Walmart Inc. (WMT) Q4 2011 Earnings Report, Transcript and Summary

Welcome to the Wal-Mart Earnings Call for the Fourth Quarter of Fiscal Year 2011. The date of this call is February 22, 2011. This call is the property of Wal-Mart Stores, Inc. and intended solely for the use of Walmart shareholders. It should not be reproduced in any way. [Operator Instructions]. This call will contain statements that Wal-Mart believes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, and intended to enjoy the protection of the Safe Harbor for forward-looking statements provided by that Act. These forward-looking statements generally are identified by the use of the words or phrases anticipate, are expecting, are forecasting, assume, believe, continue to expect, expect, expectations, guidance, guiding, look forward, may affect, may contribute, our goal, plan, should begin, will allow, will be, will be extended, will change, will complete, will continue, will deliver, will grow, will have, will help, will improve, will invest, will leverage, will move forward, will not, will occur, will position, will provide, will reinforce, will set up and will support, or a variation of one of those words or phrases in those statements or by the use of words and phrases of similar import. Similarly, descriptions of Wal-Mart’s objectives, plans, goals, targets, or expectations are forward-looking statements. The forward-looking statements made in this call discuss, among other matters, management’s forecasts of Wal-Mart’s diluted earnings per share from continuing operations attributable to Wal-Mart for the quarter ending April 30, 2011 and the year ending January 31, 2012, and the assumption underlying those forecasts that currency exchange rates will remain at current levels, the anticipated capital expenditures, Wal-Mart and by each of its operating segments in fiscal 2012, the anticipated growth in square footage and in new, expanded and relocated stores and clubs for…

Good morning. This is Carol Schumacher, Vice President of Investor Relations for Wal-Mart Stores, Inc. Thanks for joining us today for our earnings call to review both the fourth quarter and the full year of fiscal 2011. All information for this quarter including updated unit counts, square footage and financial metrics, including ROI, are available on our website at walmartstores.com/investors. A full transcript of the call will be available on the website as well around 7:00 a.m. Central Time today, February 22, 2011. Today, you'll hear from key Wal-Mart leaders, starting with Mike Duke, President and CEO of Wal-Mart Stores, Inc., for the opening comments and key highlights of the quarter and the year; Jeff Davis, in his first call as Wal-Mart’s Treasurer, will cover the consolidated financial details. As you'll see from our press release, we do have some noise with our numbers. Then we'll go to the operating segments. First up this time will be Brian Cornell, President and CEO of Sam's Club; Doug McMillon, President and CEO of Wal-Mart International, will also have highlights on our largest countries within international. We will close the segment discussion with Bill Simon, President and CEO of Wal-Mart U.S. Finally, our CFO, Charles Holley, will cover our financial report card and a variety of points on guidance. Before we start to discuss our performance for the quarter, there are a few items to keep in mind as you listen to the results. First, we had certain items that affected our fourth quarter EPS last year, as well as an accounting change in fiscal 2011 that affected last year. These items need to be considered for comparison purposes. Second, as a reminder, we had a tax benefit from the third quarter, which we reported in November. The tax benefits from the third…

Thank you, Carol, and thank you all for joining us. We are pleased with our strong earnings performance for both the quarter and the full year across our three operating segments. At the same time, we are disappointed by our Wal-Mart U.S. fourth quarter sales. Earnings per share for both the fourth quarter and the full year exceeded the guidance we provided last quarter. We are reporting $1.41 per share for the quarter and $4.18 per share for the full year. These numbers include certain tax benefits that positively impacted EPS, and Jeff will cover this shortly. Based on the underlying performance of the company, our earnings per share were $1.34 for the fourth quarter, which exceeded First Call consensus and our guidance. Wal-Mart increased net sales from the previous year by almost $14 billion to $419 billion. As a company, we leveraged the expenses for the quarter and the year, reinforcing our commitment to the productivity loop and EDLC. Operating income rose to more than $25 billion for the full year, a 6.4% increase over what we reported this time last year. We continue to deliver strong free cash flow, closing the year with almost $11 billion. We met our goal to deliver stable return on investment, and finished the year again with ROI above 19%. For the year, we returned a record $19.2 billion to shareholders through both dividends and share repurchase. Let me pause for a moment. $19.2 billion return to shareholders. Now that was worth repeating. However, as I said, sales for Wal-Mart U.S. were below our expectations for the fourth quarter. The team did manage expenses well during the quarter and contributed operating income growth of almost 5%. Bill has a clear vision today of the underlying issues, and his action plan addresses the areas…

