Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
This discussion, which presents Walmart Inc.'s ("Walmart," the "Company," "our," or "we") results for periods occurring in the fiscal year ending January 31, 2023 ("fiscal 2023") and the fiscal year ended January 31, 2022 ("fiscal 2022"), should be read in conjunction with our Condensed Consolidated Financial Statements as of and for the three months ended April 30, 2022, and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Consolidated Financial Statements as of and for the year ended January 31, 2022, the accompanying notes and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K for the year ended January 31, 2022. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period and the primary factors that accounted for those changes. We also discuss certain performance metrics that management uses to assess the Company's performance. Additionally, the discussion provides information about the financial results of each of the three segments of our business to provide a better understanding of how each of those segments and its results of operations affect the financial condition and results of operations of the Company as a whole.
Throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, we discuss segment operating income, comparable store and club sales and other measures. Management measures the results of the Company's segments using each segment's operating income, including certain corporate overhead allocations, as well as other measures. From time to time, we revise the measurement of each segment's operating income and other measures as determined by the information regularly reviewed by our chief operating decision maker.
Comparable store and club sales, or comparable sales, is a metric that indicates the performance of our existing stores and clubs by measuring the change in sales for such stores and clubs, including eCommerce sales, for a particular period from the corresponding prior year period. Walmart's definition of comparable sales includes sales from stores and clubs open for the previous 12 months, including remodels, relocations, expansions and conversions, as well as eCommerce sales. We measure the eCommerce sales impact by including all sales initiated digitally, including omni-channel transactions which are fulfilled through our stores and clubs. Sales at a store that has changed in format are excluded from comparable sales when the conversion of that store is accompanied by a relocation or expansion that results in a change in the store's retail square feet of more than five percent. Sales related to divested businesses are excluded from comparable sales, and sales related to acquisitions are excluded until such acquisitions have been owned for 12 months. Comparable sales are also referred to as "same-store" sales by others within the retail industry. The method of calculating comparable sales varies across the retail industry. As a result, our calculation of comparable sales is not necessarily comparable to similarly titled measures reported by other companies.
In discussing our operating results, the term currency exchange rates refers to the currency exchange rates we use to convert the operating results for countries where the functional currency is not the U.S. dollar into U.S. dollars. We calculate the effect of changes in currency exchange rates as the difference between current period activity translated using the current period's currency exchange rates and the comparable prior year period's currency exchange rates. Additionally, no currency exchange rate fluctuations are calculated for non-USD acquisitions until owned for 12 months. Throughout our discussion, we refer to the results of this calculation as the impact of currency exchange rate fluctuations. Volatility in currency exchange rates may impact the results, including net sales and operating income, of the Company and the Walmart International segment in the future.
Each of our segments contributes to the Company's operating results differently. Each, however, has generally maintained a consistent contribution rate to the Company's net sales and operating income in recent years other than minor changes to the contribution rate for the Walmart International segment due to fluctuations in currency exchange rates.
We operate in the highly competitive omni-channel retail industry in all of the markets we serve. We face strong sales competition from other discount, department, drug, dollar, variety and specialty stores, warehouse clubs and supermarkets, as well as eCommerce businesses. Many of these competitors are national, regional or international chains or have a national or international omni-channel or eCommerce presence. We compete with a number of companies for attracting and retaining quality employees ("associates"). We, along with other retail companies, are influenced by a number of factors including, but not limited to: catastrophic events, weather and other risks related to climate change, global health epidemics, including the COVID-19 pandemic, competitive pressures, consumer disposable income, consumer debt levels and buying patterns, consumer credit availability, supply chain disruptions, cost and availability of goods, currency exchange rate fluctuations, customer preferences, deflation, inflation, fuel and energy prices, general economic conditions, insurance costs, interest rates, labor availability and costs, tax rates, the imposition of tariffs, cybersecurity attacks and unemployment. Further information on the factors that can affect our operating results and on certain risks to our Company and an investment in our securities can be found herein under "Item 5. Other Information."
We expect continued uncertainty in our business and the global economy due to the duration and intensity of the COVID-19 pandemic; the duration and extent of economic stimulus measures; the effectiveness and extent of administration of vaccinations and medical treatment; pressure from inflation; supply chain disruptions; and volatility in employment trends and consumer confidence which may impact our results. For a detailed discussion on results of operations by reportable segment, refer to "Results of Operations" below.
