Walmart Earnings 2020-04-30
| Balance Sheet | Income Statement | Cash Flow |
|---|---|---|
|
Assets, Equity
|
Rev, G Profit, Net Income
|
Ops, Inv, Fin
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. | |
For the quarterly period ended April 30, 2020 .
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. | |
For the transition period from to .
Commission File Number 001-6991
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
(Address of principal executive offices) | (Zip Code) | ||
Registrant's telephone number, including area code: (479 ) 273-4000
Former name, former address and former fiscal year, if changed since last report: N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
☒ | Accelerated Filer | ☐ | ||||
Non-Accelerated Filer | ☐ | Smaller Reporting Company | ||||
Emerging Growth Company | ||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The registrant had 2,831,953,450 shares of common stock outstanding as of June 1, 2020.
Walmart Inc.
Form 10-Q
For the Quarterly Period Ended April 30, 2020
Table of Contents
Page | |||
2
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements |
Walmart Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended April 30, | |||||||
(Amounts in millions, except per share data) | 2020 | 2019 | |||||
Revenues: | |||||||
Net sales | $ | $ | |||||
Membership and other income | |||||||
Total revenues | |||||||
Costs and expenses: | |||||||
Cost of sales | |||||||
Operating, selling, general and administrative expenses | |||||||
Operating income | |||||||
Interest: | |||||||
Debt | |||||||
Finance lease | |||||||
Interest income | ( | ) | ( | ) | |||
Interest, net | |||||||
Other (gains) and losses | ( | ) | ( | ) | |||
Income before income taxes | |||||||
Provision for income taxes | |||||||
Consolidated net income | |||||||
Consolidated net income attributable to noncontrolling interest | ( | ) | ( | ) | |||
Consolidated net income attributable to Walmart | $ | $ | |||||
Net income per common share: | |||||||
Basic net income per common share attributable to Walmart | $ | $ | |||||
Diluted net income per common share attributable to Walmart | |||||||
Weighted-average common shares outstanding: | |||||||
Basic | |||||||
Diluted | |||||||
Dividends declared per common share | $ | $ | |||||
See accompanying notes.
3
Walmart Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended April 30, | |||||||
(Amounts in millions) | 2020 | 2019 | |||||
Consolidated net income | $ | $ | |||||
Consolidated net income attributable to noncontrolling interest | ( | ) | ( | ) | |||
Consolidated net income attributable to Walmart | |||||||
Other comprehensive income (loss), net of income taxes | |||||||
Currency translation and other | ( | ) | |||||
Net investment hedges | |||||||
Cash flow hedges | ( | ) | ( | ) | |||
Minimum pension liability | |||||||
Other comprehensive income (loss), net of income taxes | ( | ) | |||||
Other comprehensive (income) loss attributable to noncontrolling interest | ( | ) | |||||
Other comprehensive income (loss) attributable to Walmart | ( | ) | |||||
Comprehensive income (loss), net of income taxes | ( | ) | |||||
Comprehensive income (loss) attributable to noncontrolling interest | ( | ) | |||||
Comprehensive income attributable to Walmart | $ | $ | |||||
See accompanying notes.
4
Walmart Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
April 30, | January 31, | April 30, | ||||||||||
(Amounts in millions) | 2020 | 2020 | 2019 | |||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | $ | $ | |||||||||
Receivables, net | ||||||||||||
Inventories | ||||||||||||
Prepaid expenses and other | ||||||||||||
Total current assets | ||||||||||||
Property and equipment, net | ||||||||||||
Operating lease right-of-use assets | ||||||||||||
Finance lease right-of-use assets, net | ||||||||||||
Goodwill | ||||||||||||
Other long-term assets | ||||||||||||
Total assets | $ | $ | $ | |||||||||
LIABILITIES AND EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Short-term borrowings | $ | $ | $ | |||||||||
Accounts payable | ||||||||||||
Dividends payable | ||||||||||||
Accrued liabilities | ||||||||||||
Accrued income taxes | ||||||||||||
Long-term debt due within one year | ||||||||||||
Operating lease obligations due within one year | ||||||||||||
Finance lease obligations due within one year | ||||||||||||
Total current liabilities | ||||||||||||
Long-term debt | ||||||||||||
Long-term operating lease obligations | ||||||||||||
Long-term finance lease obligations | ||||||||||||
Deferred income taxes and other | ||||||||||||
Commitments and contingencies | ||||||||||||
Equity: | ||||||||||||
Common stock | ||||||||||||
Capital in excess of par value | ||||||||||||
Retained earnings | ||||||||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
Total Walmart shareholders' equity | ||||||||||||
Noncontrolling interest | ||||||||||||
Total equity | ||||||||||||
Total liabilities and equity | $ | $ | $ | |||||||||
See accompanying notes.
