Overview
This discussion, which presentsWalmart Inc.'s ("Walmart ," the "Company," "our," or "we") results for periods occurring in the fiscal year endingJanuary 31, 2022 ("fiscal 2022") and the fiscal year endedJanuary 31, 2021 ("fiscal 2021"), should be read in conjunction with our Condensed Consolidated Financial Statements as of and for the three and nine months endedOctober 31, 2021 , 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 endedJanuary 31, 2021 , 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 endedJanuary 31, 2021 . 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 theU.S. dollar intoU.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 theWalmart 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 theWalmart International segment due to fluctuations in currency exchange rates. Consistent with our strategy to strengthen ourWalmart International portfolio for the long-term, we completed the following actions during the nine months endedOctober 31, 2021 : •Completed the sale of Asda, our retail business in theU.K. , for net consideration of$9.6 billion inFebruary 2021 . During the first quarter of fiscal 2022, we recognized an incremental non-cash loss of$0.2 billion , after tax, primarily due to changes in the net assets of the disposal group, currency exchange rate fluctuations and customary purchase price adjustments upon closing. •Completed the sale of Seiyu, our retail business inJapan , for net consideration of$1.2 billion inMarch 2021 . During the first quarter of fiscal 2022, we recognized an incremental non-cash loss of$0.2 billion , after tax, primarily due to changes in the net assets of the disposal group, currency exchange rate fluctuations and customary purchase price adjustments upon closing. 16 -------------------------------------------------------------------------------- Table of Contents 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 ongoing 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; timing and effectiveness of global vaccines, as well as potential impacts of any related vaccine mandates on our workforce; 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 and nine months endedOctober 31, 2021 and 2020, were as follows: Three Months Ended October 31, Nine Months Ended October 31, 2021 2020 2021 2020 2021 2020 2021 2020 With Fuel Fuel Impact With Fuel Fuel ImpactWalmart U.S . 9.4 % 6.6 % 0.4 % (0.1) % 6.7 % 8.9 % 0.4 % (0.2) % Sam's Club 19.6 % 8.3 % 5.9 % (3.3) % 14.6 % 8.9 % 5.4 % (3.8) % Total U.S. 11.0 % 6.8 % 1.3 % (0.6) % 7.9 % 8.9 % 1.2 % (0.7) % Comparable sales in theU.S. , including fuel, increased 11.0% and 7.9% for the three and nine months endedOctober 31, 2021 , respectively, when compared to the same periods in the previous fiscal year. TheWalmart U.S . segment had comparable sales growth of 9.4% and 6.7% for the three and nine months endedOctober 31, 2021 , respectively, driven by growth in transactions and average ticket, which includes strong consumer spending from government stimulus and some higher inflation impacts in certain merchandise categories compared to recent years. In the first quarter of fiscal 2022, average ticket increased while transactions decreased as customers consolidated shopping trips and purchased larger baskets. Transaction growth turned positive inApril 2021 and continued with strong growth through the second and third quarters of fiscal 2022 as customers' pre-pandemic behaviors largely resumed. TheWalmart U.S . segment's eCommerce sales grew at a slower rate than total comparable sales which negatively contributed approximately 0.1% to comparable sales for the three months ended October 31, 17 -------------------------------------------------------------------------------- Table of Contents 2021 as customers shifted toward more in-store shopping as compared to the same period in the previous year. For the nine months endedOctober 31, 2021 , eCommerce sales positively contributed approximately 1.3% to comparable sales, primarily driven by store pick-up and delivery. Comparable sales at theSam's Club segment increased 19.6% and 14.6% for the three and nine months endedOctober 31, 2021 , respectively. Growth in comparable sales benefited from growth in transactions and average ticket and was aided by consumer spending due to government stimulus, and also includes some higher inflation impacts in certain merchandise categories compared to recent years. The growth in comparable sales was partially offset by our decision to remove tobacco from certain club locations. TheSam's Club segment's eCommerce sales positively contributed approximately 1.1% and 1.7% to comparable sales for the three and nine months endedOctober 31, 2021 , respectively. 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. Three Months Ended October 31, Nine Months Ended October 31, (Amounts in millions) 2021 2020 2021 2020 Net sales$ 139,207 $ 133,752 $ 416,237 $ 404,248 Percentage change from comparable period 4.1 % 5.3 % 3.0 % 6.6 % Operating, selling, general and administrative$ 29,710 $ 28,591 $ 86,350 $ 84,957