Company Performance Metrics
We are committed to helping customers save money and live better through everyday low prices, supported by everyday low costs. At times, we adjust our business strategies to maintain and strengthen our competitive positions in the countries in which we operate. We define our financial framework as:
•strong, efficient growth;
•consistent operating discipline; and
•strategic capital allocation.
As we execute on this financial framework, we believe our returns on capital will improve over time.
Strong, Efficient Growth
Our objective of prioritizing strong, efficient growth means we will focus on the most productive growth opportunities, increasing comparable store and club sales, accelerating eCommerce sales growth and expansion of omni-channel initiatives while slowing the rate of growth of new stores and clubs. At times, we make strategic investments which are focused on the long-term growth of the Company.
Comparable sales is a metric that indicates the performance of our existing stores and clubs by measuring the change in sales for such stores and clubs, including eCommerce sales, for a particular period over the corresponding period in the previous year. The retail industry generally reports comparable sales using the retail calendar (also known as the 4-5-4 calendar). To be consistent with the retail industry, we provide comparable sales using the retail calendar in our quarterly earnings releases. However, when we discuss our comparable sales below, we are referring to our calendar comparable sales calculated using our fiscal calendar, which may result in differences when compared to comparable sales using the retail calendar.
Calendar comparable sales, as well as the impact of fuel, for the three months ended April 30, 2022 and 2021, were as follows:
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| | Three Months Ended April 30, | | |
| | 2022 | | 2021 | | 2022 | | 2021 | | | | | | | | |
| | With Fuel | | Fuel Impact | | | | |
Walmart U.S. | | 4.0 | % | | 5.3 | % | | 0.6 | % | | 0.2 | % | | | | | | | | |
Sam's Club | | 17.4 | % | | 10.1 | % | | 6.9 | % | | 3.9 | % | | | | | | | | |
Total U.S. | | 6.0 | % | | 6.0 | % | | 1.6 | % | | 0.8 | % | | | | | | | | |
Comparable sales in the U.S., including fuel, increased 6.0% for the three months ended April 30, 2022 when compared to the same period in the previous fiscal year. The Walmart U.S. segment had comparable sales growth of 4.0% for the three months ended April 30, 2022 driven by growth in average ticket, including strong sales in grocery and some higher inflation impacts in certain merchandise categories, while transactions were relatively flat. The Walmart U.S. segment's eCommerce sales grew at a slower rate than total comparable sales which negatively contributed approximately 0.4% to comparable sales for the three months ended April 30, 2022.
Comparable sales at the Sam's Club segment increased 17.4% for the three months ended April 30, 2022. Growth in comparable sales benefited from growth in transactions and average ticket and included some higher inflation impacts in certain merchandise categories. The Sam's Club segment's eCommerce sales positively contributed approximately 0.5% to comparable sales for the three months ended April 30, 2022.
Consistent Operating Discipline
We operate with discipline by managing expenses and optimizing the efficiency of how we work and creating an environment in which we have sustainable lowest cost to serve. We invest in technology and process improvements to increase productivity, manage inventory, and reduce costs. We measure operating discipline through expense leverage, which we define as net sales growing at a faster rate than operating, selling, general and administrative ("operating") expenses.
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| | Three Months Ended April 30, | | |
(Amounts in millions) | | 2022 | | 2021 | | | | |
Net sales | | $ | 140,288 | | | $ | 137,159 | | | | | |
Percentage change from comparable period | | 2.3 | % | | 2.6 | % | | | | |
Operating, selling, general and administrative expenses | | $ | 29,404 | | | $ | 28,129 | | | | | |
Percentage change from comparable period | | 4.5 | % | | 2.8 | % | | | | |
Operating, selling, general and administrative expenses as a percentage of net sales | | 21.0 | % | | 20.5 | % | | | | |
Operating expenses as a percentage of net sales increased 45 basis points for the three months ended April 30, 2022, primarily driven by increased wage costs in the Walmart U.S. segment, partially offset by net sales growth.
