Walmart Reports Q3 2016
Earlier this week Walmart reported third quarter 2016 EPS of $1.03 and Walmart U.S. added $2.7 billion in sales with comp sales of 1.5 percent.
“We are pleased with the continued sales growth in Walmart U.S. and in our international business,” said Doug McMillion, president and CEO of Wal-Mart Stores, Inc. “Strong traffic and our fifth consecutive quarter of positive comps in Walmart U.S. stores show we are taking the right steps to win with customers. Although we still have work to do, we are positioning for sustainable growth through investments in people and technology to deliver a seamless shopping experience at scale.”
Here is a summary of the results:
- Q3 diluted EPS from continuing operations was $1.03, benefited by approximately $0.04 from an adjustment for certain leases. Currency negatively impacted EPS by $0.04.
- Total revenue was $117.4 billion. On a constant currency basis, total revenue was $122.4 billion, an increase of 2.8 percent.
- Comp sales at Walmart U.S. were positive for the fifth consecutive quarter, up 1.5 percent. Traffic increased 1.7 percent. Customer experience scores continued to strengthen. Neighborhood Market comps increased approximately 8 percent, with strong growth from newer stores.
- Walmart International net sales were $29.8 billion. On a constant currency basis, sales reached $34.7 billion, led by Mexico and Canada. Operating income decreased 6.4 percent. On a constant currency basis, operating income increased 8.5 percent.
- E-commerce sales and GMV globally increased approximately 10 percent on a constant currency basis. Growth was pressured by challenges in key international markets.
- Investments in people and technology continued. Consolidated operating income declined 8.8 percent. On a constant currency basis, consolidated operating income declined 5.4 percent.
Walmart paid $1.6 billion in dividends and repurchased approximately 6 million shares for $437 million. Return on investment for the trailing 12-months ended October 31, 2015, was 15.9 percent, compared to 16.4 percent for the prior comparable period. The decline in ROI was primarily due to a decrease in operating income, as well as continued capital investments. Free cash flow was $6.8 billion for the nine months ended October 31, 2015, compared to $7.2 billion in the prior year. The decrease in free cash flow was primarily due to lower income from continuing operations offset by the timing of payments.
As Walmart disclosed in the second quarter, it conducted a global review of leases, which included a focus on leases where Walmart’s payment of certain structural component costs during a lessor’s construction of the leased store causes it to be deemed the owner of the property for accounting purposes. In the third quarter, the company finalized this review and recorded an immaterial cumulative adjustment. On a consolidated basis, total assets increased by approximately $1.7 billion, primarily representing property under capital lease and financing obligations, total liabilities increased by approximately $1.6 billion, primarily representing additional current and long-term capital lease and financing obligations, and net income increased by approximately $100 million, positively impacting earnings per share by approximately $0.04.
Target Reports Q3 2015
Target Corporation reported third quarter 2015 adjusted earnings per share from continuing operations of $0.86, up 8.6 percent from $0.79 in 2014. GAAP EPS from continuing operations was $0.76, compared with $0.82 in third quarter 2014, reflecting asset-impairment, data breach, and restructuring expenses that were excluded from adjusted EPS. Third quarter GAAP EPS was $0.87, compared with $0.55 last year, as this year’s results reflect $0.11 of tax benefits related to investment losses in Canada, compared with $0.27 of after-tax losses related to Canadian operations in last year’s results.
“We’re pleased with our third quarter financial results, as both sales and adjusted earnings per share were near the upper end of our expectations,” said Brian Cornell, chairman and CEO of Target. “The third quarter marked the fourth consecutive quarter in which we have grown traffic, and Target’s sales growth continues to be led by our signature categories: Style, Baby, Kids, and Wellness. Our momentum is encouraging, especially in the face of stiffer prior-year comparisons. Our results highlight the benefit of a consistent, company-wide focus on our key strategic priorities, and that focus will continue to position Target well in the months and years ahead. As we look forward to the fourth quarter, our team is focused on strong execution throughout the holidays, and we are confident in our merchandising and marketing plans as we enter the most critical season of the year.”
Fiscal 2015 Earnings Guidance:
In fourth quarter 2015, Target expects adjusted EPS of $1.48 to $1.58, compared with $1.49 in fourth quarter 2014. The company now expects full-year 2015 adjusted EPS of $4.65 to $4.75, compared with prior guidance of $4.60 to $4.75.