expenses
Percentage change from comparable period 3.9 % 4.4 % 1.6 % 5.9 % Operating, selling, general and administrative 21.3 % 21.4 % 20.7 % 21.0 %
expenses as a percentage of net sales
Operating expenses as a percentage of net sales was relatively flat for the three months endedOctober 31, 2021 , which benefited from growth in net sales and$0.2 billion of lower incremental COVID-19 related costs as compared to the same period in the prior year, offset by increased wage investments primarily in theWalmart U.S . segment. Operating expenses as a percentage of net sales decreased 27 basis points for the nine months endedOctober 31, 2021 , primarily driven by net sales growth and lower incremental COVID-19 related costs of$2.0 billion as compared to the same period in the prior year, partially offset by increased wage investments primarily in theWalmart U.S . segment. Strategic Capital Allocation Our strategy includes improving our customer-facing initiatives in stores and clubs and creating a seamless omni-channel experience for our customers. As such, we are allocating more capital to supply chain, customer-facing initiatives, technology and store remodels, and less to new store and club openings. The following table provides additional detail: Nine Months Ended (Amounts in millions) October 31, Allocation of Capital Expenditures 2021 2020 Supply chain, customer-facing initiatives and technology$ 4,408 $ 3,316 Store and club remodels 2,375 1,531 New stores and clubs, including expansions and relocations 112 64 Total U.S. 6,895 4,911Walmart International 1,693 1,527 Total Capital Expenditures$ 8,588 $ 6,438 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 theU.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 effectivelyWalmart 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 3.3% and 8.2% for the trailing twelve months endedOctober 31, 2021 and 2020, respectively. The decrease in ROA was primarily due to net fair value changes in our equity instruments as well as the losses on divestiture of our operations in the 18 -------------------------------------------------------------------------------- Table of ContentsU.K. andJapan , partially offset by the increase in operating income. ROI was 14.5% and 13.7% for the trailing twelve months endedOctober 31, 2021 and 2020. The increase in ROI was primarily due to the increase in operating income. 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:
For the Trailing Twelve Months
Ending October 31, (Amounts in millions) 2021 2020 CALCULATION OF RETURN ON ASSETS Numerator Consolidated net income$ 8,299 $ 20,008
Denominator
Average total assets(1)$ 247,857 $ 245,347 Return on assets (ROA) 3.3 % 8.2 % CALCULATION OF RETURN ON INVESTMENT Numerator Operating income$ 25,542 $ 22,383 + Interest income 141 132 + Depreciation and amortization 10,771 11,161 + Rent 2,360 2,646 = ROI operating income$ 38,814 $ 36,322 Denominator Average total assets(1)$ 247,857 $ 245,347 '+ Average accumulated depreciation and amortization(1) 99,872 95,637 '- Average accounts payable(1) 55,654 51,951 - Average accrued liabilities(1) 24,735 22,984 = Average invested capital$ 267,340 $ 266,049 Return on investment (ROI) 14.5 % 13.7 % (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. As of October 31, 2021 2020 2019 Certain Balance Sheet Data Total assets$ 244,851 $ 250,863 $ 239,830 Accumulated depreciation and amortization 100,168 99,576 91,697 Accounts payable 57,156 54,152 49,750 Accrued liabilities 24,474 24,995 20,973 19