Strategic Capital Allocation
Our strategy includes improving our customer-facing initiatives in stores and clubs and creating a seamless omni-channel experience for our customers. As such, we are allocating more capital to supply chain, customer-facing initiatives, technology and store remodels, and less to new store and club openings. The following table provides additional detail:
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(Amounts in millions) | | | | Three Months Ended April 30, |
Allocation of Capital Expenditures | | | | | | 2022 | | 2021 |
Supply chain, customer-facing initiatives and technology | | | | | | $ | 2,063 | | | $ | 1,013 | |
Store and club remodels | | | | | | 981 | | | 613 | |
New stores and clubs, including expansions and relocations | | | | | | 11 | | | 38 | |
Total U.S. | | | | | | 3,055 | | | 1,664 | |
Walmart International | | | | | | 484 | | | 550 | |
Total Capital Expenditures | | | | | | $ | 3,539 | | | $ | 2,214 | |
Returns
As we execute our financial framework, we believe our return on capital will improve over time. We measure return on capital with our return on investment and free cash flow metrics. In addition, we provide returns in the form of share repurchases and dividends, which are discussed in the Liquidity and Capital Resources section. Return on Assets and Return on Investment
We include Return on Assets ("ROA"), the most directly comparable measure based on our financial statements presented in accordance with generally accepted accounting principles in the U.S. ("GAAP"), and Return on Investment ("ROI") as metrics to assess returns on assets. While ROI is considered a non-GAAP financial measure, management believes ROI is a meaningful metric to share with investors because it helps investors assess how effectively Walmart is deploying its assets. Trends in ROI can fluctuate over time as management balances long-term strategic initiatives with possible short-term impacts. ROA was 5.5% and 5.3% for the trailing twelve months ended April 30, 2022 and 2021, respectively. The increase in ROA was primarily due to the increase in net income. ROI was 13.9% and 14.4% for the trailing twelve months ended April 30, 2022 and 2021, respectively. The decrease in ROI was primarily due to the increase in average total assets driven by higher inventories.
We define ROI as adjusted operating income (operating income plus interest income, depreciation and amortization, and rent expense) for the trailing 12 months divided by average invested capital during that period. We consider average invested capital to be the average of our beginning and ending total assets, plus average accumulated depreciation and amortization, less average accounts payable and average accrued liabilities for that period.
Our calculation of ROI is considered a non-GAAP financial measure because we calculate ROI using financial measures that exclude and include amounts that are included and excluded in the most directly comparable GAAP financial measure. For example, we exclude the impact of depreciation and amortization from our reported operating income in calculating the numerator of our calculation of ROI. As mentioned above, we consider ROA to be the financial measure computed in accordance with GAAP most directly comparable to our calculation of ROI. ROI differs from ROA (which is consolidated net income for the period divided by average total assets for the period) because ROI: adjusts operating income to exclude certain expense items and adds interest income; and adjusts total assets for the impact of accumulated depreciation and amortization, accounts payable and accrued liabilities to arrive at total invested capital. Because of the adjustments mentioned above, we believe ROI more accurately measures how we are deploying our key assets and is more meaningful to investors than ROA.
Although ROI is a standard financial measure, numerous methods exist for calculating a company's ROI. As a result, the method used by management to calculate our ROI may differ from the methods used by other companies to calculate their ROI.
The calculation of ROA and ROI, along with a reconciliation of ROI to the calculation of ROA, the most comparable GAAP financial measure, is as follows:
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| | For the Trailing Twelve Months Ending April 30, |
(Amounts in millions) | | 2022 | | 2021 |
CALCULATION OF RETURN ON ASSETS |
Numerator | | | | |
Consolidated net income | | $ | 13,232 | | | $ | 12,443 | |
Denominator | | | | |
Average total assets(1) | | $ | 241,362 | | | $ | 234,737 | |
Return on assets (ROA) | | 5.5 | % | | 5.3 | % |
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CALCULATION OF RETURN ON INVESTMENT |
Numerator | | | | |
Operating income | | $ | 24,351 | | | $ | 24,233 | |
+ Interest income | | 163 | | | 108 | |
+ Depreciation and amortization | | 10,679 | | | 11,022 | |
+ Rent | | 2,270 | | | 2,534 | |
= ROI operating income | | $ | 37,463 | | | $ | 37,897 | |
| | | | |
Denominator | | | | |
Average total assets(1) | | $ | 241,362 | | | $ | 234,737 | |
'+ Average accumulated depreciation and amortization(1) | | 100,315 | | | 95,424 | |
'- Average accounts payable(1) | | 50,539 | | | 46,124 | |
- Average accrued liabilities(1) | | 21,216 | | | 20,874 | |
= Average invested capital | | $ | 269,922 | | | $ | 263,163 | |
Return on investment (ROI) | | 13.9 | % | | 14.4 | % |
(1) The average is based on the addition of the account balance at the end of the current period to the account balance at the end of the prior period and dividing by 2.