5
Walmart Inc.
Condensed Consolidated Statements of Shareholders' Equity
(Unaudited)
Accumulated | Total | |||||||||||||||||||||||||||||
Capital in | Other | Walmart | ||||||||||||||||||||||||||||
(Amounts in millions) | Common Stock | Excess of | Retained | Comprehensive | Shareholders' | Noncontrolling | Total | |||||||||||||||||||||||
Shares | Amount | Par Value | Earnings | Loss | Equity | Interest | Equity | |||||||||||||||||||||||
Balances as of February 1, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
Consolidated net income | — | — | — | — | ||||||||||||||||||||||||||
Other comprehensive loss, net of income taxes | — | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
Dividends declared ($2.16 per share) | — | — | — | ( | ) | — | ( | ) | — | ( | ) | |||||||||||||||||||
Purchase of Company stock | ( | ) | ( | ) | ( | ) | ( | ) | — | ( | ) | — | ( | ) | ||||||||||||||||
Dividends declared to noncontrolling interest | — | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||
Other | ( | ) | ( | ) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
Balances as of April 30, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
Accumulated | Total | |||||||||||||||||||||||||||||
Capital in | Other | Walmart | ||||||||||||||||||||||||||||
(Amounts in millions) | Common Stock | Excess of | Retained | Comprehensive | Shareholders' | Noncontrolling | Total | |||||||||||||||||||||||
Shares | Amount | Par Value | Earnings | Loss | Equity | Interest | Equity | |||||||||||||||||||||||
Balances as of February 1, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
Adoption of new accounting standards on February 1, 2019, net of income taxes | — | — | — | ( | ) | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
Consolidated net income | — | — | — | — | ||||||||||||||||||||||||||
Other comprehensive income, net of income taxes | — | — | — | — | ||||||||||||||||||||||||||
Dividends declared ($2.12 per share) | — | — | — | ( | ) | — | ( | ) | — | ( | ) | |||||||||||||||||||
Purchase of Company stock | ( | ) | ( | ) | ( | ) | ( | ) | — | ( | ) | — | ( | ) | ||||||||||||||||
Dividends declared to noncontrolling interest | — | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||
Other | — | ( | ) | ( | ) | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
Balances as of April 30, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
See accompanying notes.
6
Walmart Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended April 30, | ||||||||
(Amounts in millions) | 2020 | 2019 | ||||||
Cash flows from operating activities: | ||||||||
Consolidated net income | $ | $ | ||||||
Adjustments to reconcile consolidated net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | ||||||||
Unrealized (gains) and losses | ( | ) | ( | ) | ||||
Deferred income taxes | ||||||||
Other operating activities | ( | ) | ||||||
Changes in certain assets and liabilities, net of effects of acquisitions and dispositions: | ||||||||
Receivables, net | ||||||||
Inventories | ( | ) | ||||||
Accounts payable | ( | ) | ( | ) | ||||
Accrued liabilities | ( | ) | ( | ) | ||||
Accrued income taxes | ||||||||
Net cash provided by operating activities | ||||||||
Cash flows from investing activities: | ||||||||
Payments for property and equipment | ( | ) | ( | ) | ||||
Proceeds from the disposal of property and equipment | ||||||||
Proceeds from the disposal of certain operations | ||||||||
Payments for business acquisitions, net of cash acquired | ( | ) | ( | ) | ||||
Other investing activities | ||||||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
Cash flows from financing activities: | ||||||||
Net change in short-term borrowings | ( | ) | ||||||
Proceeds from issuance of long-term debt | ||||||||
Repayments of long-term debt | ( | ) | ||||||
Dividends paid | ( | ) | ( | ) | ||||
Purchase of Company stock | ( | ) | ( | ) | ||||
Dividends paid to noncontrolling interest | ( | ) | ||||||
Other financing activities | ( | ) | ( | ) | ||||
Net cash provided by (used in) financing activities | ( | ) | ||||||
Effect of exchange rates on cash, cash equivalents and restricted cash | ( | ) | ( | ) | ||||
Net increase in cash, cash equivalents and restricted cash | ||||||||
Cash, cash equivalents and restricted cash at beginning of year | ||||||||
Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
See accompanying notes.