-------------------------------------------------------------------------------- Table of Contents 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 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 provided by operating activities in a period minus payments for property and equipment made in that period. We had net cash provided by operating activities of$16.3 billion for the nine months endedOctober 31, 2021 , which decreased when compared to$22.9 billion for the nine months endedOctober 31, 2020 primarily due to an increase in inventory purchases to support strong sales and lapping the impact of accelerated inventory sell-through in fiscal 2021, as well as timing and payment of wages. We generated free cash flow of$7.7 billion for the nine months endedOctober 31, 2021 , which decreased when compared to$16.4 billion for the nine months endedOctober 31, 2020 due to the same reasons as the decrease in net cash provided by operating activities, as well as$2.2 billion in increased capital expenditures.Walmart 's definition of free cash flow is limited in that it does not represent residual cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our Condensed Consolidated Statements of Cash Flows. Although other companies report their free cash flow, numerous methods may exist for calculating a company's free cash flow. As a result, the method used by management to calculate our free cash flow may differ from the methods used by other companies to calculate their free cash flow. The following table sets forth a reconciliation of free cash flow, a non-GAAP financial measure, to net cash provided by operating activities, which we believe to be the GAAP financial measure most directly comparable to free cash flow, as well as information regarding net cash used in investing activities and net cash used in financing activities. Nine Months Ended October 31, (Amounts in millions) 2021 2020 Net cash provided by operating activities$ 16,291 $ 22,880 Payments for property and equipment (8,588) (6,438) Free cash flow$ 7,703 $ 16,442 Net cash used in investing activities(1)$ (1,530) $ (6,507) Net cash used in financing activities (18,113) (11,340)
(1) "Net cash used in investing activities" includes payments for property and equipment, which is also included in our computation of free cash flow.
20 -------------------------------------------------------------------------------- Table of Contents Results of Operations Consolidated Results of Operations Three Months Ended October 31, Nine Months Ended October 31, (Amounts in millions, except unit counts) 2021 2020 2021 2020 Total revenues$ 140,525 $ 134,708 $ 419,883 $ 407,072 Percentage change from comparable period 4.3% 5.2% 3.1 % 6.5% Net sales$ 139,207 $ 133,752 $ 416,237 $ 404,248 Percentage change from comparable period 4.1% 5.3% 3.0 % 6.6% Total U.S. calendar comparable sales increase 11.0% 6.8% 7.9 % 8.9% Gross profit margin as a percentage of net 24.6% 25.0% 24.7 % 24.5%
sales
Operating income$ 5,792 $ 5,778 $ 20,055 $ 17,061 Operating income as a percentage of net sales 4.2% 4.3% 4.8 % 4.2% Loss on extinguishment of debt$ 2,410 $ - $ 2,410 $ - Other (gains) and losses$ (1,207) $ (1,853) $ 2,275$ (5,796) Consolidated net income$ 3,132 $ 5,201 $ 10,307 $ 15,714 Unit counts at period end 10,566 11,510 10,566 11,510 Retail square feet at period end 1,065 1,128 1,065 1,128 Our total revenues, which are mostly comprised of net sales, but also include membership and other income, increased$5.8 billion or 4.3% and$12.8 billion or 3.1% for the three and nine months endedOctober 31, 2021 , respectively, when compared to the same periods in the previous fiscal year. The increases in revenues were primarily due to strong positive comparable sales for theWalmart U.S . andSam's Club segments which benefited from strongU.S. consumer spending and some inflation, along with positive comparable sales in the majority of our remaining international markets. These increases were partially offset by net sales decreases of$9.4 billion and$22.4 billion for the three and nine months endedOctober 31, 2021 , respectively, primarily related to the divestiture of our operations in theU.K. andJapan , which closed inFebruary 2021 andMarch 2021 , respectively. Net sales also benefited from a$1.3 billion and$4.7 billion positive impact of fluctuations in currency exchange rates for the three and nine months endedOctober 31, 2021 , respectively. Gross profit as a percentage of net sales ("gross profit rate") decreased 42 basis points for the three months endedOctober 31, 2021 when compared to the same period in the previous fiscal year, primarily due to higher supply chain costs and fuel mix in theWalmart U.S . andSam's Club segments. These decreases were partially offset by benefits in theWalmart U.S . segment related to lower markdowns, price management, and growth in our advertising business. Gross profit rate increased 15 basis points for the nine months endedOctober 31, 2021 when compared to the same period