In case you had not noticed, Walmart is liquidating

Investment Analysis Clubs Macro Economic Trends and Risks
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Thumbed through the Walmart annual report a few days ago.

Net profit: $11,680,000,000

Change in owner’s equity: -$8,137,000,000

How could management smoke all $11B of profit, and $8B of equity in one year?

Welchism is probably the answer…besides the CEO, there are three Walton family members on the board.

Steve

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2

Looking at their balance sheet we find the following increases in liabilities:

                            Billion
Opioid settlement            $2.9
Other accounts payable       $1.5
Long-term debt due w/in 1yr  $1.4
Deferred income taxes        $1.2

DB2

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3

For a total of 7B…and cash was down about 6B

Meanwhile 2020 repurchase of stock 2.658B vs 6.1B paid in divis.
2021 repurchase of stock 9.8B vs 6.1B paid in divis.
2022 repurchase of stock 9.866B, vs 6.1B paid in divis.

WMT is liquidating, though it has a long way to go to catch up with Boeing, for being rotted out from the inside.

Steve

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Walmart reported this morning. Everything “better than expected”.

Management claims net profit of $1.673B

$1.538B paid out in divis.

Long term debt, net of repayments, up about $3B

Equity is down more than $4B vs last quarter, retained earnings down $5B.

Shiny management in action, bleeding the company.

Steve

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5

More accurately: The kids are NOT real business people. They only know how to leech off the public.

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And yet, for us investors, WMT has outperformed SPY over the last five years, up 96% versus 66%. And that is while SPY has been turbocharged with mega-cap tech.

DB2

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It is hard to deny that Walmart is well managed. Their merchandising expertise is first rate.

That is not to imply they are perfect. Some situations are tough to maneuver around. But give them credit for making the effort.

Not on my buy list. I prefer higher growth rates.

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Well, actually, not really. I wonder how much of it’s “performance”, such as it was, over the last couple years was a result of smoking $20B buying back stock.

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9

Are you sure?

Screenshot 2023-05-18 at 3.20.26 PM
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10

SPY, adjusted for dividends, was at 249 five years ago. Currently at 419.
419/249 = 1.68

WMT went from 78.5 to 151.5 over five years.
151.5/78.5 = 1.93

The number of shares outstanding over the last five years went from 3.0 billion to 2.7 billion, resulting in a 10% boost to share price.
https://www.macrotrends.net/stocks/charts/WMT/walmart/shares-outstanding
DB2

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11

And yet, the total return graph provided by Walmart, in it’s annual report, shows the company trailing both the S&P 500 and retail indexes. How badly would the company underperform it’s sector, without that financial manipulation?

Steve

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12

At the beginning of June 2018 WMT traded at $83.04 and yesterday it closed at $151.47, up 82% (not counting dividends).
At the beginning of June 2018 SPY traded at $272.41 and yesterday it closed at $419.23, up 53% (not counting dividends).
Do you have different prices?

DB2

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See my graph above, which starts January 2018, and shows a dead heat. From portfoliovisualizer.com

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That disqualifier would most certainly also apply to the S&P.

15

How widespread is Welchist “creating shareholder value” by liquidating the company?

Steve

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16

I have no idea what you are trying to communicate with the above.

Regardless, if you are holding share buybacks against Walmart as a means to undercut its stock performance compared to the S&P, then you ALSO have to hold it against the S&P as much of its performance would also be due to such. Heck, much of the S&P performance is due to just a handful of companies and one them (AAPL) is the poster child for stock buybacks:

S&P 500 Buybacks Set Quarterly and Annual Record - Mar 15, 2022.

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That is what I was getting at. Has anyone quantified how much of the performance of the S&P is successful execution of the business, vs how much is due to financial manipulation?

I have not followed AAPL, but I see you are right. Equity has fallen, between 2019 and 2022, from $90B to $50B. Burning equity at that rate, $10B/year, AAPL will be effectively liquidated in another five years. If I was really interested, I should see if I could find a spreadsheet of AAPL equity, by year, going back to Jobs’ death, to see when the company shifted from basing it’s success on innovation, to financial manipulation.

Steve

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AAPL started in mid-2013, going from 26.5 billion share outstanding to 15.8 billion this last quarter. A 40% decrease over 10 years, so about 4% a year.
https://www.macrotrends.net/stocks/charts/AAPL/apple/shares-outstanding
DB2

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19

Interesting. Jobs died in 2011. I found a spreadsheet. Apple balance sheets from 2009 through 23.

In 09, Apple had $31.640B in equity. Equity peaked out at $134.047B in 2017. Equity has consistently shrunk since 17.

https://www.macrotrends.net/stocks/charts/AAPL/apple/balance-sheet

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20

@steve203 I suspect that you are looking at this particular isolated statistic in the wrong way. I am not an accountant so I can’t put my finger on it exactly, but my intuition says “wrong” for two reasons:

  1. Let’s look at Apple for example. You say “shareholder equity” is dropping and it’s a bad thing. But, what about the fact that the company returned nearly $500B in earned cash to the shareholders over that period. Why should anyone care that shareholder equity on a balance sheet may have gone down by $10 or $30 billion over the ten or fifteen years if the shareholders received nearly $500B in cash?
  2. Companies are funded via equity, via debt, and via retained earnings. They issue equity when advantageous. They issue debt when advantageous. And they do various things with their earnings. But why would anyone claim that equity (“number of shares”) should only go up, and that whatever number of shares are currently outstanding is the “perfect” number and should never be reduced? What if debt is really really cheap at some point and makes it advantageous* to use debt instead of equity for a period of time? Or if a company generates so much cash, it may not need to use debt or equity for a period of time, it can self fund. Can you imagine if people treated debt the same way, you’d be claiming that any company that aggressively retired debt was only doing so to show better results (lower interest expense) so their execs can receive big bonuses.

* Using Apple as an example again. A few years ago, Apple found it very advantageous to issue some debt (because the rates they could get were absurdly low) and use the money to buy their equity. Turns out that the interest on that debt was less than the dividends on those shares, so on a period-over-period basis, it was almost cash flow positive!

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