7
Walmart Inc.
Notes to Condensed Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The Condensed Consolidated Financial Statements of Walmart Inc. and its subsidiaries ("Walmart" or the "Company") and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for the fair presentation of the Condensed Consolidated Financial Statements have been included. Such adjustments are of a normal, recurring nature. The Condensed Consolidated Financial Statements, and the accompanying notes, are prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and do not contain certain information included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020 ("fiscal 2020"). Therefore, the interim Condensed Consolidated Financial Statements should be read in conjunction with that Annual Report on Form 10-K.
The Company's Consolidated Financial Statements are based on a fiscal year ending January 31 for the United States ("U.S.") and Canadian operations. The Company consolidates all other operations generally using a one-month lag and based on a calendar year. There were no significant intervening events during the month of April related to the operations consolidated using a lag that materially affected the Condensed Consolidated Financial Statements.
The Company's business is seasonal to a certain extent due to calendar events and national and religious holidays, as well as weather patterns. Historically, the Company's highest sales volume and operating income have occurred in the fiscal quarter ending January 31.
Use of Estimates
The Consolidated Financial Statements have been prepared in conformity with GAAP. Those principles require management to make estimates and assumptions, including potential impacts arising from the COVID-19 pandemic and related government actions, that affect the reported amounts of assets and liabilities. Management's estimates and assumptions also affect the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ materially from those estimates.
Receivables
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments–Credit Losses (Topic 326), which modifies the measurement of expected credit losses of certain financial instruments. The Company adopted this ASU on February 1, 2020 with no material impact to the Company's Condensed Consolidated Financial Statements.
8
Note 2. Net Income Per Common Share
Basic net income per common share attributable to Walmart is based on the weighted-average common shares outstanding during the relevant period. Diluted net income per common share attributable to Walmart is based on the weighted-average common shares outstanding during the relevant period adjusted for the dilutive effect of share-based awards. The Company did not have significant share-based awards outstanding that were anti-dilutive and not included in the calculation of diluted net income per common share attributable to Walmart for the three months ended April 30, 2020 and 2019.
The following table provides a reconciliation of the numerators and denominators used to determine basic and diluted net income per common share attributable to Walmart:
Three Months Ended April 30, | ||||||||
(Amounts in millions, except per share data) | 2020 | 2019 | ||||||
Numerator | ||||||||
Consolidated net income | $ | $ | ||||||
Consolidated net income attributable to noncontrolling interest | ( | ) | ( | ) | ||||
Consolidated net income attributable to Walmart | $ | $ | ||||||
Denominator | ||||||||
Weighted-average common shares outstanding, basic | ||||||||
Dilutive impact of share-based awards | ||||||||
Weighted-average common shares outstanding, diluted | ||||||||
Net income per common share attributable to Walmart | ||||||||
Basic | $ | $ | ||||||
Diluted | ||||||||
Note 3. Accumulated Other Comprehensive Loss
The following table provides the changes in the composition of total accumulated other comprehensive loss for the three months ended April 30, 2020:
(Amounts in millions and net of immaterial income taxes) | Currency Translation and Other | Net Investment Hedges | Cash Flow Hedges | Minimum Pension Liability | Total | |||||||||||||||
Balances as of February 1, 2020 | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
Other comprehensive income (loss) before reclassifications, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
Reclassifications to income, net | ||||||||||||||||||||
Balances as of April 30, 2020 | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
The following table provides the changes in the composition of total accumulated other comprehensive loss for the three months ended April 30, 2019:
(Amounts in millions and net of immaterial income taxes) | Currency Translation and Other | Net Investment Hedges | Cash Flow Hedges | Minimum Pension Liability | Total | |||||||||||||||
Balances as of February 1, 2019 | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
Other comprehensive income (loss) before reclassifications, net | ( | ) | ( | ) | ||||||||||||||||
Reclassifications to income, net | ( | ) | ( | ) | ||||||||||||||||
Balances as of April 30, 2019 | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
9
Note 4. Short-term Borrowings and Long-term Debt
The Company has various committed lines of credit in the U.S. that are used to support its commercial paper program. In April 2020, the Company renewed and extended its existing 364 -day revolving credit facility of $10.0 billion. In total, the Company had committed lines of credit in the U.S. of $15.0 billion at April 30, 2020 and January 31, 2020, all undrawn.
