Wal-Mart Barely Beats, Lifts View - Analyst Blog

Retailing behemoth Wal-Mart Stores Inc. (WMT) reported a 9% growth in fiscal 2011 second-quarter adjusted EPS to 97 cents from 89 cents in the year-ago period. The result edged past the Zacks Consensus Estimate of 96 cents per share and came in line with the company’s view of 93 cents to 98 cents per share offered in May.

 

Bolstered by the quarterly results, Wal-Mart lifted its fiscal 2011 EPS guidance to a range of $3.95 to $4.05 from the earlier outlook of $3.90 to $4.00. The guidance remains in line with the Zacks Consensus Estimate of $4.01 per share, which moved up a penny in just the past week. For the third quarter of fiscal 2011, earnings are expected in a range of 87 cents to 91 cents per share, in line with the Zacks Consensus Estimate of 91 cents. Shares of Wal-Mart gained nearly 1% in pre-market trading on the New York Stock Exchange.

 

During the quarter, Wal-Mart’s total revenues logged a growth of 2.8% year over year to $103.7 billion, behind the Zacks Consensus Estimate of $105.1 billion. The growth was spearheaded by a solid 11.0% expansion in International sales, driven by growth in Mexico, Brazil and China as well as favorable foreign currency translations. Overall sales expansion was also aided by a 2.2% growth in the Sam’s Club segment. However, Wal-Mart's U.S. segment recorded flat sales year over year during the quarter.

 

The Bentonville, AR-based company, widely considered as an economic bellwether, recorded a 1.8% year-over-year decline in Wal-Mart U.S. same-store sales, while Sam’s Club grew 2.6%.

 

Customers recovering from one of the worst recessions in recent decades are shopping more in discount department stores, such as Wal-Mart, compared to non discount-oriented retailers. However, the company remains affected by high unemployment, which has adversely affected consumer disposable incomes.

 

Meanwhile, Wal-Mart’s quarterly operating income rose 4.4% year over year to $6.2 billion, while operating margin edged up 10 basis points to 6.0%. The growth was primarily driven by higher sales and stringent management control over expenses.

 

Wal-Mart exited the quarter with a cash hoard of $10.2 billion, compared with $8.0 billion in the year-ago quarter. Quarter-end long-term debt (including current portion) was $41.2 billion, reflecting a capitalization ratio of 38.9%. During the first-half of fiscal 2011, Wal-Mart generated $10.0 billion of cash from operations and raised $6.4 billion from the issuance of long-term debt. The company also utilized $7.1 billion towards share buybacks, $5.6 billion towards capital expenditure, $2.6 billion towards debt repayment and $2.2 billion towards dividends.

 

We have a Zacks Rank of #3 (short-term Hold rating) on the shares of Wal-Mart. We also reiterate our long-term Neutral recommendation.