Target’s full-year 2015 GAAP EPS will include the following items, which are excluded from adjusted EPS and reflected in year-to-date GAAP results through the third quarter:
- Restructuring costs of $135 million, or 13 cents per share
- Net pre-tax data breach expenses of $38 million, or 4 cents per share
- Pre-tax asset-impairment expenses of $39 million, or 5 cents per share
- A 1 cent per share benefit from the favorable resolution of various income tax matters
- A 6 cent per share benefit related to discontinued Canadian operations
Guidance for GAAP EPS does not include an estimate of future data breach-related expenses, restructuring costs, discontinued operations costs, the potential impact from the resolution of income tax matters, or any impact from the potential close of the pharmacy sale transaction with CVS.
Segment Results
Third quarter 2015 sales increased 2.1 percent to $17.6 billion from $17.3 billion last year, reflecting a 1.9 percent increase in comparable sales combined with sales from new stores. Digital channel sales grew 20 percent and contributed 0.4 percentage points to comparable sales growth. Segment earnings before interest expense and income taxes (EBIT) were $962 million in third quarter 2015, an increase of 5 percent from $916 million in 2014.
Third quarter EBITDA and EBIT margin rates were 8.6 percent and 5.5 percent, respectively, compared with 8.4 percent and 5.3 percent in 2014. Third quarter gross margin rate was 29.4 percent, compared with 29.5 percent in 2014, as benefits from a favorable merchandise mix and the comparison over last year’s intense promotional markdowns were offset by reimbursement pressure in Healthcare and the impact of investments in quality and innovation on the company’s owned and exclusive brands. Third quarter SG&A expense rate was 20.7 percent in 2015, compared with 21.1 percent in 2014, reflecting the discontinuation of an outdated retiree medical plan and continued expense discipline across the organization.
Interest Expense and Taxes from Continuing Operations
Target’s third quarter 2015 net interest expense was $151 million, compared with $146 million last year. Third quarter 2015 effective income tax rate from continuing operations was 34.3 percent, compared with 30.6 percent last year. Last year’s effective income tax rate benefited from the favorable resolution of various tax matters, which reduced tax expense by $30 million in third quarter 2014.
Capital Returned to Shareholders
Target returned $1,294 million to shareholders in third quarter 2015, representing more than 270 percent of net income from continuing operations.
- In the quarter, Target repurchased 12.1 million shares of common stock at an average price of $77.87, for a total investment of $942 million.
- Target also paid dividends of $352 million in the quarter, an increase of 6.7 percent from $330 million last year.
Year-to-date, the company has repurchased 27.3 million shares at an average price of $79.84, for a total investment of $2.2 billion. Under the current $10 billion share repurchase program, through third quarter 2015, Target has repurchased 77.2 million shares of common stock at an average price of $68.86, for a total investment of approximately $5.3 billion.
For the trailing 12 months through third quarter 2015, after-tax return on invested capital (ROIC) was 13 percent, compared with 11.2 percent for the 12 months through third quarter 2014, driven by higher profits on a stable base of invested capital.
Discontinued Operations
Third quarter net earnings from discontinued operations were $73 million, compared with after-tax losses of $174 million last year. Third quarter earnings from discontinued operations reflect tax benefits related to investment losses in Canada.
Hasbro Launches Companion Toy Brand for Seniors
Hasbro announced the Joy for All brand, which was designed for seniors. It launched last week with its first product line, Companion Pets. The brand was inspired by consumers and the development of Companion Pets was informed by extensive consumer research with older adults and their caregivers nationwide.
“We heard from seniors across the country that companionship was important to their happiness. Many live alone, miss having a pet, or are no longer able to care for a pet,” said Ted Fischer, vice-president of business development at Hasbro. “While it’s not a replacement for a pet, the Joy for All Companion Pet Cat is a life-like alternative that can provide the joy and companionship of owning a real pet, without the often cumbersome responsibilities.”
Joy for All Companion Pets build on Hasbro’s 15 years of expertise in animatronic technology and incorporate new innovations including exclusive technology that enables a purring experience the user can actually feel. Companion Pets respond to petting, hugging, and motion through built-in sensors, authentic cat sound effects, and soft fur inspired by real felines.
It is available for purchase on JoyForAll.com. The cat is offered in three different fur colors.
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