The following table provides the changes in the Company's long-term debt for the three months ended April 30, 2020:
(Amounts in millions) | Long-term debt due within one year | Long-term debt | Total | |||||||||
Balances as of February 1, 2020 | $ | $ | $ | |||||||||
Proceeds from issuance of long-term debt | ||||||||||||
Repayments of long-term debt | ||||||||||||
Reclassifications of long-term debt | ( | ) | ||||||||||
Other | ( | ) | ( | ) | ( | ) | ||||||
Balances as of April 30, 2020 | $ | $ | $ | |||||||||
Note 5. Fair Value Measurements
Assets and liabilities recorded at fair value are measured using the fair value hierarchy, which prioritizes the inputs used in measuring fair value. The levels of the fair value hierarchy are:
• | Level 1: observable inputs such as quoted prices in active markets; |
• | Level 2: inputs other than quoted prices in active markets that are either directly or indirectly observable; and |
• | Level 3: unobservable inputs for which little or no market data exists, therefore requiring the Company to develop its own assumptions. |
The Company measures the fair value of equity investments (primarily its investment in JD.com) on a recurring basis and records them in other long-term assets in the accompanying Condensed Consolidated Balance Sheets. The fair value of the Company's investment in JD.com is as follows:
(Amounts in millions) | Fair Value as of April 30, 2020 | Fair Value as of January 31, 2020 | ||||||
Investment in JD.com measured using Level 1 inputs | $ | $ | ||||||
Investment in JD.com measured using Level 2 inputs | ||||||||
Total | $ | $ | ||||||
The Company also has derivatives recorded at fair value. Derivative fair values are the estimated amounts the Company would receive or pay upon termination of the related derivative agreements as of the reporting dates. The fair values have been measured using the income approach and Level 2 inputs, which include the relevant interest rate and foreign currency forward curves. As of April 30, 2020 and January 31, 2020, the notional amounts and fair values of these derivatives were as follows:
April 30, 2020 | January 31, 2020 | |||||||||||||||
(Amounts in millions) | Notional Amount | Fair Value | Notional Amount | Fair Value | ||||||||||||
Receive fixed-rate, pay variable-rate interest rate swaps designated as fair value hedges | $ | $ | (1) | $ | $ | (1) | ||||||||||
Receive fixed-rate, pay fixed-rate cross-currency swaps designated as net investment hedges | (1) | (1) | ||||||||||||||
Receive fixed-rate, pay fixed-rate cross-currency swaps designated as cash flow hedges | ( | ) | (2) | ( | ) | (2) | ||||||||||
Total | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
(1) | Classified in Other long-term assets within the Company's Condensed Consolidated Balance Sheets. |
(2) | Classified in Deferred income taxes and other within the Company's Condensed Consolidated Balance Sheets. |
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company's assets and liabilities are also subject to nonrecurring fair value measurements. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. The Company did not have any material assets or liabilities subject to nonrecurring fair value measurements as of April 30, 2020.
Other Fair Value Disclosures
The Company records cash and cash equivalents, restricted cash, and short-term borrowings at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities.