Thanks, Mike. For the fourth quarter of fiscal 2011, Wal-Mart delivered income from continuing operations of $5 billion, an increase of 4.3% from last year. Reported earnings per share from continuing operations attributable to Wal-Mart were $1.41, an increase of 11.9% compared to $1.26 for the fourth quarter last year. We have some noise in both this year's and last year's earnings per share numbers that I would like to explain further. This year, we recorded $243 million of net tax benefits, primarily from the repatriation of certain non-U.S. earnings that increased U.S. foreign tax credits. This net tax benefit added approximately $0.07 to our reported EPS of $1.41 for the fourth quarter. By comparison, last year's $1.26 per share had both a benefit and a charge in the fourth quarter. First, we incurred charges for several business restructurings in the amount of $260 million, or $162 million after-tax. These charges reduced our reported EPS by approximately $0.04 per share. Second, we recorded $372 million of net tax benefits primarily from the repatriation of certain non-U.S. earnings that increased U.S. foreign tax credits. These net tax benefit added approximately $0.09 to our reported EPS. In summary, our fourth quarter underlying EPS grew 10.7% from $1.21 last year to $1.34 this year, which was above our guidance of $1.29 to $1.33 per share. The $1.34 earnings per share points to the strength of our consolidated business. For the full year, earnings from continuing operations attributable to Wal-Mart were $15.4 billion, an increase of 6.3% over last year. For the fiscal year, reported earnings per share and underlying earnings per share from continuing operations were $4.18 and $4.07, respectively versus our adjusted EPS of $3.73 and underlying EPS of $3.67 last year. The underlying $4.07 excluded certain tax benefits recorded in the…

Thank you, Jeff. As I've shared with you during the fiscal year, our strategy is to meet our members' needs and deliver on the Sam's Club brand promise of simplifying our members' lives by helping them make smart choices. We achieved that promise by understanding what our members want and providing the merchandise they want at the quality and value they expect. It's important to remember that in last year's fourth quarter, we took a charge for restructuring our operations related to the closure of 10 clubs. Our discussion today therefore excludes that charge of $174 million for comparative purposes. I am very excited to share our results with you today. As they indicate, Sam's members are responding to the offering and experience in our clubs. We had a strong quarter and are very pleased with our club performance. Thanks to the efforts of our dedicated managers and associates, we grew sales and operating profit, as well as leveraged expenses for the quarter and the fiscal year. Let's start with the fourth quarter results. Comp club sales, excluding fuel, increased 2.7% for the 13-week period ending January 28, 2011. I am very pleased to share with you that we were at the top end of our guidance of a comp club increase of 1% to 3% for the fourth quarter. As Mike mentioned, Sam's reported sequential comp improvement quarter-by-quarter throughout the year. Overall, comp ticket and traffic, excluding fuel, increased for the 13-week period by 210 and 70 basis points, respectively. We are also pleased that our members, both Business and Advantage, visited with us more often and put more items in their basket and flat beds during the quarter. Sales during the quarter were particularly strong in fresh foods and grocery, health and wellness, home and apparel categories. Sam's…