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| | As of April 30, |
| | 2022 | | 2021 | | 2020 |
Certain Balance Sheet Data | | | | | | |
Total assets | | $ | 246,142 | | | $ | 236,581 | | | $ | 232,892 | |
Accumulated depreciation and amortization | | 104,295 | | | 96,334 | | | 94,514 | |
Accounts payable | | 52,926 | | | 48,151 | | | 44,096 | |
Accrued liabilities | | 21,061 | | | 21,371 | | | 20,377 | |
Free Cash Flow
Free cash flow is considered a non-GAAP financial measure. Management believes, however, that free cash flow, which measures our ability to generate additional cash from our business operations, is an important financial measure for use in evaluating the Company's financial performance. Free cash flow should be considered in addition to, rather than as a substitute for, consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity. See Liquidity and Capital Resources for discussions of GAAP metrics including net cash provided by operating activities, net cash used in investing activities and net cash used in financing activities. We define free cash flow as net cash used in or provided by operating activities in a period minus payments for property and equipment made in that period. Net cash used in operating activities was $3.8 billion for the three months ended April 30, 2022, which represents a decline of $6.6 billion when compared to the same period in the prior year. The decline is primarily due to an increase in inventory costs and purchases to support strong sales, lower operating income and the timing of certain payments and payables. Free cash flow for the three months ended April 30, 2022 was negative $7.3 billion, which represents a decline of $7.9 billion when compared to the same period in the prior year. The decline in free cash flow is due to the reduction in operating cash flows described above, as well as an increase of $1.3 billion in capital expenditures to support our investment strategy.
Walmart's definition of free cash flow is limited in that it does not represent residual cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our Condensed Consolidated Statements of Cash Flows.
Although other companies report their free cash flow, numerous methods may exist for calculating a company's free cash flow. As a result, the method used by management to calculate our free cash flow may differ from the methods used by other companies to calculate their free cash flow.
The following table sets forth a reconciliation of free cash flow, a non-GAAP financial measure, to net cash provided by operating activities, which we believe to be the GAAP financial measure most directly comparable to free cash flow, as well as information regarding net cash used in investing activities and net cash used in financing activities.
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| | | | Three Months Ended April 30, |
(Amounts in millions) | | | | | | | | 2022 | | 2021 |
Net cash provided by (used in) operating activities | | | | | | | | $ | (3,758) | | | $ | 2,858 | |
Payments for property and equipment | | | | | | | | (3,539) | | | (2,214) | |
Free cash flow | | | | | | | | $ | (7,297) | | | $ | 644 | |
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Net cash provided by (used in) investing activities(1) | | | | | | | | $ | (4,558) | | | $ | 5,850 | |
Net cash provided by (used in) financing activities | | | | | | | | 5,315 | | | (5,399) | |
(1) "Net cash provided by (used in) investing activities" includes payments for property and equipment, which is also included in our computation of free cash flow.
Results of Operations
Consolidated Results of Operations
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| | Three Months Ended April 30, | | |
(Amounts in millions, except unit counts) | | 2022 | | 2021 | | | | |
Total revenues | | $ | 141,569 | | | $ | 138,310 | | | | | |
Percentage change from comparable period | | 2.4% | | 2.7% | | | | |
Net sales | | $ | 140,288 | | | $ | 137,159 | | | | | |
Percentage change from comparable period | | 2.3% | | 2.6% | | | | |
Total U.S. calendar comparable sales increase | | 6.0% | | 6.0% | | | | |
Gross profit margin as a percentage of net sales | | 23.8% | | 24.7% | | | | |
Operating income | | $ | 5,318 | | | $ | 6,909 | | | | | |
Operating income as a percentage of net sales | | 3.8% | | 5.0% | | | | |
| | | | | | | | |
Other (gains) and losses | | $ | 1,998 | | | $ | 2,529 | | | | | |
Consolidated net income | | $ | 2,103 | | | $ | 2,811 | | | | | |
Unit counts at period end | | 10,585 | | | 10,526 | | | | | |
Retail square feet at period end | | 1,059 | | | 1,065 | | | | | |
Our total revenues, which are mostly comprised of net sales, but also include membership and other income, increased $3.3 billion or 2.4% for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year. The increase in revenue was primarily due to strong positive comparable sales for the Walmart U.S. and Sam's Club segments which was impacted by higher inflation, along with positive comparable sales in each of our international markets. The increase in net sales was partially offset by a $5.0 billion decrease related to the divestiture of our operations in the U.K. and Japan, which closed in the first quarter fiscal 2022. Net sales for the three months ended April 30, 2022 included a $0.4 billion negative impact of fluctuations in currency exchange rates.
