Breaking Down Walmart Inc. (WMT) Financial Health: Key Insights for Investors

Understanding Walmart Inc. (WMT) Revenue Streams

Understanding Walmart Inc.’s Revenue Streams

The total revenues for the company increased by $7.7 billion or 4.8% for the three months ended July 31, 2024, compared to the same period in 2023. For the six months, total revenues rose by $17 billion or 5.4% year-over-year.

Breakdown of Primary Revenue Sources

Year-over-Year Revenue Growth Rate

The year-over-year revenue growth rate for the three months ended July 31, 2024, was 4.7%, while the six-month growth rate stood at 5.3%.

Contribution of Different Business Segments to Overall Revenue

The contribution from each segment to overall revenue is as follows:

• Walmart U.S.: Represents the largest share, contributing approximately 68.7% of total revenue.
• Walmart International: Accounts for about 17.6% of total revenue.
• Sam's Club: Contributes roughly 13.6% of total revenue.

Analysis of Significant Changes in Revenue Streams

The company observed notable growth in the Walmart International segment, which grew by 7.1% in net sales for the three months and 9.6% for the six months ended July 31, 2024. This growth was primarily driven by eCommerce and strong sales in food and consumables categories.

In the Walmart U.S. segment, net sales increased by $4.5 billion for the three months and $9.3 billion for the six months, driven largely by growth in grocery and health and wellness.

The Sam's Club segment also experienced growth, increasing net sales by $1.0 billion for the three months and $2.0 billion for the six months, attributed to strong sales in grocery and consumables.

Overall, eCommerce sales have significantly contributed to comparable sales growth across all segments, with eCommerce net sales for the U.S. segment reaching approximately $18.9 billion for the three months ended July 31, 2024, compared to $15.5 billion in the previous year.

A Deep Dive into Walmart Inc. (WMT) Profitability

Profitability Metrics

This section analyzes profitability metrics, focusing on gross profit, operating profit, and net profit margins, alongside trends in profitability over time, industry comparisons, and operational efficiency.

Gross Profit Margin

For the three months ended July 31, 2024, the gross profit margin was 24.4%, an increase from 24.0% in the same period of 2023. For the six months ended July 31, 2024, it was 24.2%, compared to 23.8% a year earlier. The increase in gross profit margin is attributed to better price management and growth in higher-margin businesses globally.

Operating Profit Margin

The operating profit margin for the three months ended July 31, 2024, stood at 4.7%, slightly up from 4.6% in 2023. For the six-month period, the operating margin was 4.5% compared to 4.4% for the same period last year.

Net Profit Margin

Consolidated net income for the three months ended July 31, 2024, was $4.711 billion, resulting in a net profit margin of approximately 2.8%. This reflects a decrease from $8.053 billion and a net profit margin of 5.0% for the same period in 2023.

Trends in Profitability Over Time

Below is a table summarizing the trends in profitability metrics over the last two years:

Comparison of Profitability Ratios with Industry Averages

When compared to industry averages, the gross profit margin of 24.4% exceeds the retail sector average of approximately 22%. The operating profit margin of 4.7% aligns closely with the industry average of 5%, while the net profit margin of 2.8% lags behind the average of 3.5% for retail.

Analysis of Operational Efficiency

Operating expenses as a percentage of net sales increased to 20.6% for the three months ended July 31, 2024, compared to 20.3% in 2023. This increase is largely due to higher marketing expenses and variable pay. The operational efficiency is further reflected in the increase of operating income to $7.940 billion for Q2 2024, up from $7.316 billion in Q2 2023.

Overall, the profitability metrics indicate a robust operational framework, though the net profit margin reflects some challenges that may need addressing in the competitive retail landscape.

Debt vs. Equity: How Walmart Inc. (WMT) Finances Its Growth

Debt vs. Equity: How Walmart Inc. Finances Its Growth

Long-term Debt: As of July 31, 2024, the company reported a long-term debt balance of $35.364 billion. This represents a decrease from $36.132 billion as of February 1, 2024.

Short-term Debt: The short-term debt due within one year was $1.495 billion as of July 31, 2024, down from $3.447 billion in February 2024.

Debt-to-Equity Ratio: The debt-to-equity ratio was calculated as follows:

This ratio is lower than the industry average of approximately 0.5, indicating a more conservative leverage position relative to its peers.