in the previous fiscal year. The decrease for the three months endedOctober 31, 2021 was more than offset by increases in the first quarter of fiscal 2022 primarily driven by mix shifts into general merchandise in theWalmart U.S . segment, due in part to government stimulus spending, lower markdowns and lapping last year's COVID-19 related mix shifts into lower margin categories such as food and consumables. Operating expenses as a percentage of net sales was relatively flat for the three months endedOctober 31, 2021 , which benefited from growth in net sales and$0.2 billion of lower incremental COVID-19 related costs as compared to the same period in the prior year, offset by increased wage investments primarily in theWalmart U.S . segment. Operating expenses as a percentage of net sales decreased 27 basis points for the nine months endedOctober 31, 2021 , primarily driven by net sales growth and lower incremental COVID-19 related costs of$2.0 billion as compared to the same period in the prior year, partially offset by increased wage investments primarily in theWalmart U.S . segment. Loss on extinguishment of debt was$2.4 billion for both the three and nine months endedOctober 31, 2021 , due to the early retirement of certain higher rate long-term debt to reduce interest expense in future periods. Other gains and losses for the three months endedOctober 31, 2021 consisted of a net gain of$1.2 billion primarily associated with the fair value changes of our equity investments. Other gains and losses for the nine months endedOctober 31, 2021 consisted of a net loss of$2.3 billion which primarily reflects$1.8 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 theU.K. andJapan upon closing of the transactions during the first quarter of fiscal 2022. For the three and nine months endedOctober 31, 2020 , other gains and losses consisted of a net gain of$1.9 billion and$5.8 billion , respectively, primarily representing the fair value changes of our equity investments and the loss on sale ofWalmart Argentina . Our effective income tax rate was 24.5% and 25.9% for the three and nine months endedOctober 31, 2021 , respectively, compared to 26.9% and 25.7% for the same periods in the previous fiscal year. The decrease in effective tax rate for the three months endedOctober 31, 2021 is primarily due to the loss on sale ofWalmart Argentina recorded in the third quarter of fiscal 2021, as it provided minimal realizable tax benefit. 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, 21 -------------------------------------------------------------------------------- Table of Contents outcomes of administrative audits, the impact of discrete items and the mix and size of earnings among ourU.S. operations and international operations, which are subject to statutory rates that may be different than theU.S. statutory rate. As a result of the factors discussed above, consolidated net income decreased$2.1 billion and$5.4 billion for the three and nine months endedOctober 31, 2021 respectively, when compared to the same periods in the previous fiscal year. Accordingly, diluted net income per common share attributable toWalmart was$1.11 and$3.59 for the three and nine months endedOctober 31, 2021 , respectively, which represents respective decreases of$0.69 and$1.89 , when compared to the same periods in the previous fiscal year.Walmart U.S . Segment Three Months Ended October 31, Nine Months Ended October 31, (Amounts in millions, except unit counts) 2021 2020 2021 2020 Net sales$ 96,609 $ 88,353 $ 287,968 $ 270,378 Percentage change from comparable period 9.3 % 6.2 % 6.5 % 8.7 % Calendar comparable sales increase 9.4 % 6.6 % 6.7 % 8.9 % Operating income$ 4,860 $ 4,589 $ 16,404 $ 13,948 Operating income as a percentage of net sales 5.0 % 5.2 % 5.7 % 5.2 % Unit counts at period end 4,742 4,748 4,742 4,748 Retail square feet at period end 703 703 703 703 Net sales for theWalmart U.S . segment increased$8.3 billion or 9.3% and$17.6 billion or 6.5% for the three and nine months endedOctober 31, 2021 , respectively, when compared to the same periods in the previous fiscal year. The increases were due to comparable sales of 9.4% and 6.7% for the three and nine months endedOctober 31, 2021 , respectively, driven by growth in transactions and average ticket, which includes strong consumer spending from government stimulus and some higher inflation impacts in certain merchandise categories compared to recent years. In the first quarter of fiscal 2022, average ticket increased while