OREANDA-NEWS. Wal-Mart Stores, Inc. (Walmart) reported second quarter diluted earnings per share (EPS) of USD 1.24, a 5.1 percent increase compared to last year's USD 1.18. EPS for the quarter was impacted by approximately USD 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 share1 in the measured category of "food, consumables and health & wellness/OTC."
Comp sales, without fuel,2 at Sam's Club were up 1.7 percent during the 13-week period.
Walmart International grew net sales 2.9 percent to USD 33.0 billion. On a constant currency basis,2 net sales would have increased 4.4 percent to USD 33.4 billion.
Consolidated net sales reached USD 116.2 billion, an increase of USD 2.7 billion, or 2.4 percent. Currency exchange rate fluctuations had a negative impact on net sales of USD 680 million.
Consolidated operating income was USD 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,2 by 8.0 percent.
Walmart reported free cash flow2 of USD 5.2 billion for the six months ended Jul. 31, 2013.
The company returned USD 3.4 billion to shareholders through dividends and share repurchases.
Walmart updated full-year EPS guidance to a range of USD 5.10 to USD 5.30 from the previous range of USD 5.20 to USD 5.40. This new range includes third quarter EPS guidance of USD 1.11 to USD 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,2 for the 13-week period ending Oct. 25 to be between flat and 2 percent. Last year's comp, excluding fuel,2 for 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.

Wal-Mart Stores, Inc. (NYSE: WMT) today reported financial results for the second quarter ended Jul. 31, 2013. Net sales were USD 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 USD 116.7 billion. Membership and other income decreased 4.3 percent versus last year. Total revenue was USD 116.9 billion, an increase of USD 2.7 billion, or 2.3 percent over last year.

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


 "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."  Leverage

 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."  Returns

 "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 USD 1.9 billion. In addition, the company paid USD 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 USD 5.2 billion for the six months ended Jul. 31, 2013, compared to USD 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.  Net sales guidance

 "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."  EPS guidance

 "Diluted earnings per share for the third quarter of fiscal year 2014 are expected to range between USD 1.11 and USD 1.16. This compares to USD 1.08 per share last year," said Holley. "For the full year, we are updating our EPS guidance to range between USD 5.10 and USD 5.30 per share. This compares to our previous range of USD 5.20 to USD 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 USD 75 and USD 80 million for both the third and fourth quarters."
The following explanations provide additional context to the above table.
 On a constant currency basis,1 Walmart International's net sales would have been USD 33.4 billion, an increase of 4.4 percent over last year.
 Net sales for Sam's Club, excluding fuel,1 were USD 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 USD 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.
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.