Walmart Reports Q1 2016
Walmart reported its first quarter 2016 results earlier this week. The retailer reported that first quarter diluted EPS from continuing operations was $1.03, within guidance of $0.95 to $1.10.
“We had a solid first quarter,” said Doug McMillon, president and CEO, Walmart Stores, Inc., in a statement. “We took some important strategic steps to strengthen the foundation of our business for the future. We need to continue to get better at consistently running great stores, clubs, and e-commerce everywhere we operate. . . and we are.”
Walmart reported the following snapshot of its financial results:
• Currency negatively impacted EPS by approximately $0.03.
• Walmart U.S. 1.1 percent comp includes positive traffic for the second consecutive quarter. Customer experience scores improved in all formats. Customers benefited from lower gas prices. E-commerce sales globally increased approximately 17 percent.
• Consolidated operating income declined 8.3 percent due to impacts from currency fluctuations and investments in associate wages and training as well as e-commerce.
• Net sales in U.S. stores were up 3.5 percent from 67.9 billion in Q1 2015 to $70.2 billion in Q1 2016
• Net sales for Walmart International were down 6.6 percent from $32.4 billion in Q1 2015 to $30.3 billion in Q1 2016.
“Based on our views of the global macro-economic environment, and assuming currency exchange rates remain at current levels, we expect second quarter fiscal 2016 earnings per share to range between $1.06 and $1.18,” said Charles Holley, executive vice-president and CFO, Walmart Stores, Inc. “Our second quarter guidance includes the impact of approximately $0.04 per share from our previously announced investments in both U.S. associate wages and training, as well as $0.04 per share from currency.”
Target Reports Q1 2015
Target Corporation reported first quarter 2015 adjusted earnings per share from continuing operations of $1.10, up 19.6 percent from $0.92 in 2014.
“We’re pleased with our first quarter traffic and sales, particularly in our signature categories, which drove better-than-expected profitability through improved gross margin and continued expense management,” said Brian Cornell, chairman and CEO of Target. “We’re encouraged to see early progress on our strategic priorities, including strong sales growth in Apparel, Home, and Beauty, nearly 40 percent growth in digital sales, and positive traffic in both our stores and digital channels. We continue to benefit from strong execution by our stores’ team, who overcame weather challenges and West Coast port delays to deliver outstanding guest service in the first quarter.”
Fiscal 2015 Earnings Guidance
In second quarter 2015, Target expects adjusted EPS of $1.04 to $1.14, compared with $1.01 in second quarter 2014. The company now expects full-year 2015 adjusted EPS of $4.50 to $4.65, compared with prior guidance of $4.45 to $4.65.
Segment Results
First quarter 2015 sales increased 2.8 percent to $17.1 billion from $16.7 billion last year, reflecting a 2.3 percent increase in comparable sales combined with sales from new stores. Digital channel sales grew 37.8 percent and contributed 0.8 percentage points to comparable sales growth. Segment earnings before interest expense and income taxes (EBIT) were $1.261 billion in first quarter 2015, an increase of 19.7 percent from $1.053 billion in 2014.
First quarter EBITDA and EBIT margin rates were 10.5 percent and 7.4 percent, respectively, compared with 9.4 percent and 6.3 percent in 2014. First quarter gross margin rate was 30.4 percent, compared with 29.5 percent in 2014, reflecting the benefit of annualizing heightened promotional markdowns in first quarter 2014 combined with favorable merchandise mix in first quarter 2015. First quarter SG&A expense rate was 19.9 percent in 2015, compared with 20.1 percent in 2014, as cost savings initiatives offset increased technology expense.
Capital Returned to Shareholders
The retailer returned $895 million to shareholders in first quarter 2015, representing more than 140 percent of net income. Target returned cash through share repurchase for the first time since the second quarter of 2013, with purchases in the first quarter of $562 million in shares of common stock, including:
• Open market transactions that retired 3.6 million shares of common stock at an average price of $81.74, for a total investment of $297 million.
• An accelerated share repurchase (ASR) agreement that retired 3.3 million shares of common stock at an average price of $80.74, for a total investment of $265 million. Final settlement of the ASR occurred in May, and 1.1 million of the 3.3 million shares repurchased through the ASR were delivered in the second quarter.
In addition, through non-cash settlements of prepaid forward contracts related to non-qualified deferred compensation plans, Target retired 0.1 million shares of common stock at an average price of $41.13, for a total investment of $3 million. Target paid dividends of $333 million during first quarter 2015, compared with $272 million in first quarter 2014.
Discontinued Operations Update
As of April 12, 2015, Target Canada Co. completed its inventory liquidation efforts and closed the last of its 133 Canadian retail stores. A court-approved real estate sales process is underway and expected to be complete by the end of June 2015. Consistent with expectations, after-tax losses from discontinued operations were $16 million in the first quarter of 2015, compared with $153 million last year.
Data Breach Update
Target incurred breach-related expenses of $3 million in first quarter 2015, compared with $18 million of net pre-tax expense last year. Since fourth quarter 2013, Target has incurred net expense related to the data breach of $166 million, reflecting $256 million of gross expense, partially offset by the recognition of a $90 million insurance receivable.
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