Gross profit as a percentage of net sales ("gross profit rate") decreased 87 basis points for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year driven by higher supply chain costs, product and fuel mix, and inflation.
Operating expenses as a percentage of net sales increased 45 basis points for the three months ended April 30, 2022, primarily driven by increased wage costs in the Walmart U.S. segment, partially offset by net sales growth.
Other gains and losses for the three months ended April 30, 2022 consisted of a net loss of $2.0 billion primarily associated with the fair value changes of our equity investments. For the three months ended April 30, 2021, other gains and losses consisted of a net loss of $2.5 billion, which primarily reflects $2.1 billion in net losses associated with the fair value changes of our equity investments, as well as $0.4 billion in incremental losses associated with the divestiture of our operations in the U.K. and Japan upon closing of the transactions during the first quarter of fiscal 2022.
Our effective income tax rate was 27.5% for the three months ended April 30, 2022, compared to 26.9% for the same period in the previous fiscal year. Our effective income tax rate may fluctuate from quarter to quarter as a result of factors including changes in our assessment of certain tax contingencies, valuation allowances, changes in tax law, outcomes of administrative audits, the impact of discrete items and the mix and size of earnings among our U.S. operations and international operations, which are subject to statutory rates that may be different than the U.S. statutory rate.
As a result of the factors discussed above, consolidated net income decreased $0.7 billion for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year. Accordingly, diluted net income per common share attributable to Walmart was $0.74 for the three months ended April 30, 2022, which represents a decrease of $0.23 when compared to the same period in the previous fiscal year.
Walmart U.S. Segment
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| | Three Months Ended April 30, | | |
(Amounts in millions, except unit counts) | | 2022 | | 2021 | | | | |
Net sales | | $ | 96,904 | | | $ | 93,167 | | | | | |
Percentage change from comparable period | | 4.0 | % | | 5.0 | % | | | | |
Calendar comparable sales increase | | 4.0 | % | | 5.3 | % | | | | |
Operating income | | $ | 4,462 | | | $ | 5,455 | | | | | |
Operating income as a percentage of net sales | | 4.6 | % | | 5.9 | % | | | | |
Unit counts at period end | | 4,735 | | | 4,743 | | | | | |
Retail square feet at period end | | 702 | | | 703 | | | | | |
Net sales for the Walmart U.S. segment increased $3.7 billion or 4.0% for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year. The increase was due to comparable sales of 4.0% for the three months ended April 30, 2022, driven by growth in average ticket, including strong sales in grocery and some higher inflation
impacts in certain merchandise categories, while transactions were relatively flat. The Walmart U.S. segment's eCommerce sales grew at a slower rate than total comparable sales which negatively contributed approximately 0.4% to comparable sales for the three months ended April 30, 2022.
Gross profit rate decreased 38 basis points for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year, primarily driven by increased supply chain costs and product mix shifts into lower margin categories, partially offset by price management impacts driven by higher cost inflation.
Operating expenses as a percentage of net sales increased 95 basis points for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year, primarily driven by increased wage costs, partially offset by strong sales growth and $0.2 billion of lower incremental COVID-19 costs.
As a result of the factors discussed above, operating income decreased $1.0 billion for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year.
Walmart International Segment
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| | Three Months Ended April 30, | | |
(Amounts in millions, except unit counts) | | 2022 | | 2021 | | | | |
Net sales | | $ | 23,763 | | | $ | 27,300 | | | | | |
Percentage change from comparable period | | (13.0) | % | | (8.3) | % | | | | |
Operating income | | $ | 772 | | | $ | 1,194 | | | | | |
Operating income as a percentage of net sales | | 3.2 | % | | 4.4 | % | | | | |
Unit counts at period end | | 5,250 | | | 5,184 | | | | | |
Retail square feet at period end | | 277 | | | 282 | | | | | |
Net sales for the Walmart International segment decreased $3.5 billion or 13.0% for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year. The reduction in net sales was due to a $5.0 billion decrease related to the divestiture of our operations in the U.K. and Japan during the first quarter of fiscal 2022, partially offset by positive comparables sales in each of our remaining markets. Net sales for the three months ended April 30, 2022 included negative fluctuations in currency exchange rates of $0.4 billion.
