Wal-Mart Stores Inc. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.
Wal-Mart Stores Inc.’s analysis versus peers uses the following peer-set: Amazon.com, Inc. (NASDAQ:AMZN), Costco Wholesale Corporation (NASDAQ:COST), Target Corporation (NYSE:TGT), Dollar General Corp. (NYSE:DG), Macy’s, Inc. (NYSE:M), Kohl’s Corporation (NYSE:KSS), Dollar Tree, Inc. (NASDAQ:DLTR), Family Dollar Stores, Inc. (NYSE:FDO), Sears Holdings Corporation (NASDAQ:SHLD) and J.C. Penney Company, Inc. (NYSE:JCP). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
For CapitalCube’s Earnings Analysis of Macy’s Inc. (M) click here.
|Quarterly (USD million)
|Revenue Growth %
|Net Income Growth %
|Net Margin %
|ROE % (Annualized)
|ROA % (Annualized)
Wal-Mart Stores Inc. currently trades at a higher Price/Book ratio (3.1) than its peer median (2.3). WMT-US’s operating performance is higher than the median of its chosen peers (ROE of 23.5% compared to the peer median ROE of 18.9%) but the market does not seem to expect higher growth relative to peers (PE of 14.1 compared to peer median of 15.7) but simply to maintain its relatively high rates of return.
The company’s median net profit margins of 3.6% and relative asset efficiency (asset turns of 2.3x compared to peer median of 1.7x) give it some operating leverage. Wal-Mart Stores, Inc. (NYSE:WMT)’s net margin is similar to its five-year average net margin of 3.5%.
Wal-Mart Stores, Inc. (NYSE:WMT)’s revenues have changed in-line with its peers (year-on-year change in revenues is 5.9%) but its earnings have lagged (annual reported earnings have changed by 2.7% compared to the peer median of 4.8%), implying that the company has less control over its costs relative to its peers. WMT-US is currently converting every 1% of change in revenue into 0.5% change in annual reported earnings.
Wal-Mart Stores, Inc. (NYSE:WMT)’s return on assets is above its peer median both in the current period (8.3% vs. peer median 6.3%) and also over the past five years (8.4% vs. peer median 6.1%). This performance suggests that the company’s relatively high operating returns are sustainable.
The company’s gross margin of 26.3% is around peer median suggesting that WMT-US’s operations do not benefit from any differentiating pricing advantage. In addition, Wal-Mart Stores, Inc. (NYSE:WMT)’s pre-tax margin of 5.5% is also around the peer median suggesting no operating cost advantage relative to peers.
Growth & Investment Strategy
While WMT-US’s revenues growth has been below the peer median in the last few years (3.4% vs. 4.7% respectively for the past three years), the market still gives the stock an about peer median PE ratio of 14.1. The market seems to see the company as a long-term strategic bet.
WMT-US’s annualized rate of change in capital of 5.1% over the past three years is higher than its peer median of 1.9%. This investment has generated an above peer median return on capital of 13.1% averaged over the same three years. Evidently, the relatively high capital investment was successful given the the relatively strong growth in its returns.
WMT-US’s reported net income margin for the last twelve months is around the peer median (3.6% vs. peer median of 4.1%). However, the company has also recorded a relatively low level of accruals (2.3% vs. peer median of 3.7%) which suggests possible overstatement of its reported net income.
WMT-US’s accruals over the last twelve months are around zero. However, this modestly positive level is also less than the peer median which suggests some amount of building of reserves.
Wal-Mart Stores, Inc. operates retail stores in various formats around the world. It operates its business through three reportable segments: Walmart U.S., Walmart International and Sam’s Club. The Walmart U.S. segment includes the company’s mass merchant concept in the United States and Puerto Rico operating under the Walmart brand as well as walmart.com. It does business in six strategic merchandise units namely Grocery, Entertainment, Hardlines, Health & Wellness, Apparel and Home. The Grocery unit consists of a full line of grocery items, including meat, produce, deli, bakery, dairy, frozen foods, alcoholic and nonalcoholic beverages, floral and dry grocery as well as consumables such as health and beauty aids, baby products, household chemicals, paper goods and pet supplies. The Entertainment unit contains electronics, toys, cameras and supplies, photo processing services, cellular phones, cellular service plan contracts and prepaid service and seasonal merchandise. The Hardlines unit consists of stationery and books, automotive accessories, hardware and paint, sporting goods, fabrics and crafts. The Health & Wellness unit includes pharmacy and optical services. The Apparel unit includes apparel for women, girls, men, boys and infants, shoes, jewelry and accessories. The Home unit includes home furnishings, housewares and small appliances, bedding, home decor, outdoor living and horticulture. It also offers financial services and products, including money orders, wire transfers, check cashing and bill payment. The Walmart International segment is comprised of wholly-owned subsidiaries operating in Argentina, Brazil, Canada, Japan, and the United Kingdom. It offers a limited amount of consumer credit products, principally through Chile, Canada and Mexico. The Sam’s Club segment includes the warehouse membership clubs in the United States and Puerto Rico as well as samsclub.com. It offers brand name merchandise, which include hard goods, some soft goods and selected private-label items and brands in five merchandise categories namely grocery and consumables, fuel and other categories, technology, office and entertainment, home and apparel and health and wellness. The grocery and consumables category includes dairy, meat, bakery, deli, produce, dry, chilled or frozen packaged foods, alcoholic and nonalcoholic beverages, floral, snack foods, candy, other grocery items, health and beauty aids, paper goods, laundry and home care, baby care, pet supplies and other consumable items. The fuel & other category includes gasoline stations, tobacco, tools and power equipment and tire and battery centers. The technology, office and entertainment category includes electronics, wireless, software, video games, movies, books, music, toys, office supplies, office furniture and photo processing. The home and apparel category includes home improvement, outdoor living, grills, gardening, furniture, apparel, jewelry, housewares, seasonal items, mattresses and small appliances. The health & wellness category includes pharmacy and optical services and over the counter drugs. The company was founded by Samuel Moore Walton and James Lawrence Walton on July 2, 1962 and is headquartered in Bentonville, AR.
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