Retail behemoth Wal-Mart (NYSE:WMT) officially closed the books on its fiscal year by announcing financial results on Feb. 21, 2012. Sales growth was robust, but cash flow trends were discouraging and suggest Wal-Mart may finally be starting to see sluggish profit results due to its massive size.

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Full Year Recap
Total revenues advanced 6% to $447 billion. Net retail sales made up the vast majority of the top line and grew 5.9% to $443.9 billion. The rest consisted primarily of membership fees from the Sam's Club chain of membership warehouse stores that compete with the likes of Costco (Nasdaq:COST) and PriceSmart (Nasdaq:PSMT). This small category grew 6.9% to $3.1 billion. Wal-Mart breaks out same-store sales metrics for its U.S. stores and reported comps of 0.9%, which was made up of 0.2% at the domestic namesake store base and a strong 5.1% boost at Sam's Club. Fuel sales boosted total comps another 0.7%, for 1.6% total comp growth. This segment competes with other gasoline convenience stores, such as Casey's General Stores (Nasdaq:CASY) or the fuel segment of grocery store operator Kroger (NYSE:KR).

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A 6.4% rise in sales costs and was due in good part to higher commodity costs that are increasing prices for raw materials that go into the thousands of SKUs that Wal-Mart offers its customers. Operating and SG&A costs advanced 4.8% to lag the sales growth, but the commodity cost inflation caused more moderate operating income growth of 4%. Operating profits reached $26.6 billion, but net income fell 4.2% due to higher interest expense and income tax expense. The bottom line declined to $15.7 billion, but share buybacks pushed earnings per share growth back into positive territory. Diluted EPS advanced 1.1% to $4.52. (To know more about income statements, read Understanding The Income Statement.)

Outlook
For the coming year, Wal-Mart expects earnings between $4.72 and $4.92 per diluted share. This represents annual growth in a range of 5 to 9% from management's estimate of profits from its ongoing operations. Analysts project sales growth just north of 5% and total sales of nearly $471 billion.

The Bottom Line
Wal-Mart may finally be laboring from its massive size. Profit growth for the year was minimal, though it is expected to perk up during the coming year as commodity pressures moderate. However, free cash flow trends are deteriorating, suggesting that the company is having to cough up higher levels of capital expenditure in the face of slowing growth trends. For the year, free cash flow fell 1.85% to $10.7 billion, or roughly $3.09 per diluted share.


This is still capital generation on a massive scale and went to paying $5 billion in dividends, as well as the repurchase of $6.3 billion of its own stock (debt was used to fund the difference). Overall, it does call into question Wal-Mart's ability to offer investors an adequate annual total return. As it stands, its operations are slowing down and this could make an increase in the stock price more challenging over time. The dividend yield is decent at 2.3%, but the stock price has also run quite a bit, which has been due to an expansion in the multiple rather than robust operational growth. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.