Gross profit rate decreased 108 basis points for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year, primarily driven by higher markdowns and shifts into lower margin formats and channels in China, as well as the impact related to our divested markets.
Operating expenses as a percentage of net sales increased 12 basis points for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year, due to impacts from the divested markets.
As a result of the factors discussed above, operating income decreased $0.4 billion for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year.
Sam's Club Segment
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| | Three Months Ended April 30, | | |
(Amounts in millions, except unit counts) | | 2022 | | 2021 | | | | |
Including Fuel | | | | | | | | |
Net sales | | $ | 19,621 | | | $ | 16,692 | | | | | |
Percentage change from comparable period | | 17.5 | % | | 10.1 | % | | | | |
Calendar comparable sales increase | | 17.4 | % | | 10.1 | % | | | | |
Operating income | | $ | 460 | | | $ | 575 | | | | | |
Operating income as a percentage of net sales | | 2.3 | % | | 3.4 | % | | | | |
Unit counts at period end | | 600 | | | 599 | | | | | |
Retail square feet at period end | | 80 | | | 80 | | | | | |
| | | | | | | | |
Excluding Fuel (1) | | | | | | | | |
Net sales | | $ | 16,532 | | | $ | 14,937 | | | | | |
Percentage change from comparable period | | 10.7 | % | | 6.2 | % | | | | |
Operating income | | $ | 335 | | | $ | 530 | | | | | |
Operating income as a percentage of net sales | | 2.0 | % | | 3.5 | % | | | | |
(1) We believe the "Excluding Fuel" information is useful to investors because it permits investors to understand the effect of the Sam's Club segment's fuel sales on its results of operations, which are impacted by the volatility of fuel prices. Volatility in fuel prices may continue to impact the operating results of the Sam's Club segment in the future.
Net sales for the Sam's Club segment increased $2.9 billion or 17.5% for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year. The increases were primarily due to comparable sales, including fuel, of 17.4% for the three months ended April 30, 2022. Growth in comparable sales benefited from growth in transactions and
average ticket and included some higher inflation impacts in certain merchandise categories. Sam's Club eCommerce net sales positively contributed approximately 0.5% to comparable sales for the three months ended April 30, 2022.
Gross profit rate decreased 216 basis points for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year. The gross profit rate was negatively impacted by higher supply chain costs, elevated inflation and markdowns caused by inventory delays.
Membership and other income increased 11.9% for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year. The increase was due to increases in new member sign-ups and Plus penetration.
Operating expenses as a percentage of segment net sales decreased 117 basis points for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year, primarily driven by higher sales.
As a result of the factors discussed above, operating income decreased $115 million for the three months ended April 30, 2022, when compared to the same period in the previous fiscal year.
Liquidity and Capital Resources
Liquidity
The strength and stability of our operations have historically supplied us with a significant source of liquidity. Our cash flows provided by operating activities, supplemented with our long-term debt and short-term borrowings, have been sufficient to fund our operations while allowing us to invest in activities that support the long-term growth of our operations. Generally, some or all of the remaining available cash flow has been used to fund dividends on our common stock and share repurchases. We believe our sources of liquidity will continue to be sufficient to fund operations, finance our global investment activities, pay dividends and fund our share repurchases for at least the next 12 months and thereafter for the foreseeable future.
Net Cash Provided by or Used in Operating Activities
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| | | | Three Months Ended April 30, |
(Amounts in millions) | | | | | | | | 2022 | | 2021 | |
Net cash provided by (used in) operating activities | | | | | | | | $ | (3,758) | | | $ | 2,858 | | |
Net cash used in operating activities was $3.8 billion as compared to net cash provided by operating activities of $2.9 billion for the three months ended April 30, 2022 and 2021, respectively. The decline is primarily due to an increase in inventory costs and purchases to support strong sales, lower operating income and the timing of certain payments and payables.
