Wal-Mart Slides, Free Cash Flow Fails To Cover Dividends And Buybacks

Despite reporting strong earnings which beat on both the top and bottom line in today's most anticipated earnings report, Walmart stock is down 3%, sliding to the lowest level since late July after it provided full year EPS guidance whose midpoint was below Wall Street expectations.

First, here are WMT's otherwise respectable historical results.

  • Q2 adj. EPS $1.08, beating est. $1.07, on the top end of the $1.00- $1.08 range
  • Q2 revenue $123.4BN, beating est. $123.05b
  • Total U.S. comps. ex-fuel up 1.7%, in line with consensus est. of 1.7%
  • Wal-Mart U.S. comps. up 1.8%, est. up 1.8%; forecast up 1.5%-2.0% in Feb.
  • Wal-Mart U.S. traffic up 1.3% y/y, avg ticket up 0.5%
  • Wal-Mart U.S. E- commerce sales up 70 bps y/y, GMV up 67%

Sam's Club results were a little weaker, with comps of 1.2% missing expectations of 1.4% increase, as a result of the average ticket down 0.9% despite a 2.1% increase in traffic.

  • Sam’s Club comps. ex- fuel up 1.2%, est. up 1.4% (Consensus Metrix); co. saw up 1%-1.5%
  • Sam’s Club traffic up 2.1%, avg ticket down 0.9%

Meanwhile, as Bloomberg notes, Costco, Sam’s Club main competitor, reported monthly comp. sales ahead of estimates in each of May, June, and July

And while WMT's historical data was solid across the board, traders were concerned with the company's guidance:

  • Sees 3Q EPS 90c-98c vs est. 98c (range 90c-$1.05)
  • Sees 3Q Wal- Mart U.S. comp. sales ex-fuel up +1.5%-2%
  • Sees 3Q Sam’s Club ex- fuel comps. up 1%-1.5%

But the biggest red flag was the full year adjusted EPS forecast, which at $4.30-$4.40 (vs the previous $4.20-$4.40), the midpoint of which trailed the consensus estimate of $4.39.

Finally, in terms of cash flow, Wal-Mart reported a sharp drop in YTD operating cash flow, which declined by $3.6 billion, and with CapEx largely unchanged, YTD Free Cash Flow of $6.9 billion was $3.4 billion worse than the year ago period. This is troubling because as the table below shows, WMT used up more than 100% of its YTD free cash flow to fund dividends of $3.1 billion and stock buybacks $4.4 billion for the first 6 months of the year. Should the FCF decline acceleate, how long until WMT's sacrosanct dividend (or buyback) is in jeopardy?

As a result, the stock was down as much as 3.0% in the pre-market, sliding to three week lows.

Full earnings presentation here.

Comments

Hammer823 Thu, 08/17/2017 - 08:20 Permalink

No worries.  Walmart's stock is heavily subsidized by the Government through SNAP, Disability, SS, and a myriad of other income redistribution programs.Just like the stock market is heavily subsidized by the Fed, Instituions, and the global Central Bank cartels.   

Paul Kersey Hammer823 Thu, 08/17/2017 - 08:20 Permalink

Aldi's, which opened up right across the street from our newer Walmart super center, undercut the hell out of Walmart's food prices. Consequently, Walmart has had to lower its prices to keep customers. That has to be cutting into its bottom line.

Aldi's is planning on going head-to-head against Walmart all over the country. The dollar stores are also cutting into Walmart's customer base. Walmart, which has used predatory pricing against other grocery stores, may be finding out that "he who lives by the sword, dies by the sword".

In reply to by Hammer823

GUS100CORRINA Handful of Dust Thu, 08/17/2017 - 09:02 Permalink

Wal-Mart Slides, Free Cash Flow Fails To Cover Dividends And BuybacksMy response: Many companies in America are in the same place including many of the companies who were ONCE part of President TRUMP's advisory council.I am truly disappointed by many of these fine leaders who call themselves CEOs.They are nothing but WOLVES in SHEEP's clothing pretending to be patriots, but in the end they are obedient to only the wicked one.

In reply to by Handful of Dust

Thrash Paul Kersey Thu, 08/17/2017 - 08:28 Permalink

Wait until LIDL hits here. ALDI can charge less because they don't sell brand names. You know the mindset of people today that can't buy generic shit and have to buy brand name shit even though it's the same shit. I still find Walmart to be cheapest in my area and if they aren't on certain things, their Savings Catcher program reimburses me the difference if a competitor is selling it for less.

In reply to by Paul Kersey

RedBaron616 Thrash Thu, 08/17/2017 - 09:50 Permalink

Lidl just opened up here about 6 months after ALDI. I think ALDI has the upper hand in terms of prices. Lidl has a bigger store, but that means they need to move more product.In my area, Walmart can't hold a candle to ALDI. Matter of fact, one ALDI moved directly across from Walmart. ALDI and other German discounters drove Walmart out of Germany. Every time Walmart cut their prices, ALDI and company did the same.