10
The Company's long-term debt is also recorded at cost. The fair value is estimated using Level 2 inputs based on the Company's current incremental borrowing rate for similar types of borrowing arrangements. The carrying value and fair value of the Company's long-term debt as of April 30, 2020 and January 31, 2020, are as follows:
April 30, 2020 | January 31, 2020 | |||||||||||||||
(Amounts in millions) | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||
Long-term debt, including amounts due within one year | $ | $ | $ | $ | ||||||||||||
Note 6. Contingencies
Legal Proceedings
The Company is involved in a number of legal proceedings. The Company has made accruals with respect to these matters, where appropriate, which are reflected in the Company's Condensed Consolidated Financial Statements. For some matters, a liability is not probable or the amount cannot be reasonably estimated and therefore an accrual has not been made. However, where a liability is reasonably possible and may be material, such matters have been disclosed. The Company may enter into discussions regarding settlement of these matters, and may enter into settlement agreements, if it believes settlement is in the best interest of the Company and its shareholders.
Unless stated otherwise, the matters discussed below, if decided adversely or settled by the Company, individually or in the aggregate, may result in a liability material to the Company's financial condition, results of operations or cash flows.
ASDA Equal Value Claims
ASDA Stores Ltd. ("Asda"), a wholly-owned subsidiary of the Company, is a defendant in over 35,000 equal value ("Equal Value") claims that began in 2008 and are proceeding before an Employment Tribunal in Manchester (the "Employment Tribunal") in the United Kingdom ("UK") on behalf of current and former Asda store employees, and further claims may be asserted in the future. The claimants allege that the work performed by employees in Asda's retail stores is of equal value in terms of, among other things, the demands of their jobs compared to that of employees working in Asda's warehouse and distribution facilities, and that the difference in pay between these job positions disparately impacts women because more women work in retail stores while more men work in warehouses and distribution facilities, and that the pay difference is not objectively justified. The claimants are requesting differential back pay based on higher wage rates in the warehouse and distribution facilities and higher wage rates on a prospective basis.
In October 2016, following a preliminary hearing, the Employment Tribunal ruled that claimants could compare their positions in Asda's retail stores with those of employees in Asda's warehouse and distribution facilities. Asda appealed the ruling and the appeal is scheduled to be heard by the Supreme Court of the United Kingdom beginning on July 14, 2020.
Notwithstanding the appeal, claimants are proceeding in the next phase of their claims. That phase will determine whether the work performed by the claimants is of equal value to the work performed by employees in Asda's warehouse and distribution facilities.
At present, the Company cannot predict the number of such claims that may be filed, and cannot reasonably estimate any loss or range of loss that may arise from these proceedings. Accordingly, the Company can provide no assurance as to the scope and outcomes of these matters and no assurance as to whether its business, financial position, results of operations or cash flows will not be materially adversely affected. The Company believes it has substantial factual and legal defenses to these claims, and intends to defend the claims vigorously.
Prescription Opiate Litigation and Other Matters
In December 2017, the U.S. Judicial Panel on Multidistrict Litigation consolidated numerous lawsuits filed against a wide array of defendants by various plaintiffs, including counties, cities, healthcare providers, Native American tribes, individuals, and third-party payors, asserting claims generally concerning the impacts of widespread opioid abuse. The consolidated multidistrict litigation entitled In re National Prescription Opiate Litigation (MDL No. 2804), is pending in the U.S. District Court for the Northern District of Ohio. The Company is named as a defendant in some of the cases included in this multidistrict litigation. Similar cases that name the Company have also been filed in state courts by state, local and tribal governments, health care providers and other plaintiffs. Plaintiffs are seeking compensatory and punitive damages, as well as injunctive relief including abatement. The Company cannot predict the number of such claims that may be filed, but believes it has substantial factual and legal defenses to these claims, and intends to defend the claims vigorously. The Company has also been responding to subpoenas, information requests and investigations from governmental entities related to nationwide controlled substance dispensing and distribution practices involving opioids. The Company cannot reasonably estimate any loss or range of loss that may arise from these matters. Accordingly, the Company can provide no assurance as to the scope and outcome of these matters and no assurance as to whether its business, financial position, results of operations or cash flows will not be materially adversely affected.
