Walmart: Q4 earnings beat, sales weak, outlook tepid

Walmart overcame a weak fourth-quarter sales performance by its U.S. division to produce adjusted earnings per share from continuing operations of $1.17, handily exceeding analysts’ consensus estimates of $1.12.

Total company fourth-quarter sales increased 4.6% to $112.8 billion from $107.8 billion, including $1.9 billion benefit related to foreign currency fluctuations and the inclusion of sales from an acquisition in Chile completed a year ago. Adjusted earning from continuing operations increased 5.2% to $14.2 billion compared with $13.5 billion.

“Walmart’s exceptional earnings for the fourth quarter and the full year exceeded our expectations,” company president and CEO Mike Duke said in a prepared statement. “These results reflect the ongoing underlying strength of our business and our strategies to improve shareholder value through our priorities -- delivering growth, leveraging expenses and improving returns.”

According to Duke, the company successfully shifted the productivity loop into higher gear as it diligently managed its business and tightly controlled expenses and remains committed to that philosophy in the year ahead.

“We plan to grow expenses slower than the rate of sales in the new fiscal year,” Duke said.

Despite the profit performance, the U.S. stores division experienced a 2% same-store sales decline and badly missed the company’s guidance provided at the end of the third quarter, which called for comps in a range of negative or positive 1%. The company said the decline was primarily due to deflation in the food and electronics categories. The weak top line was offset by extensive cost-cutting, which enabled the division to grow operating income by 4.5% to a record $19.5 billion as inventory levels were reduced by 7.6%, driven in part by deflation. Expectations for the first quarter remain modest with comps expected to be flat, plus or minus 1%

Sam’s Club produced a 0.7% same-store sales increase the company characterized as solid, and, when a fourth quarter restructuring charge of $174 million is excluded, adjusted operating income increased 9.4% to $479 million from $438 million.

The international division grew fourth-quarter sales 19.5% to $29.6 billion, but when adjusted for a $1.9 billion foreign exchange benefit, sales advanced 11.8%. International operating income increased nearly 27% to $1.9 billion, including a currency exchange benefit of $122 million.

Regardless of Walmart’s top line challenges, the company is a cash machine, and last year saw its free cash flow increase 21% to $14.1 billion compared with $11.6 billion the prior year. Much of that money went back to shareholders in the form of dividend payments that totaled $4.2 billion and share repurchases that totaled nearly $7.3 billion. The company ended the year with $7.9 billion in cash and equivalents on its balance sheet.