Cash Equivalents and Working Capital Deficit
Cash and cash equivalents were $11.8 billion and $22.8 billion at April 30, 2022 and 2021, respectively. Our working capital deficit was $13.3 billion as of April 30, 2022, which increased when compared to $4.3 billion as of April 30, 2021, primarily driven by an increase in short-term borrowings and a decrease in cash and cash equivalents, partially offset by the increase in inventory described above. We generally operate with a working capital deficit due to our efficient use of cash in funding operations, consistent access to the capital markets and returns provided to our shareholders in the form of payments of cash dividends and share repurchases.
As of April 30, 2022 and January 31, 2022, cash and cash equivalents of $3.3 billion and $4.3 billion, respectively, may not be freely transferable to the U.S. due to local laws or other restrictions. Of the $3.3 billion at April 30, 2022, approximately $1.5 billion can only be accessed through dividends or intercompany financing arrangements subject to approval of the Flipkart minority shareholders; however, this cash is expected to be utilized by Flipkart.
Net Cash Provided by or Used In Investing Activities
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended April 30, | |
(Amounts in millions) | | | | | | 2022 | | 2021 | | |
Net cash provided by (used in) investing activities | | | | | | $ | (4,558) | | | $ | 5,850 | | | |
Net cash used in investing activities was $4.6 billion as compared to net cash provided by investing activities of $5.9 billion for the three months ended April 30, 2022 and 2021, respectively. Net cash used in investing activities increased $10.4 billion for the three months ended April 30, 2022 primarily as a result of lapping the net proceeds received from the divestitures of our operations in the U.K. and Japan and an increase in capital expenditures to support our investment strategy.
Net Cash Provided by or Used in Financing Activities
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended April 30, | |
(Amounts in millions) | | | | | | 2022 | | 2021 | | |
Net cash provided by (used in) financing activities | | | | | | $ | 5,315 | | | $ | (5,399) | | | |
Net cash from financing activities generally consists of transactions related to our short-term and long-term debt, dividends paid and the repurchase of Company stock. Transactions with noncontrolling interest shareholders are also classified as cash flows from financing activities. Net cash provided by financing activities was $5.3 billion as compared to net cash used in financing activities of $5.4 billion for the three months ended April 30, 2022 and 2021, respectively. The increase in net cash provided by financing activities is primarily due to an increase in short-term borrowings to fund working capital needs.
In April 2022, the Company renewed and extended its existing 364-day revolving credit facility of $10.0 billion as well as its five-year credit facility of $5.0 billion. In total, we had committed lines of credit in the U.S. of $15.0 billion at April 30, 2022, all undrawn.
Long-term Debt
The following table provides the changes in our long-term debt for the three months ended April 30, 2022:
| | | | | | | | | | | | | | | | | | | | |
(Amounts in millions) | | Long-term debt due within one year | | Long-term debt | | Total |
Balances as of February 1, 2022 | | $ | 2,803 | | | $ | 34,864 | | | $ | 37,667 | |
| | | | | | |
Repayments of long-term debt | | (926) | | | — | | | (926) | |
Reclassifications of long-term debt | | 1,750 | | | (1,750) | | | — | |
Other | | (47) | | | (940) | | | (987) | |
Balances as of April 30, 2022 | | $ | 3,580 | | | $ | 32,174 | | | $ | 35,754 | |
Dividends
Effective February 17, 2022, the Board of Directors approved the fiscal 2023 annual dividend of $2.24 per share, an increase over the fiscal 2022 annual dividend of $2.20 per share. For fiscal 2023, the annual dividend was or will be paid in four quarterly installments of $0.56 per share, according to the following record and payable dates:
| | | | | | | | |
Record Date | | Payable Date |
March 18, 2022 | | April 4, 2022 |
May 6, 2022 | | May 31, 2022 |
August 12, 2022 | | September 6, 2022 |
December 9, 2022 | | January 3, 2023 |
The dividend installments payable on April 4, 2022 and May 31, 2022 were paid as scheduled.
Company Share Repurchase Program
From time to time, the Company repurchases shares of its common stock under share repurchase programs authorized by the Company's Board of Directors. All repurchases made during the three months ended April 30, 2022 were made under the current $20 billion share repurchase program approved in February 2021, which has no expiration date or other restrictions limiting the period over which the Company can make repurchases. As of April 30, 2022, authorization for $8.3 billion of share repurchases remained under the share repurchase program. Any repurchased shares are constructively retired and returned to an unissued status.
