In what has become a quarterly tradition, Wal-Mart once again swung and missed, largely as expected – after all it snowed in the quarter. Just kidding. While the WMT bottom line was more or less in line, with Adjusted EPS of $1.60 beating expectations of $1.59, the world’s largest retailer missed on the top line posting $129.71 billion in Q4 revenue compared to $130.24 billion expected. What also disappointed was the decline in free cash flow which dropped from $12.7 billion in 2012 to $10.1 billion in 2013. What is worse is that the company reported sliding Q4 comp store sales, which declined -0.4% with and without fuel, compared to an expectation of a +0.2% increase, and well below the 0.5% increase a year ago. But the biggest hit was in the company guidance which now expects Q1 and Full Year EPS of $1.10-1.20 and $5.45-$5.55; both below the sellside consensus of $1.24 and $5.55. Alas for Walmart, it is impossible to blame the weather for weaker upcoming results, and so the company didn’t even try. Instead what the company did blame for the current and future weakness is, naturally, the economy, the weak consumer, who is now receiving less government handouts, as well as tighter credit and notably, higher healthcare costs. These combined made Walmart admit that it will be “difficult to achieve the goal we have of growing operating income at the same or faster rate than sales.”
“We expect economic factors to continue to weigh on our outlook,” said Holley. “Some of the factors affecting our consumers include reductions in government benefits, higher taxes and tighter credit. Further, we have higher group health care costs in the U.S. These concerns, combined with investments in e-commerce, will make it difficult to achieve the goal we have of growing operating income at the same or faster rate than sales. In October, we forecasted a 3 to 5 percent net sales increase for fiscal 2015. Given these factors and the ongoing headwind from currency exchange, we expect to be toward the low end of the net sales guidance.
“Additionally, all guidance provided today assumes currency exchange rates remain at current levels,” added Holley. “If currency rates remain where they are today, net sales would be negatively impacted by approximately $3.5 billion for fiscal 2015. During the first quarter of this year, we will begin to anniversary the increased costs we incurred last year for FCPA matters, including compliance program enhancements and the ongoing investigations. We anticipate expenses for FCPA matters and compliance-related enhancements to range between $200 and $240 million for fiscal 2015.”