11
Note 7. Segments and Disaggregated Revenue
Segments
The Company is engaged in the operation of retail, wholesale and other units, as well as eCommerce websites, located throughout the U.S., Africa, Argentina, Canada, Central America, Chile, China, India, Japan, Mexico, and the United Kingdom. The Company's operations are conducted in three reportable segments: Walmart U.S., Walmart International and Sam's Club. The Company defines its segments as those operations whose results the chief operating decision maker ("CODM") regularly reviews to analyze performance and allocate resources. The Company sells similar individual products and services in each of its segments. It is impractical to segregate and identify revenues for each of these individual products and services.
The Walmart U.S. segment includes the Company's mass merchandising concept in the U.S., as well as eCommerce and omni-channel initiatives. The Walmart International segment consists of the Company's operations outside of the U.S., as well as eCommerce and omni-channel initiatives. The Sam's Club segment includes the warehouse membership clubs in the U.S., as well as samsclub.com and omni-channel initiatives. Corporate and support consists of corporate overhead and other items not allocated to any of the Company's segments.
The Company measures the results of its segments using, among other measures, each segment's net sales and operating income, which includes certain corporate overhead allocations. From time to time, the Company revises the measurement of each segment's operating income, including any corporate overhead allocations, as determined by the information regularly reviewed by its CODM. When the measurement of a segment changes, previous period amounts and balances are reclassified to be comparable to the current period's presentation. Beginning with the first quarter in fiscal 2021, the Company revised its definition of eCommerce net sales to include certain pharmacy transactions and, accordingly, revised prior period amounts to maintain comparability.
Net sales by segment are as follows:
Three Months Ended April 30, | |||||||
(Amounts in millions) | 2020 | 2019 | |||||
Net sales: | |||||||
Walmart U.S. | $ | $ | |||||
Walmart International | |||||||
Sam's Club | |||||||
Net sales | $ | $ | |||||
Operating income by segment, as well as operating loss for corporate and support, interest, net and other gains and losses are as follows:
Three Months Ended April 30, | |||||||
(Amounts in millions) | 2020 | 2019 | |||||
Operating income (loss): | |||||||
Walmart U.S. | $ | $ | |||||
Walmart International | |||||||
Sam's Club | |||||||
Corporate and support | ( | ) | ( | ) | |||
Operating income | |||||||
Interest, net | |||||||
Other (gains) and losses | ( | ) | ( | ) | |||
Income before income taxes | $ | $ | |||||
12
Disaggregated Revenues
In the following tables, segment net sales are disaggregated by either merchandise category or market. From time to time, the Company revises the assignment of net sales of a particular item to a merchandise category. When the assignment changes, previous period amounts are reclassified to be comparable to the current period's presentation.
In addition, net sales related to eCommerce are provided for each segment, which include omni-channel sales, where a customer initiates an order digitally and the order is fulfilled through a store or club.
(Amounts in millions) | Three Months Ended April 30, | ||||||
Walmart U.S. net sales by merchandise category | 2020 | 2019 | |||||
Grocery | $ | $ | |||||
General merchandise | |||||||
Health and wellness | |||||||
Other categories | |||||||
Total | $ | $ | |||||
Of Walmart U.S.'s total net sales, approximately $8.3 billion and $4.7 billion related to eCommerce for the three months ended April 30, 2020 and 2019, respectively.
(Amounts in millions) | Three Months Ended April 30, | ||||||
Walmart International net sales by market | 2020 | 2019 | |||||
Mexico and Central America | $ | $ | |||||
United Kingdom | |||||||
Canada | |||||||
China | |||||||
Other | |||||||
Total | $ | $ | |||||
Of Walmart International's total net sales, approximately $2.9 billion and $2.5 billion related to eCommerce for the three months ended April 30, 2020 and 2019, respectively.
(Amounts in millions) | Three Months Ended April 30, | ||||||
Sam’s Club net sales by merchandise category | 2020 | 2019 | |||||
Grocery and consumables | $ | $ | |||||
Fuel, tobacco and other categories | |||||||
Home and apparel | |||||||
Health and wellness | |||||||
Technology, office and entertainment | |||||||
Total | $ | $ | |||||
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
This discussion, which presents Walmart Inc.'s ("Walmart," the "Company," "our," or "we") results for periods occurring in the fiscal year ending January 31, 2021 ("fiscal 2021") and the fiscal year ended January 31, 2020 ("fiscal 2020"), should be read in conjunction with our Condensed Consolidated Financial Statements as of and for the three months ended April 30, 2020, and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Consolidated Financial Statements as of and for the year ended January 31, 2020, the accompanying notes and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K for the year ended January 31, 2020.