Thanks, Brian. This year has been another one of meaningful achievement for the team in Wal-Mart International, both in financial terms and in our positive impact in the communities we serve around the world. Our financial goals remain grounded in growth, leverage and returns, and Wal-Mart International continues to have strong growth in both net sales and operating income. On the topic of growth, I'm pleased to say that we've met our goals of opening locally relevant formats as we discussed in the October meeting for the investment community. In fiscal 2011, our organic growth included 458 net new stores, representing an 11.2% increase in store count and a 7.8% increase in square footage. This growth includes 282 new stores in smaller formats, each less than 40,000 square feet. In addition to comp store sales growth and the delivery of our new stores, we are excited about our pending investment in South Africa and the sub-Saharan region of Africa. In addition, we continue to work towards completion of our acquisition of the Netto stores in the U.K. Given that we're recapping the end of the year, please allow me to take just a minute and highlight some of the successes our teams have delivered beyond the quarterly financial results. For the second year in a row, Wal-Mart Central America was named the Most Admired Multinational Company in Central America. Wal-Mart China received several honors including the Best Retail Place to Work and a China Best Employer. Our ASDA team in the U.K. was selected as Britain's Best Value Retailer for the 12th consecutive year. In addition, Wal-Mart Mexico's foundation received the prestigious 2010 World Business and Development Award granted by the United Nations development program, the International Chamber of Commerce and the International Business Leaders Forum. The award recognized the…

Thank you, Doug. As Mike said, we were disappointed with our sales performance. Our 1.8% comp decline for the fourth quarter didn't meet anyone's expectations. They certainly didn't meet mine, period. For the fourth quarter and the full year, we again delivered strong operating income and we continue to leverage operating expenses. The P&L is in excellent shape, all we need is top line growth. Let me start with the fourth quarter recap of merchandising and I'll get into financial results for the quarter and the full year and wrap up with a look at our expectations going forward. Certainly as others have reported, whether an individual tax refund loan delays or headwinds for the fourth quarter sales, but the primary factor for our negative comp sales performance was General Merchandise and more specifically, electronics. It's no surprise that General Merchandise makes up a larger percentage of our sales mix for the fourth quarter, and electronics, which comprises the largest portion of the overall General Merchandise sales mix, had continued price deflation. Despite the price pressure on TVs, we still had positive unit growth and we grew market share. There are some bright spots in electronics. Though you may not have seen it on the sales line, we again had very strong sales of our prepaid wireless products in the fourth quarter. But recall, that we can only account for commission on sales of prepaid wireless products and services, as well as third-party gift cards. Had we been able to account for the full sale, we would have added 60 basis points to the fourth quarter comps. I'm pleased with our sales performance in Food and Health and Wellness businesses. Food, our largest business, delivered positive low single-digit comps in the fourth quarter. We believe the additional assortment we put…

Thanks, Bill. Let's get right into our financial scorecard. First, growth. Despite continued economic headwinds, we grew both sales and square footage. Sales were up 2.5% for the quarter and 3.4% or almost $14 billion for the year. By adding 511 net units this year, we continue to provide access for customers to save money so they can live better. Net square footage increased by approximately 33 million square feet, to almost 985 million square feet at the end of the year. Wal-Mart International alone contributed over 20 million square feet or more than 60% of this year's increase. Much of this growth in International was focused on emerging markets, where we believe there are excellent growth and return prospects. We plan to deliver square footage growth of 3% to 4% and we were just about in the middle, growing selling space by 3.4% for the year. We continue to expect to increase square footage between 3% to 4% for fiscal 2012, and this takes into account our move in the U.S. towards smaller, more productive supercenters. Next metric, leverage. Our focus on the productivity loop has been a company priority for just over a year. We are proud that the company leveraged expenses now for five consecutive quarters. All segments contributed to the company leveraging expenses for the year. Their continued focus has helped make a significant contribution to our bottom line. This will continue to be an important focal point. One area where I can say I'm proud of our progress on leverage is in unallocated corporate overhead. The focus of our corporate support teams paid off with a year-over-year decline in corporate expenses. Looking forward to fiscal 2012, we have some planned investments in global e-commerce which will be reflected in unallocated corporate overhead. These are strategically…