transactions decreased as customers consolidated shopping trips and purchased larger baskets. Transaction growth turned positive inApril 2021 and continued with strong growth through the second and third quarters of fiscal 2022 as customers' pre-pandemic behaviors largely resumed. TheWalmart U.S . segment's eCommerce sales grew at a slower rate than total comparable sales which negatively contributed approximately 0.1% to comparable sales for the three months endedOctober 31, 2021 as customers shifted toward more in-store shopping as compared to the same period in the previous year. For the nine months ended, eCommerce sales positively contributed approximately 1.3% to comparable sales, primarily driven by store pick-up and delivery. Gross profit rate decreased 12 basis points for the three months endedOctober 31, 2021 when compared to the same period in the previous fiscal year, primarily driven by higher supply chain costs and fuel mix, partially offset by lower markdowns, price management, and growth in our advertising business. For the nine months endedOctober 31, 2021 , gross profit rate increased 50 basis points due primarily to shifts into general merchandise due in part to government stimulus spending and lapping last year's COVID-related mix shifts into food and consumables in the first quarter of fiscal 2021. Gross profit rate was also impacted by lower markdowns, lapping the temporary closures of ourAuto Care Centers and Vision centers, price management, and growth in our advertising business, partially offset by increased supply chain costs. Operating expenses as a percentage of net sales increased 20 basis points for the three months endedOctober 31, 2021 when compared to the same period in the previous fiscal year, primarily driven by increased wage investments, partially offset by strong sales growth and$0.1 billion of lower incremental COVID-19 costs. Operating expenses as a percentage of net sales were relatively flat for the nine months endedOctober 31, 2021 when compared to the same period in the previous fiscal year, which benefited from strong sales, lower incremental COVID-19 costs of$1.5 billion and lapping a$0.4 billion business restructuring charge in the second quarter of fiscal 2021, partially offset by increased investments in wages. As a result of the factors discussed above, operating income increased$0.3 billion and$2.5 billion for the three and nine months endedOctober 31, 2021 , respectively, when compared to the same periods in the previous fiscal year.Walmart International Segment Three Months Ended October 31, Nine Months Ended October 31, (Amounts in millions, except unit counts) 2021 2020 2021 2020 Net sales$ 23,627 $ 29,554 $ 73,962 $ 86,487 Percentage change from comparable period (20.1) % 1.3 % (14.5) % (0.7) % Operating income $ 871$ 1,078 $ 2,926 $ 2,696 Operating income as a percentage of net sales 3.7 % 3.6 % 4.0 % 3.1 % Unit counts at period end 5,224 6,163 5,224 6,163 Retail square feet at period end 282 345 282 345 22 -------------------------------------------------------------------------------- Table of Contents Net sales for theWalmart International segment decreased$5.9 billion or 20.1% and$12.5 billion or 14.5% for the three and nine months endedOctober 31, 2021 , respectively, when compared to the same periods in the previous fiscal year. The reduction in net sales was due to decreases of$9.4 billion and$22.4 billion for the three and nine months endedOctober 31, 2021 , respectively, primarily related to the divestiture of Asda and Seiyu during the first quarter of fiscal 2022. The decreases were partially offset by positive net sales growth in the majority of our remaining markets. Net sales for the three and nine months endedOctober 31, 2021 included positive fluctuations in currency exchange rates of$1.3 billion and$4.7 billion , respectively. Gross profit rate decreased 86 basis points for the three months endedOctober 31, 2021 when compared to the same period in the previous fiscal year, primarily driven by shifts into lower margin formats. The divested markets also negatively impacted our gross profit rate. Gross profit rate decreased 38 basis points for the nine months endedOctober 31, 2021 , when compared to the same period in the previous fiscal year primarily driven by shifts into lower margin formats and the decrease related to our divested markets, partially offset by benefits in the first quarter of fiscal 2022 related to mix shifts into higher margin categories and lower markdowns. Operating