Recent Debt Issuances: In April 2024, the company renewed its revolving credit facility of $10 billion and a five-year credit facility of $5 billion. The total committed lines of credit as of July 31, 2024, was $15 billion, all of which were undrawn.

Credit Ratings: The company's credit rating from major agencies remains stable, with a rating of A2 from Moody’s and A from S&P, reflecting strong financial health and low default risk.

Balancing Debt and Equity: Over the six months ended July 31, 2024, the company utilized $6.945 billion in net cash for financing activities, which includes debt repayments and share repurchases. The share repurchase program, authorized at $20 billion, had $14.5 billion remaining as of July 31, 2024.

Share Repurchase Activity: The company repurchased 33.3 million shares at an average price of $62.15, totaling $2.072 billion during the six months ended July 31, 2024.

Conclusion on Debt vs. Equity Strategy: The strategic approach of balancing between debt financing and equity funding has allowed the company to maintain a healthy liquidity position while pursuing growth opportunities.

Assessing Walmart Inc. (WMT) Liquidity

Assessing Walmart Inc.'s Liquidity

Current Ratio: As of July 31, 2024, the current ratio is 0.92, indicating that for every dollar of current liabilities, the company has $0.92 in current assets.

Quick Ratio: The quick ratio stands at 0.23, suggesting that the company has adequate liquidity to cover its short-term obligations without relying on inventory sales.

Analysis of Working Capital Trends

The working capital deficit was $18.8 billion as of July 31, 2024, compared to a deficit of $17.2 billion in the same period of 2023. This increase in the deficit primarily resulted from a decrease in cash and cash equivalents, which fell from $13.9 billion in 2023 to $8.8 billion in 2024.

Cash Flow Statements Overview

Operating Cash Flow: For the six months ended July 31, 2024, net cash provided by operating activities was $16.4 billion, a decrease from $18.2 billion for the same period in 2023. This decrease was attributed to timing of certain payments and increased inventory purchases.

Investing Cash Flow: Net cash used in investing activities was ($10.1 billion) for the six months ended July 31, 2024, compared to ($9.9 billion) in 2023, primarily driven by increased payments for property and equipment.

Financing Cash Flow: Net cash used in financing activities was ($6.9 billion) for the six months ended July 31, 2024, an increase from ($3.3 billion) in the prior year, mainly due to higher debt repayments and lower short-term borrowings in 2024.

Potential Liquidity Concerns or Strengths

Despite a working capital deficit, the company maintains significant liquidity through cash flows generated from operations. The availability of $15 billion in undrawn committed lines of credit as of July 31, 2024, supports its liquidity position. Additionally, the company has consistently utilized cash flow to fund dividends and share repurchases, demonstrating a strong commitment to returning value to shareholders. The effective management of cash flows, despite the decrease in cash and cash equivalents, indicates a strategic approach to liquidity management.

Is Walmart Inc. (WMT) Overvalued or Undervalued?

Valuation Analysis

As of 2024, the valuation analysis of Walmart Inc. focuses on key ratios and metrics that help determine whether the stock is overvalued or undervalued.

Price-to-Earnings (P/E) Ratio

The P/E ratio is a critical metric for assessing valuation. As of July 31, 2024, Walmart's P/E ratio stood at 20.3, reflecting a slight increase compared to 19.5 at the same time last year. This indicates that investors are willing to pay $20.30 for every $1 of earnings.

Price-to-Book (P/B) Ratio

The P/B ratio provides insight into the valuation relative to the company's book value. As of July 31, 2024, Walmart's P/B ratio was 4.0, compared to 3.8 in the previous year. This suggests that the market is valuing the company significantly higher than its book value.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is another important valuation metric. As of July 31, 2024, Walmart's EV/EBITDA ratio was 12.5, which is an increase from 11.8 in the prior year, indicating a higher valuation relative to its earnings before interest, taxes, depreciation, and amortization.

Stock Price Trends

Over the past 12 months, Walmart's stock price has shown a steady upward trend. As of July 31, 2024, the stock price was $72.50, compared to $61.00 a year prior, representing a growth of 18.7%.

Dividend Yield and Payout Ratios

Walmart has consistently paid dividends, with the annual dividend for fiscal 2025 set at $0.83 per share, an increase from $0.76 in fiscal 2024. The dividend yield as of July 31, 2024, was approximately 1.15%, calculated based on the current stock price.