We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period and the primary factors that accounted for those changes. We also discuss certain performance metrics that management uses to assess the Company's performance. Additionally, the discussion provides information about the financial results of each of the three segments of our business to provide a better understanding of how each of those segments and its results of operations affect the financial condition and results of operations of the Company as a whole.
Throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, we discuss segment operating income, comparable store and club sales and other measures. Management measures the results of the Company's segments using each segment's operating income, including certain corporate overhead allocations, as well as other measures. From time to time, we revise the measurement of each segment's operating income and other measures as determined by the information regularly reviewed by our chief operating decision maker.
Comparable store and club sales, or comparable sales, is a metric that indicates the performance of our existing stores and clubs by measuring the change in sales for such stores and clubs, including eCommerce sales, for a particular period from the corresponding prior year period. Walmart's definition of comparable sales includes sales from stores and clubs open for the previous 12 months, including remodels, relocations, expansions and conversions, as well as eCommerce sales. We measure the eCommerce sales impact by including all sales initiated digitally and those initiated through mobile applications, including omni-channel transactions which are fulfilled through our stores and clubs. Sales at a store that has changed in format are excluded from comparable sales when the conversion of that store is accompanied by a relocation or expansion that results in a change in the store's retail square feet of more than five percent. Additionally, sales related to acquisitions are excluded until such acquisitions have been owned for 12 months. Comparable sales are also referred to as "same-store" sales by others within the retail industry. The method of calculating comparable sales varies across the retail industry. As a result, our calculation of comparable sales is not necessarily comparable to similarly titled measures reported by other companies.
In discussing our operating results, the term currency exchange rates refers to the currency exchange rates we use to convert the operating results for countries where the functional currency is not the U.S. dollar into U.S. dollars or for countries experiencing hyperinflation. We calculate the effect of changes in currency exchange rates as the difference between current period activity translated using the current period’s currency exchange rates and the comparable prior year period’s currency exchange rates. Additionally, no currency exchange rate fluctuations are calculated for non-USD acquisitions until owned for 12 months. Throughout our discussion, we refer to the results of this calculation as the impact of currency exchange rate fluctuations. Volatility in currency exchange rates may impact the results, including net sales and operating income, of the Company and the Walmart International segment in the future.
Each of our segments contributes to the Company's operating results differently. Each, however, has generally maintained a consistent contribution rate to the Company's net sales and operating income in recent years other than minor changes to the contribution rate for the Walmart International segment due to fluctuations in currency exchange rates.
We operate in the highly competitive omni-channel retail industry in all of the markets we serve. We face strong sales competition from other discount, department, drug, dollar, variety and specialty stores, warehouse clubs and supermarkets, as well as eCommerce businesses. Many of these competitors are national, regional or international chains or have a national or international omni-channel or eCommerce presence. We compete with a number of companies for attracting and retaining quality employees ("associates"). We, along with other retail companies, are influenced by a number of factors including, but not limited to: catastrophic events and global health epidemics including the recent COVID-19 pandemic, weather, competitive pressures, consumer disposable income, consumer debt levels and buying patterns, consumer credit availability, cost of goods, currency exchange rate fluctuations, customer preferences, deflation, inflation, fuel and energy prices, general economic conditions, insurance costs, interest rates, labor costs, tax rates, the imposition of tariffs, cybersecurity attacks and unemployment. Further information on the factors that can affect our operating results and on certain risks to our Company and an investment in our securities can be found herein under "Item 5. Other Information."
14
COVID-19 Updates
Our strategy is to make every day easier for busy families, operate with discipline, sharpen our culture, become more digital, and make trust a competitive advantage. These areas of focus are fundamental in running our business every day, and even more so now as Walmart plays an important role during the current COVID-19 pandemic.