expenses as a percentage of net sales decreased 10 and 62 basis points for the three and nine months endedOctober 31, 2021 , respectively when compared to the same periods in the previous fiscal year, primarily due to lower incremental COVID-19 related costs and impacts from the divested markets. Additionally, operating expenses as a percentage of net sales for the nine months endedOctober 31, 2021 benefited from depreciation and amortization expense not having been recorded for our operations in theU.K. andJapan subsequent to their held for sale classification at the end of fiscal 2021 and prior to closing during the first quarter of fiscal 2022. Operating income for the three and nine months endedOctober 31, 2021 included positive fluctuations in currency exchange rates of$0.1 billion and$0.3 billion , respectively. As a result of the factors discussed above, operating income decreased$0.2 billion and increased$0.2 billion for the three and nine months endedOctober 31, 2021 , respectively, when compared to the same periods in the previous fiscal year. Sam's Club Segment Three Months Ended October 31, Nine Months Ended October 31, (Amounts in millions, except unit counts) 2021 2020 2021 2020 Including Fuel Net sales$ 18,971 $ 15,845 $ 54,307 $ 47,383 Percentage change from comparable period 19.7 % 8.3 % 14.6 % 8.9 % Calendar comparable sales increase 19.6 % 8.3 % 14.6 % 8.9 % Operating income $ 475$ 431 $ 1,710 $ 1,517 Operating income as a percentage of net sales 2.5 % 2.7 % 3.1 % 3.2 % Unit counts at period end 600 599 600 599 Retail square feet at period end 80 80 80 80 Excluding Fuel (1) Net sales$ 16,614 $ 14,596 $ 47,988 $ 43,929 Percentage change from comparable period 13.8 % 11.6 % 9.2 % 12.7 % Operating income $ 368$ 358 $ 1,473 $ 1,283 Operating income as a percentage of net sales 2.2 % 2.5 % 3.1 % 2.9 % (1) We believe the "Excluding Fuel" information is useful to investors because it permits investors to understand the effect of theSam'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 theSam's Club segment in the future. Net sales for theSam's Club segment increased$3.1 billion or 19.7% and$6.9 billion or 14.6% for the three and nine months endedOctober 31, 2021 , respectively, when compared to the same periods in the previous fiscal year. The increases were primarily due to comparable sales, including fuel, of 19.6% and 14.6% for the three and nine months endedOctober 31, 2021 , respectively. Growth in comparable sales benefited from growth in transactions and average ticket and was aided by consumer spending due to government stimulus, and also includes some higher inflation impacts in certain merchandise categories compared to recent years. The growth in comparable sales was partially offset by our decision to remove tobacco from certain club locations.Sam's Club eCommerce net sales positively contributed approximately 1.1% and 1.7% to comparable sales for the three and nine months endedOctober 31, 2021 , respectively. Gross profit rate decreased 127 and 75 basis points for the three and nine months endedOctober 31, 2021 , respectively, when compared to the same periods in the previous fiscal year. The gross profit rates were negatively impacted by higher supply chain costs, increased fuel sales which have lower margins, and cost inflation. The decrease in gross profit rate for the nine months endedOctober 31, 2021 was partially offset by favorable sales mix, including reduced tobacco sales. 23 -------------------------------------------------------------------------------- Table of Contents Membership and other income increased 14.4% and 13.0% for the three and nine months endedOctober 31, 2021 , respectively, when compared to the same periods in the previous fiscal year. The increases were due to increases in overall renewal rates, new member sign-ups and Plus penetration. Operating expenses as a percentage of segment net sales decreased 117 and 73 basis points for the three and nine months endedOctober 31, 2021 , respectively, when compared to the same periods in the previous fiscal year. The decreases were primarily the result of higher fuel sales as well as a benefit from lower incremental COVID-19 related costs. The decrease in operating expense as a percentage of segment net sales for the nine months endedOctober 31, 2021 was partially offset by reduced tobacco sales. As a result of the factors discussed above, operating income increased$44 million and$193 million for the three and nine months endedOctober 31, 2021 , respectively, when