Wal-Mart Disappoints Guidance Junkies -- FX Risks Are Next Problem

Wal-Mart (WMT) reported better than expected quarterlies but disappointed the guidance junkies with the going forward outlook. Of significant interest; international sales broke through the $100 billion mark for the first time. We can expect this number to climb as Wal-Mart has exhausted significant US growth opportunities and may be hitting a regulatory ceiling as to how much of the US market it will be allowed to control.

Wal-Mart has long sourced product from low wage exporters and much of it’s cost base is foreign exchange sensitive. Think of all the Chinese Yuan issues that are on the table. Wal-Mart alludes to it in it’s press release. Read this quote and then ponder how large the numbers are and how they fluctuate from one quarter to the next. There probably is no other item that is as volatile in their business model.

“Fourth quarter International net sales were $29.6 billion, an increase of 19.5 percent from last year. The increase in International net sales includes our Chilean operations (acquired in January 2009) and a $1.9 billion positive impact from currency exchange rate fluctuations. On a constant currency basis, International net sales were up 11.9 percent to $27.7 billion from last year's fourth quarter results of $24.8 billion.

Full year International net sales were $100.1 billion, an increase of 1.3 percent from last year. The increase in International net sales includes our Chilean operations and was reduced by the $9.8 billion impact from currency exchange rate fluctuations. On a constant currency basis, International net sales increased 11.2 percent to $109.9 billion in fiscal year 2010, compared to $98.8 billion in fiscal year 2009.”

In Q4 they have a positive impact of $1.9 Billion but for the year they have a negative impact of $9.8 billion. All this from a company which proudly announced Income from continuing operations attributable to Walmart of $14.4 billion.

The negative FX was equal to 68% of what shareholders want. Profits.