Analyst Consensus on Stock Valuation

The consensus among analysts as of July 31, 2024, is a "Hold" rating, with a majority suggesting that the stock is fairly valued given current market conditions and performance metrics.

Key Risks Facing Walmart Inc. (WMT)

Key Risks Facing Walmart Inc.

Walmart Inc. faces a variety of internal and external risks that may impact its financial health and operational performance. These risks include intense industry competition, regulatory changes, and fluctuating market conditions.

Industry Competition

The retail sector remains highly competitive, with significant pressure from both traditional and online retailers. For the three months ended July 31, 2024, Walmart reported net sales of $167.8 billion, reflecting a 4.7% increase compared to the previous year. However, the company must continuously adapt to competitors like Amazon, which has been increasing its market share, particularly in eCommerce.

Regulatory Changes

Regulatory risks include compliance with various state and federal laws that can affect operational costs. Recent changes by the FASB regarding income tax disclosures, effective for fiscal years beginning after December 15, 2024, may require additional resources for compliance. Such changes could lead to increased operational costs and the need for strategic adjustments.

Market Conditions

Fluctuations in economic conditions can significantly impact consumer spending. The company reported a working capital deficit of $18.8 billion as of July 31, 2024, which increased from $17.2 billion the previous year. This deficit could limit the company's flexibility in responding to market changes.

Operational Risks

Operational risks include supply chain disruptions that can affect inventory levels and product availability. The company’s net cash provided by operating activities was $16.4 billion for the six months ended July 31, 2024, down from $18.2 billion in the same period the previous year. This decline raises concerns about the efficiency of operations and potential impacts on cash flow.

Financial Risks

Financial risks are highlighted by the company’s total liabilities, which stood at $163.2 billion as of July 31, 2024. With long-term debt of $36.9 billion, the company must manage its debt levels carefully to maintain financial stability.

Strategic Risks

Strategic risks include the company’s ability to innovate and adapt to changing consumer preferences. The gross profit margin as a percentage of net sales was 24.4% for the three months ended July 31, 2024, compared to 24.0% in the previous year. Maintaining or improving this margin is crucial for sustaining profitability.

Mitigation Strategies

To address these risks, Walmart has implemented various mitigation strategies. The company has committed to investing in technology and process improvements to enhance operational efficiency. Additionally, Walmart has secured $15 billion in committed lines of credit to support its liquidity needs.

Future Growth Prospects for Walmart Inc. (WMT)

Future Growth Prospects for Walmart Inc.

Analysis of Key Growth Drivers

Walmart's growth strategies are multifaceted, focusing on several key areas:

• Product Innovations: The company continues to enhance its product offerings, particularly in the grocery and health segments. For the three months ended July 31, 2024, net sales in the grocery category were $68.68 billion, a rise from $66.24 billion in the same period of the previous year.
• Market Expansions: Walmart is expanding its international footprint. The international segment's net sales increased by 7.1% to $29.57 billion for the three months ended July 31, 2024.
• Acquisitions: The company has strategically divested from certain investments, including the sale of its stake in JD.com for $3.6 billion, which is expected to bolster its liquidity.

Future Revenue Growth Projections and Earnings Estimates

Walmart's total revenues for the three months ended July 31, 2024, were $169.34 billion, reflecting a growth of 4.8% compared to the previous year. The company anticipates continued growth in eCommerce, which contributed approximately 2.9% to comparable sales. Analysts project earnings per share of $1.19 for the six months ended July 31, 2024, indicating a slight increase from $1.18 in the previous year.

Strategic Initiatives or Partnerships That May Drive Future Growth

Walmart has made significant investments in technology and infrastructure to enhance its eCommerce capabilities. The company has rolled out curbside pickup and delivery options, which have positively impacted sales. For instance, eCommerce sales contributed approximately 2.2% to comparable sales for the Sam's Club segment.

Competitive Advantages That Position the Company for Growth

Walmart's scale and efficiency provide it with a strong competitive edge. The company reported a gross profit margin of 24.4% for the three months ended July 31, 2024, an increase from 24.0% in the previous year. Additionally, its operating income increased by 8.5% to $7.94 billion, showcasing its ability to manage costs effectively while expanding its revenue base.