In reply to by Thrash

RedBaron616 Hammer823 Thu, 08/17/2017 - 09:41 Permalink

Yes, but unlike Walmart checkers, ALDI checkers move and get the line moving. Why do you think prices are so cheap? They don't have 5 useless checkers moving like snails like Walmart does.Pay more. Your choice. If you think Walmart checkout is fast, you must be checking yourself, in which case they fooled you into doing their job!

In reply to by Hammer823

Harry Lightning Thu, 08/17/2017 - 08:16 Permalink

You think guidance is bad now, wait till you see how bad earnings are now that the CEO made his disgusting lie-filled screed against the President.I will shop at any possible place other than WalMart just to punish the company for their support of perversity through diversity, and discriminating against White people to do it.

mellowde Cathay Kid Thu, 08/17/2017 - 13:04 Permalink

...and put the jet exexutives in charge of walmart's web site...which is why their web site is so pitiful with descriptions lacking vital information such as size and weight, etc...no walmart is still headed downhill...the bigger they are the harder they fall...I stopped shopping in their stores 8 years ago due to the rat-like-maze layout which pits customers against each other...narrow aisles with displays blocking pathway, etc....and poor quality and no savings....I just stopped punishing myself....the regular grocer down the street has better quality and I average about the same per week spent and am much more happy....

In reply to by Cathay Kid

Paul Kersey small axe Thu, 08/17/2017 - 08:25 Permalink

"and take its cheap junk and cheap jobs with it."

Walmart is America's largest private employer by a wide margin.

https://en.wikipedia.org/wiki/List_of_largest_employers_in_the_United_S…

If those cheap jobs go, then debt-serfs on taxpayer paid for welfare will grow. Working for low Walmart wages is bad, but not working at all is worse. Be careful what you wish for.

In reply to by small axe

PT mellowde Fri, 08/18/2017 - 00:03 Permalink

Welcome to the Club.  Many years ago I decided that if a job does not pay enough money to get you back to work the next day then it is not a job.  It is a hobby.  Perhaps a very unpleasant hobby, but a hobby none-the-less.Think of rich people who have "hobby farms".  It would not surprise me in the least if some of those farms do not run at a profit, hence the pre-fix "hobby" to "farm".  At least the rich guy enjoys his farm.  But I would be equally unsurprised if some of those farms DO make a profit - the guy running it, by definition, knows a thing or two about creating profitability and that could easily be a major consideration for his operations.  Hence some hobby farms would be more profitable than most jobs ... or at that point, the rich guy drops the "hobby" pre-fix and just calls it a farm... which is a long-winded way of re-iterating:  If you have a "job" and yet still need to rely on hand-outs to survive then you do not have a job.  You have a (most probably unpleasant) "hobby".

In reply to by mellowde

I am Jobe Thu, 08/17/2017 - 08:23 Permalink

I guess Christmas is gonna be bleak but then again Murikans will line up to buy crap all the time. Shame on Murikans not knowing how royally fucked they are . 

meterman Thu, 08/17/2017 - 08:39 Permalink

Last year TARGET management come out for that criminal Hillary and the Socialist Democrat party. Their sales plummeted. Watch for the same result at Walmart. 

Handful of Dust meterman Thu, 08/17/2017 - 08:56 Permalink

Target has never recovered after their alt left suppport for the crook and Obama's tranny bathroom policies.  And then there was their cover up of the credit card breach where they allegedly knew of the hack but hid it from customers: Target Settles 2013 Hacked Customer Data Breach For $18.5 Million http://www.nbcnews.com/business/business-news/target-settles-2013-hacke…

In reply to by meterman

pliny the longer Thu, 08/17/2017 - 08:39 Permalink

any day seeing the wal mart greeter guy is a good day.  agreed with consensus here, F wal mex.  absolutely disgusting place, hood rat central.  still can't get past the 74 checkout lanes with 2 open by a stoned out obese tatted up loser.  just WTF 

just the tip pliny the longer Thu, 08/17/2017 - 11:24 Permalink

the last time i was in sam's, i noticed a checkout person / girl similar, but different from your description.mid-20s.  black hair, not dyed. beautiful face/complexion.  immaculate make-up, not too much, but you could tell it took time.  great rack.  tight black tee shirt.  tee shirt read, "ride or die".  did i mention, she had a great rack?  both arms tatted completely to the wrist.my point is, i was thinking of being a wal-mart HR person interviewing her for employment.  and staring.  the conversation would go something like:HER:  do you have a problem with tattoos?ME:  no.HER:  then why are you staring?ME:  i'm staring at your tits.after going after the tattoo issue first, for staring, her lawsuit would look like she was grabbing straws for the tits comment. she did have a great rack.

In reply to by pliny the longer

ludwigvmises Thu, 08/17/2017 - 08:43 Permalink

Remember all those idiots who bought supposedly safe dividend stocks because they yield more than treasury bonds? Guess what, US government bond yields are NOT cut. Dividends get cut all the time.

Murderface Thu, 08/17/2017 - 08:59 Permalink

Good.  Fuck them.   I'll never shop there again after those comments.Anyway, the characters that go to Walmart make it a place I don't wish to visit.  80% of the people shopping there are either illegal aliens or criminals.