WMT: Strong Earnings, Weak Outlook

Wal-Mart Stores Inc. (WMT: 53.47 -0.59 -1.09%) reported better-than-expected fourth-quarter 2010 results, but provided a tepid outlook for the coming quarter. The retailing giant reported adjusted quarterly earnings of $1.17 per share, beating the Zacks Consensus estimate of $1.12 per share.

Management had guided towards an EPS range of $1.08 to $1.12 per share in November last year. The company had earned $1.03 per share in the year-ago period. The guided range for the first quarter 2010 earnings is towards the lower end of current expectations.

Wal-Mart’s net sales recorded growth of 4.6% to $112.8 billion from $107.9 billion in the year-ago quarter. The expansion was primarily driven by a robust 19.5% expansion in the International segment, which was benefited by favorable currency translations, coupled with a 3.8% growth in the Sam’s Club segment. However, overall top-line growth was partially offset by 0.5% decline in Wal-Mart’s U.S. segment.

Wal-Mart, widely regarded as a bellwether for the U.S. economy, stated that U.S. same-store sales decreased 2.0% year-over-year, while that for Sam’s Club grew slightly, by 0.7%.

Customers battered by one of the worst recessions in decades are preferring to shop more in discount department stores such as Wal-Mart instead of non-discount-oriented retailers. However, the company remains affected by high unemployment in the U.S., which has adversely affected consumer disposable incomes.

Meanwhile, quarterly operating income grew by 13.8% year-over-year to $7.3 billion, while operating margin increased by 50 basis points to 6.4%. The growth was primarily caused by lower cost of sales, stringent management control over expenses and favorable foreign currency translations.

For the entire fiscal 2010, Wal-Mart generated a record free cash flow of $14.1 billion, a growth of 21% over $11.6 billion in the year-ago period, mainly due to better operating performance and prudent inventory management. During the fiscal year, the company deployed $12.2 billion towards capital expenditures, $7.3 billion towards share buybacks, $6.0 billion towards repayment of long-term debt and $4.2 billion towards payment of dividends.

Looking ahead, Wal-Mart expects fiscal 2011 earnings from continuing operations to range between $3.90 and $4.00 per share. For the first quarter of fiscal 2011, management is guiding towards earnings in the range of 81 cents and 85 cents per share. The current Zacks Consensus estimates for the full year and first quarter are $3.97 and 85 cents a shares, respectively.

Same-store sales for Wal-Mart U.S. in the first quarter are expected to be flat, +/- 1%, while Sam’s Club same-store sales during the same period are also forecasted to be flat, +/- 1%.