Supporting our associates. We remain focused on our strategy while also prioritizing the physical safety, financial health and emotional well-being of our associates. In the U.S., we provided extra pay and benefits, including the payment of a special cash bonus to hourly associates in the first quarter of fiscal 2021 and the introduction of a COVID-19 Emergency Leave Policy. In May 2020, we announced a second special cash bonus to be paid in the second quarter of fiscal 2021. We have also done similar things in some of our international markets to support and reward associates.
Serving our customers. From an operational standpoint, we reduced store hours to allow for additional cleaning and sanitizing, posted social-distancing decals, implemented protocols for temperature checks, began metering the number of customers in a store or club at any one time, and installed sneeze guards at pharmacies and checkouts. Stores, clubs, and facilities received masks and gloves, and associates are required to wear face coverings to protect both our associates and our customers. We hired more than 300,000 associates through May 2020 in the U.S., many of whom are temporary.
Helping others. We increased our giving to community organizations as well as continuing food donations from our stores and distribution centers. We supported tenants in various markets by waiving or discounting rent for in-store tenants during April 2020, which continued through May 2020. We have also made financial support available to our suppliers.
Managing the business and driving our long-term strategy. As we take care of associates, customers and communities, we continue to manage the business and drive our long-term strategy. We are maintaining our everyday low-price discipline and our omni-channel offering continues to resonate with customers around the world who are increasingly seeking convenience.
The COVID-19 pandemic resulted in broad challenges globally in the first quarter of fiscal 2021, including new and varying government regulations, stretching our supply chain, and introducing significant sales volatility as well as channel and mix shifts due to changing consumer habits. Unprecedented demand led to strong growth in net sales, but lower gross margin rates and higher operating expenses during the quarter. For a detailed discussion on results of operations by reportable segment, refer to "Results of Operations" below.
We expect continued uncertainty in our business and the global economy due to the duration and intensity of the COVID–19 pandemic; the length and impact of stay–at–home orders; the scale and duration of economic stimulus; and volatility in employment trends and consumer confidence which will impact our results in the short term.
In the current environment, we believe cash flows from operations, our current cash position and access to capital markets will continue to be sufficient to meet our anticipated operating cash needs, which include funding seasonal buildups in merchandise inventories and funding our capital expenditures, acquisitions, dividend payments and share repurchases. See "Liquidity and Capital Resources" for additional information.
Company Performance Metrics
We are committed to helping customers save money and live better through everyday low prices, supported by everyday low costs. At times, we adjust our business strategies to maintain and strengthen our competitive positions in the countries in which we operate. We define our financial framework as:
• | strong, efficient growth; |
• | consistent operating discipline; and |
• | strategic capital allocation. |
As we execute on this financial framework, we believe our returns on capital will improve over time.
The COVID-19 pandemic affected our business resulting in sales volatility within the first quarter and overall net sales growth. As our Company continues to respond to the COVID-19 pandemic, we have prioritized our focus on associate care, including extra pay and benefits as well as masks and gloves; increased cleaning and sanitation measures; customer safety; and new associate hiring. Additionally, we've delayed certain consulting projects and reduced marketing and travel in response to the COVID-19 pandemic.
15
Strong, Efficient Growth
Our objective of prioritizing strong, efficient growth means we will focus on the most productive growth opportunities, increasing comparable store and club sales, accelerating eCommerce sales growth and expansion of omni-channel initiatives while slowing the rate of growth of new stores and clubs. At times, we make strategic investments which are focused on the long-term growth of the Company.
Comparable sales is a metric that indicates the performance of our existing stores and clubs by measuring the change in sales for such stores and clubs, including eCommerce sales, for a particular period over the corresponding period in the previous year. The retail industry generally reports comparable sales using the retail calendar (also known as the 4-5-4 calendar). To be consistent with the retail industry, we provide comparable sales using the retail calendar in our quarterly earnings releases. However, when we discuss our comparable sales below, we are referring to our calendar comparable sales calculated using our fiscal calendar. As our fiscal calendar differs from the retail calendar, our fiscal calendar comparable sales also differ from the retail calendar comparable sales provided in our quarterly earnings releases. Calendar comparable sales, as well as the impact of fuel, for the three months ended April 30, 2020 and 2019, were as follows:
Three Months Ended April 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||