 percent. Last year for the 13-week period, comp sales, excluding fuel,¹ increased 2.7 percent.

"The core business at Sam's Club is strong," added Brewer. "I'm confident that the steps we are executing today to strengthen our value proposition will benefit Sam's over the long term."

Walmart U.S. and Sam's Club will report comparable sales for the 13-week period ending Oct. 25 on Nov. 14, when the company reports third quarter results. For fiscal year 2014, Walmart will report comparable store sales on a 53-week basis, with 4-5-5 week reporting for the fourth quarter.

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 245 million customers and members visit our 10,955 stores under 69 banners in 27 countries and e-commerce websites in 10 countries. With fiscal year 2013 sales of approximately $466 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, 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.

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. Information included in this release, including reconciliations, and the pre-recorded phone call can be accessed via webcast by visiting the investor information area on the company's website at www.stock.walmart.com, or by clicking here. 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.

High resolution photos of Walmart's U.S., 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 financial measures.

Forward Looking Statements

This release contains statements as to Wal-Mart Stores, Inc. management's forecasts or estimates of the company's diluted earnings per share attributable to Walmart for the fiscal quarter ending Oct. 31, 2013 and for the fiscal year to end Jan. 31, 2014, of the consolidated net sales growth of the company for the fiscal year to end Jan. 31, 2014, and of the comparable store sales of the Walmart U.S. segment of the company and the comparable club sales, excluding fuel, of the Sam's Club segment of the company for the 13-week period from Jul. 27, 2013 through Oct. 25, 2013 (and statements of certain assumptions underlying certain of such forecasts), management's expectation that it is possible for the company's effective tax rate for all of the fiscal year to end Jan. 31, 2014 to be within a certain range, management's expectations regarding the costs to be incurred in each of the third and fourth quarters of the fiscal year to end Jan. 31, 2014 associated with the FCPA matters and compliance programs, and management's expectations that the company will continue to invest in leverage initiatives, compliance and e-commerce, that the steps being taken by the company will bring the company closer to its goal of leveraging expenses for the full fiscal year to end Jan. 31, 2014 and that the third and fourth quarter results of the Walmart International segment will be better than the results of the Walmart International segment for the first half of the fiscal year to end Jan. 31, 2014, 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 "are expected," "are updating," "anticipate," "expect," "expects," "forecast," "guidance," "will be," "will bring," and "will continue" 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; business trends in the company's markets; economic conditions affecting specific markets in which we operate; competitive pressures; the amount of inflation or deflation that occurs, both generally and in certain product categories; consumer confidence, disposable income, credit availability, spending patterns and debt levels; customer traffic in Walmart's stores and clubs, average ticket size, 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; the availability of qualified labor pools in Walmart's markets; changes in employment laws and regulations, the cost of healthcare and other benefits; casualty and other insurance costs; accident-related costs; the availability of investment opportunities relating to Walmart's Global eCommerce initiatives, 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 and the costs associated therewith; the requirements for expenditures in connection with the FCPA matters and compliance programs; currency exchange rate fluctuations; changes in market interest rates; conditions and events affecting domestic and global financial and capital markets; and other risks. Management's expectation regarding the company's effective tax rate for the fiscal year to end Jan. 31, 2013 discussed above is subject to management's expectation the company's effective tax rate may fluctuate and be impacted by a number of factors, including changes in the company's assessment of certain tax contingencies, valuation allowances, tax law changes, audit results, discrete items and the mix of earnings among the company's U.S. and International operations. The company discusses certain of the factors described above more fully in certain of its filings with the SEC, including its most recent annual report on Form 10-K filed with the SEC (in which the company also discusses other factors that may affect its operations, results of operations and comparable store and club sales) 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 quarterly reports on Form 10-Q and 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. The forward-looking statements contained in this release are as of the date of this release, and Walmart undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.