We regularly review share repurchase activity and consider several factors in determining when to execute share repurchases, including, among other things, current cash needs, capacity for leverage, cost of borrowings, our results of operations and the market price of our common stock. We anticipate that a majority of the ongoing share repurchase program will be funded through the Company's free cash flow. The following table provides, on a settlement date basis, share repurchase information for the three months ended April 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended April 30, |
(Amounts in millions, except per share data) | | | | | | 2022 | | | 2021 |
Total number of shares repurchased | | | | | | 16.9 | | | | 20.6 | |
Average price paid per share | | | | | | $ | 142.17 | | | | $ | 136.18 | |
Total amount paid for share repurchases | | | | | | $ | 2,408 | | | | $ | 2,809 | |
Material Cash Requirements
Material cash requirements from operating activities primarily consist of inventory purchases, employee related costs, taxes, interest and other general operating expenses, which we expect to be primarily satisfied by our cash from operations. Other material cash requirements from known contractual and other obligations include short-term borrowings, long-term debt and related interest payments, leases and purchase obligations.
Capital Resources
We believe our cash flows from operations, current cash position, short-term borrowings and access to capital markets will continue to be sufficient to meet our anticipated cash requirements and contractual obligations, which includes funding seasonal buildups in merchandise inventories and funding our capital expenditures, acquisitions, dividend payments and share repurchases.
We have strong commercial paper and long-term debt ratings that have enabled and should continue to enable us to refinance our debt as it becomes due at favorable rates in capital markets. As of April 30, 2022, the ratings assigned to our commercial paper and rated series of our outstanding long-term debt were as follows:
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Rating agency | | Commercial paper | | Long-term debt |
Standard & Poor's | | A-1+ | | AA |
Moody's Investors Service | | P-1 | | Aa2 |
Fitch Ratings | | F1+ | | AA |
Credit rating agencies review their ratings periodically and, therefore, the credit ratings assigned to us by each agency may be subject to revision at any time. Accordingly, we are not able to predict whether our current credit ratings will remain consistent over time. Factors that could affect our credit ratings include changes in our operating performance, the general economic environment, conditions in the retail industry, our financial position, including our total debt and capitalization, and changes in our business strategy. Any downgrade of our credit ratings by a credit rating agency could increase our future borrowing costs or impair our ability to access capital and credit markets on terms commercially acceptable to us. In addition, any downgrade of our current short-term credit ratings could impair our ability to access the commercial paper markets with the same flexibility that we have experienced historically, potentially requiring us to rely more heavily on more expensive types of debt financing. The credit rating agency ratings are not recommendations to buy, sell or hold our commercial paper or debt securities. Each rating may be subject to revision or withdrawal at any time by the assigning rating organization and should be evaluated independently of any other rating. Moreover, each credit rating is specific to the security to which it applies.
Other Matters
In Note 6 to our Condensed Consolidated Financial Statements, which is captioned "Contingencies" and appears in Part I of this Quarterly Report on Form 10-Q under the caption "Item 1. Financial Statements," we discuss, under the sub-caption "Opioids Litigation," the Prescription Opiate Litigation and other matters, including certain risks arising therefrom. In that Note 6, we also discuss, under the sub-caption "Asda Equal Value Claims," the Company's indemnification obligation for the Asda Equal Value Claims matter as well as under the sub-caption "Money Transfer Agent Services Matters," a United States Federal Trade Commission investigation and possible complaint related to money transfers and the Company's anti-fraud program. We discuss various legal proceedings related to the Federal and State Prescription Opiate Litigation, DOJ Opioid Civil Litigation and Opioids Related Securities Class Actions and Derivative Litigation in Part II of this Quarterly Report on Form 10-Q under the caption "Item 1. Legal Proceedings," under the sub-caption "I. Supplemental Information." We also discuss items related to the Asda Equal Value Claims matter and the Foreign Direct Investment matters in Part II of this Quarterly Report on Form 10-Q under the caption "Item 1. Legal Proceedings," under the sub-caption "II. Certain Other Matters." We also discuss an environmental matter with the State of California in Part II of this Quarterly Report on Form 10-Q under the caption "Item 1. Legal Proceedings," under the sub-caption "III. Environmental Matters." The foregoing matters and other matters described elsewhere in this Quarterly Report on Form 10-Q represent contingent liabilities of the Company that may or may not result in the incurrence of a material liability by the Company upon their final resolution.