compared to the same periods in the previous fiscal year. Liquidity and Capital Resources Liquidity The strength and stability of our operations have historically supplied us with a significant source of liquidity. Our cash flows provided by operating activities, supplemented with our long-term debt and short-term borrowings, have been sufficient to fund our operations while allowing us to invest in activities that support the long-term growth of our operations. Generally, some or all of the remaining available cash flow has been used to fund the dividends on our common stock and share repurchases. In the current environment, we believe our sources of liquidity will continue to be adequate to fund operations, finance our global investment and expansion activities, pay dividends and fund our share repurchases for the foreseeable future. Net Cash Provided by Operating Activities Nine Months Ended October 31, (Amounts in millions) 2021 2020 Net cash provided by operating activities$ 16,291 $ 22,880 Net cash provided by operating activities was$16.3 billion and$22.9 billion for the nine months endedOctober 31, 2021 and 2020, respectively. The decrease in cash provided by operating activities for the nine months endedOctober 31, 2021 was primarily due to an increase in inventory purchases to support strong sales and lapping the impact of accelerated inventory sell-through in fiscal 2021, as well as timing and payment of wages. Cash Equivalents and Working Capital Deficit Cash and cash equivalents were$16.1 billion and$14.3 billion atOctober 31, 2021 and 2020, respectively. Our working capital deficit was$4.7 billion as ofOctober 31, 2021 , which decreased when compared to$14.5 billion as ofOctober 31, 2020 , primarily driven 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 ofOctober 31, 2021 andJanuary 31, 2021 , cash and cash equivalents of$5.5 billion and$2.8 billion , respectively, may not be freely transferable to theU.S. due to local laws or other restrictions. Of the$5.5 billion atOctober 31, 2021 , approximately$2.8 billion can only be accessed through dividends or intercompany financing arrangements subject to approval of theFlipkart minority shareholders; however, this cash is expected to be utilized to fund the operations ofFlipkart .Net Cash Used in Investing Activities Nine Months Ended
(Amounts in millions) 2021 2020 Net cash used in investing activities$ (1,530) $ (6,507) Net cash used in investing activities was$1.5 billion as compared to$6.5 billion for the nine months endedOctober 31, 2021 and 2020, respectively. Net cash used in investing activities decreased$5.0 billion for the nine months endedOctober 31, 2021 primarily due to the net proceeds received from the divestitures of Asda and Seiyu, partially offset by increased capital expenditures. Growth activities For the fiscal year endingJanuary 31, 2022 , we project capital expenditures will be approximately$13 billion , with a focus on supply chain, automation, customer-facing initiatives and technology. Refer to the " Strat e gic Capital Allocation " section in our Company Pe rformance Metrics for capital expenditure detail for the nine months endedOctober 31, 2021 and 2020. 24 -------------------------------------------------------------------------------- Table of ContentsNet Cash Used in Financing Activities Nine Months Ended
(Amounts in millions) 2021 2020 Net cash used in financing activities
Net cash from financing activities generally consists of transactions related to our short-term and long-term debt, dividends paid and the repurchase of the Company's common stock. Transactions with noncontrolling interest shareholders are also classified as cash flows from financing activities. Net cash used in financing activities was$18.1 billion as compared to$11.3 billion for the nine months endedOctober 31, 2021 and 2020, respectively. The increase in net cash used in financing activities is primarily due to repayments of long-term debt and related payment of premiums for the early extinguishment of certain notes, as well as increased share repurchases, partially offset by new long-term debt issuances in the current year and equity funding from the sale of subsidiary stock. During the nine months endedOctober 31, 2021 , the Company received$3.2 billion related to the sale of stock by certain of its subsidiaries, primarily related to a new equity funding which reduced the Company's ownership of its majority-ownedFlipkart subsidiary from approximately 83% as ofJanuary 31, 2021 , to approximately 75%. InApril 2021 , 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 theU.S. of$15.0 billion atOctober 31, 2021 , all undrawn. Long-term Debt The following table provides the changes in our long-term debt for the nine months endedOctober 31, 2021 : Long-term debt due within one (Amounts in millions) year Long-term debt Total Balances as of February 1, 2021$ 3,115 $ 41,194 $ 44,309 Proceeds from issuance of long-term debt - 6,945 6,945 Repayments of long-term debt (3,010) (10,000) (13,010) Reclassifications of long-term debt 1,461 (1,461) - Other 9 (253) (244) Balances as of October 31, 2021$ 1,575
