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What went right at Walmart in the fourth quarter

2/24/2011

There’s no way to sugarcoat the 1.8% same-store sales decline produced by Walmart’s U.S. stores division during the fourth quarter, especially after management vowed last fall that comps would turn positive during the period and end six quarters of negative results. Being so far off on sales guidance does not speak well of management’s forecasting abilities or grasp of the complexity issues that have contributed to sales weakness, and Wal-Mart Stores president and CEO Mike Duke acknowledged as much when he noted that “some of the pricing and merchandising issues in Walmart U.S. ran deeper than we expected, and they require a response that will take time to see results.”


The 1.8% comp decline is not only disappointing, but it also serves as a distraction from positive results elsewhere in the organization like an overgrown mole in the middle of a supermodel’s forehead. It’s just hard not to keep looking at that mole, or in Walmat’s case, a negative 1.8% comp even though the company has many other attractive features. It was left to CFO Charles Holley to remind investors of a few of the most prominent features at the conclusion of the company’s conference call.


For example, he highlighted the fact that the company produced nearly $11 billion in free cash flow, produced a return on investment of more than 19%, added more than 30 million square feet of selling space and returned $19.2 billion to shareholders through dividends and share repurchases. Walmart was the biggest buyer of its own shares last year.


The company added nearly $14 billion in revenue to end the year with total sales of $419 billion, sales increased in every country in the international division, Sam’s results were good, gross margins were stable at 24.6% and total sales growth, while modest at 2.5%, was still much faster than the negligible growth in expenses. The result was that the company was able to leverage expenses and produce fourth-quarter earnings per share of $1.34 that exceeded the company’s guidance and analysts’ consensus estimate by three cents.


“We are pleased with Walmart’s strong earnings performance for both the fourth quarter and the full year across our three operating segments. At the same time, we are disappointed by Walmart U.S. fourth-quarter sales,” Duke said.


Yes, must do something about that mole.

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