01—Abstract
Summary
Summary of the 10-K filed April 23, 1996. Cited figures are marked; the original filing is the authoritative source.
Wal-Mart Stores, Inc. (WMT) reported fiscal 1996 (year ended January 31, 1996) net sales of $93.6 billiona, up 13% from $82.5 billion in fiscal 1995, driven by an expansion program that added 92 Wal-Mart stores, 92 Supercenters, 9 Sam's Clubs and 50 international units, plus a 4% comparable store sales increase.
Net income rose 2% to $2.74 billionb ($1.19 per share) from $2.68 billion, a slower pace than sales growth. Operating, selling, and G&A expenses rose as a percentage of sales, and the company's margins were pressured by a mix shift toward lower-markup Wal-Mart stores and away from higher-cost-structure Sam's Clubs, a trend management attributed to its low-price strategy. Return on shareholders' equity fell to 21.5% from 24.9%, reflecting the expansion-driven growth in the equity base.
The balance sheet grew substantially to $37.5 billionc in total assets from $32.8 billion, with long-term debt rising to $8.5 billion and shareholders' equity reaching $14.8 billion. The debt-plus-capital-lease-to-equity ratio was 0.74:1, slightly improved from 0.77:1 a year earlier. Operating cash flow was $2.4 billion, against capital expenditures of $3.6 billion, so the company borrowed $1 billion of long-term debt and relied on short-term commercial paper to fund the gap.
Management plans capital expenditures of up to $3.5 billiond in fiscal 1997 and says it expects to finance this primarily from operating cash flow. The company ended the year with 2,667 total U.S. store units and 675,000 associates, and it has announced plans for 60 to 70 new Wal-Mart stores, 100 to 110 Supercenters, and 10 new Sam's Clubs domestically in fiscal 1997.
The company reports no material pending legal proceedings. Investors should weigh the strong unit growth and market leadership against a moderating return on equity, rising leverage, and the currency risk from the Mexican peso devaluation, which generated a $412 million foreign currency translation adjustment in fiscal 1996.
02—Key points
Key Highlights
- Record net sales of $93.6 billion, up 13% year over year, with comparable store sales up 4%
- Net income of $2.74 billion, up 2%, or $1.19 per share, versus $1.17 in fiscal 1995
- Return on shareholders' equity declined to 21.5% from 24.9%, as equity grew faster than earnings
- Aggressive expansion: 193 new domestic units and 50 new international units opened in fiscal 1996, bringing U.S. store count to 2,667
- Total assets grew to $37.5 billion; long-term debt rose to $8.5 billion, with a debt-to-equity ratio of 0.74:1
- Operating cash flow of $2.4 billion did not fully cover $3.6 billion in capital expenditures, requiring $1 billion in new long-term borrowing
- Fiscal 1997 plans include up to $3.5 billion in capital expenditures and a significant new store pipeline, with exposure to Mexican peso devaluation through joint ventures
03—Questions
Frequently Asked Questions
How fast is Wal-Mart growing, and is that growth coming from existing stores?
Net sales grew 13% to $93.6 billion, but only about 4 percentage points came from comparable store sales. The remainder reflects new units, including 193 new domestic stores and Supercenters and 50 international units, along with the full-year effect of the 122 Canadian Woolco stores acquired in fiscal 1995. Growth is therefore heavily dependent on continued store expansion.
Why did net income grow more slowly than sales?
Net income rose 2% to $2.74 billion while sales rose 13%. Cost of sales as a percentage of revenue increased by 0.1%, driven by a mix shift toward Wal-Mart stores (lower markups) and a lower share of higher-margin Sam's Clubs. Operating, selling, and G&A expenses also rose as a share of sales, partly due to payroll costs and international operations, which carry slightly higher expenses.
Is Wal-Mart's balance sheet becoming more leveraged?
Modestly, in absolute terms. Long-term debt rose to $8.5 billion from $7.9 billion, and total assets grew to $37.5 billion. However, the combined debt and capital lease to equity ratio improved to 0.74:1 from 0.77:1, and the current ratio held at 1.5. Management says its significant working capital and cash flow generation give it no difficulty funding working capital needs.
What are the main risks disclosed in this filing?
The filing cites general economic conditions, changes in consumer spending, availability of capital, and competition. Internationally, the company flagged currency risk, particularly the Mexican peso's decline, which produced a $412 million cumulative translation adjustment charge to equity. The company reports no material pending legal proceedings, and the accounting changes from SFAS 121 and SFAS 123 are not expected to have a material effect.
What is the company's expansion outlook for fiscal 1997?
Management plans to open 60 to 70 new Wal-Mart stores, 100 to 110 Supercenters (about 90 from conversions of existing stores), 10 new Sam's Clubs, and three distribution centers domestically, plus 25 to 30 international units. Capital expenditures are expected not to exceed $3.5 billion, to be financed primarily from operating cash flow, with $751 million of shelf-registered debt available as a backup.
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