Wal-Mart Stores Inc. (WMT) reported better-than-expected first-quarter 2012 results. The retailing giant reported quarterly earnings of 98 cents a share up by 12.6% over the prior-year earnings of 87 cents a share as well as surpassing the Zacks Consensus estimate by 2 pennies. The quarter’s earnings included a benefit of $0.01 per share related to currency translation.
Revenue and Margin Details
Wal-Mart’s net sales for the first quarter climbed 4.4% to $103.4 billion from $99.1 billion in the year-ago quarter. Net sales for the quarter included a currency exchange rate benefit of $1.3 billion.
The expansion was primarily driven by a robust 11.5% growth in the International segment, partially offset by the March 11, 2011 earthquake and tsunami which negatively affected sales in Japan.Sales at the Wal-Mart's U.S. segment inched up 0.6%.
Sam’s Club delivered strong results in the quarter. The momentum is reflected through comp sales and increase in new members. According to the management, the warehouse channel is gaining importance in the retail landscape and Sam’s is climbing up the ladder.
Wal-Mart, widely regarded as a bellwether for the U.S. economy, stated that U.S. same-store sales decreased 1.1% yearoveryear, while that for Sam’s Club grew by 4.2%, which was 120 basis points above the guidance provided by the company.
The decline in Wal-Mart U.S. comparable store sales was fuelled by a fall in consumer traffic, while average ticket was up versus the prior year. Grocery and, health and wellness categories had positive comparative sales for the quarter under review.
Meanwhile, quarterly operating income climbed by 2.8% year over year to $5.1 billion, while the operating margin contracted by 10 basis points to 5.7%. The growth was primarily caused by favorable foreign currency translations.
Balance Sheet and Cash Flow
Wal-Mart ended the year with free cash flow of $415.0 million, compared to $1,590 million in the year-ago period. Return on Investment (ROI) was 18.5% during the quarter compared to 19.2% in the prior year period. The company returned $3.4 billion to shareholders by way of dividends and share repurchases.
Guidance
Based on the strong results of the first quarter and the economic environment in the United States and around the world, management provided an estimate that second quarter fiscal 2012 diluted earnings per share from continuing operations will be in the range of $1.05 and $1.10, compared to last year’s reported EPS of $0.97.
Recommendation
We remain encouraged by the company’s significant presence in the international market. The international segment of the company consists of retail operations in 14 countries and Puerto Rico.
Currently, Wal-Mart — which faces stiff competition from Target Corp. (TGT) and Costco Wholesale Corporation (COST) has a Zacks #2 Rank, implying a short-term Buy recommendation.
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