Our total outstanding long-term debt decreased$6.3 billion during the nine months endedOctober 31, 2021 , primarily due to the extinguishment and maturities of certain long-term debt, partially offset by the issuance of new long-term debt in September 2021. Refer to Note 4 to our Condensed Consolidated Financial Statements for details on the maturities, extinguishment and issuances of long-term debt. The early extinguishment of certain long-term debt allowed us to retire higher rate debt to reduce interest expense in future periods. In connection with this early extinguishment of debt, the Company paid premiums of$2.3 billion , which represents the majority of the$2.4 billion loss recorded on the transaction during the nine months endedOctober 31, 2021 . Dividends EffectiveFebruary 18, 2021 , the Board of Directors approved the fiscal 2022 annual dividend of$2.20 per share, an increase over the fiscal 2021 annual dividend of$2.16 per share. For fiscal 2022, the annual dividend was or will be paid in four quarterly installments of$0.55 per share, according to the following record and payable dates: Record Date Payable Date March 19, 2021 April 5, 2021 May 7, 2021 June 1, 2021 August 13, 2021 September 7, 2021 December 10, 2021 January 3, 2022 The dividend installments payable onApril 5, 2021 ,June 1, 2021 andSeptember 7, 2021 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 prior toFebruary 22, 2021 were made under the plan in effect at the beginning of fiscal 2022. OnFebruary 18, 2021 , the Board of Directors approved a new$20.0 billion share repurchase program which has no expiration date or other restrictions limiting the period over which the Company can make repurchases, and beginningFebruary 22, 2021 , replaced the previous share repurchase program. As ofOctober 31, 2021 , authorization for$13.1 billion of share repurchases remained under the share repurchase program. Any repurchased shares are constructively retired and returned to an unissued status. 25 -------------------------------------------------------------------------------- Table of Contents We regularly review share repurchase activity and consider several factors in determining when to execute share repurchases, including, among other things, current cash needs, capacity for leverage, cost of borrowings, our results of operations and the market price of our common stock. We anticipate that a majority of the ongoing share repurchase program will be funded through the Company's free cash flow. The following table provides, on a settlement date basis, share repurchase information for the nine months endedOctober 31, 2021 and 2020: Nine Months Ended October 31, (Amounts in millions, except per share data) 2021 2020 Total number of shares repurchased 52.7 9.6 Average price paid per share$ 139.76 $ 123.54 Total amount paid for share repurchases$ 7,368 $ 1,186 Capital Resources We believe cash flows from operations, our current cash position and access to capital markets will continue to be sufficient to meet our anticipated operating cash needs, which include funding seasonal increases in merchandise inventories, 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 the capital markets. We also have$15.0 billion in various committed lines of credit in theU.S. , all of which currently remains undrawn. AtOctober 31, 2021 , the ratings assigned to our commercial paper and rated series of our outstanding long-term debt were as follows: 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 7 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 7 , we also discuss, under the sub-caption "Asda Equal Value Claims," the Company's indemnification obligation for the Asda Equal Value Claims matter. 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, the Money Transfer Agent Services Proceedings 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. 26
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