How a Penny May Be Keeping Walmart Stock From Sinking

Walmart Inc. (NYSE: WMT) reported fourth-quarter and fiscal year 2020 results before markets opened Tuesday. The retailing giant posted adjusted diluted quarterly earnings per share (EPS) of $1.38 on net sales of $141.7 billion, including membership fees in Sam’s Club. In the same period a year ago, Walmart reported EPS of $1.41 on sales of $138.8 billion. Fourth-quarter results also compare to consensus estimates for EPS of $1.43 and $142.5 billion in sales.

For the full year, Walmart reported adjusted EPS of $4.93 on revenues of $519.9 billion, compared with 2019 results of $4.91 on revenues of $510.3 billion. Analysts were looking for EPS of $4.99 and revenues of $525.1 billion.

Fiscal year operating cash flow slipped $2.5 billion to $25.3 billion, and free cash flow slipped by $2.9 billion to $14.6 billion. Dividend payments for the year totaled $6 billion, down 0.9% year over year, and share buybacks were down 22.8% to $5.7 billion. Combined, shareholder returns dropped 12.9% to $11.8 billion.

CEO Doug McMillon said:

 In Q4, we saw strong performance in the U.S. with eCommerce and Sam’s Club plus strength in Mexico, India and China. We started and finished the quarter with momentum, while sales leading up to Christmas in our U.S. stores were a little softer than expected.

Chief Financial Officer Brett Biggs also commented:

The fourth quarter started and ended strong with solid sales growth through Cyber Monday and in January. In the few weeks before Christmas, we experienced some softness in a few general merchandise categories in our U.S. stores. … The holiday season delivered positive transaction growth and underlying expense leverage was strong for the quarter. However, it wasn’t as good as expected due to lower sales volumes and some pressure related to associate scheduling.

For fiscal 2021, the company guided net sales growth to around 3% in constant dollars (pencils out to $535.5 billion). Comparable U.S. store sales are expected to rise 2.5%, excluding fuel sales, while Sam’s Club comparable sales are expected to slip by 0.5% but rise by at least 3%, excluding fuel and tobacco sales. Reduced tobacco sales at Sam’s Club in the 2020 fiscal year lowered comparable-store sales by 3.1%.

Walmart forecast adjusted EPS for the year at $5.00 to $5.15, an increase of 1.5% to 4.5% compared with fiscal 2020. Capital spending is expected to total around $11 billion, about 2.8% above the prior year’s total. Analysts were forecasting 2021 adjusted EPS at $5.22 on revenues of $541.9 billion.

Costs and expenses drove operating income down 12.3% in the quarter and 6.3% for the year. Fourth-quarter transactions rose 1% year over year, and the average ticket rose by 0.9% at the company’s U.S. Walmart supercenters. Sam’s Club transactions rose by 4.3%, but the average ticket was down 3.5%.

In a separate announcement, Walmart announced an annual increase in the company’s dividend payment from $2.12 to $2.16 per share. That won’t change the dividend yield of 1.8% by much.

After dropping more than 2% in Tuesday’s early premarket trading, shares have recovered slightly to trade down about 0.6% at $117.13 with more than two hours left before the opening bell. The stock’s 52-week range is $95.00 to $125.38, and the consensus price target before results were reported was $130.28.

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