Wal-Mart Reports In-Line, Ups Outlook - Analyst Blog

Wal-Mart Stores Inc. (WMT) reported better-than-expected third-quarter 2011 results and raised its EPS outlook for the rest of fiscal 2011. The retailing giant reported quarterly earnings of 95 cents a share, reflecting a 15.8% increase over the prior-year earnings of 82 cents a share.

However, (excluding the benefit of one-time items) earnings were in line with the Zacks Consensus estimate of 90 cents per share.

Management raised its full year 2011 EPS guidance to a range of $4.08 to $4.12 per share. The previous guidance was between the range of $3.95 to $4.05. For the fourth quarter, the company expects earnings in the range of $1.29 to $1.33 per share. The Zacks Consensus Estimate for the year and the fourth quarter are $4.02 and $1.28, respectively.

Revenue Details

Wal-Mart's net sales recorded a growth of 2.6% to $101.2 billion from $98.7 billion in the year-ago quarter. The expansion was primarily driven by a robust 9.3% expansion in the International segment, which benefited from favorable currency translations, coupled with a 2.7% growth in the Sam's Club segment. However, sales at the Wal-Mart's U.S. segment were almost flat year-over-year, declining marginally by 0.1%. Net sales were below the Zacks Consensus Estimate of $102.5 billion.

Wal-Mart, widely regarded as a bellwether for the U.S. economy, stated that U.S. same-store sales decreased 1.3% year-over-year, while that for Sam's Club grew by 2.4%.

Meanwhile, quarterly operating income grew by 3.1% year-over-year to $5.6 billion, while the operating margin increased marginally by 3 basis points to 5.5%. The growth was primarily caused by favorable foreign currency translations.

Wal-Mart added almost 10 million square feet of retail space during the reported quarter, with 37% of the square footage growth in Wal-Mart International.

Balance Sheet and Cash Flow

For the third quarter of fiscal 2011, Wal-Mart generated free cash flow of $2.9 billion, a decline of 19.4% from $3.6 billion in the year-ago period due to higher inventory costs. However, the company benefitted from a Return on Investment (ROI) of 18.6% during the quarter compared to 18.4% in the prior year period. The company has a debt-to-capitalization ratio of 38.4%.