01—Abstract
Summary
Summary of the 10-K filed April 21, 1997. Cited figures are marked; the original filing is the authoritative source.
Wal-Mart Stores, Inc. reported fiscal 1997 (year ended January 31, 1997) net sales of $104.9 billiona, up 12% from $93.6 billion, with comparative store sales up 5%.
Net income rose 12% to $3.06 billionb, or $1.33 per share, from $2.74 billion, or $1.19 per share. Operating margin pressure was modest: cost of sales rose 0.2 percentage points, partly from one-time third-quarter markdowns tied to a decision to trim merchandise assortments, while operating, selling and G&A expenses as a percentage of sales were flat. Return on shareholders' equity was 19.2%, down from 19.9%, and return on assets was 7.9%, up slightly from 7.8%.
The balance sheet strengthened considerably. Operating cash flow reached $5.9 billionc, up from $2.4 billion, driven mainly by tighter inventory management that reduced unit inventory levels even as sales grew. After $2.6 billion in capital expenditures, the company generated about $3.3 billion of free cash flow, which it used to eliminate short-term borrowings, retire $2.5 billion of commercial paper, and pay dividends.
Long-term debt declined to $7.7 billiond from $8.5 billion, and shareholders' equity increased to $17.1 billion from $14.8 billion. Cash and equivalents stood at $883 million at year-end. Looking ahead, management announced a plan to repurchase up to $2 billion of common stock over the next 18 months and raised the fiscal 1998 dividend 29% to $0.27 per share.
Planned expansion for fiscal 1998 includes about 50 new Wal-Mart stores, 100 Supercenters, 5 to 10 Sam's Clubs, and 30 to 35 international units, with total capital expenditures of roughly $3 billion, to be financed primarily from operating cash flow. The filing also notes that international operations remain immaterial to consolidated results, though international sales grew to about 4.8% of total sales, and that the company is not party to any material pending legal proceedings.
02—Key points
Key Highlights
- Record net sales of $104.9 billion (up 12%) and net income of $3.06 billion (up 12%), with EPS of $1.33 versus $1.19 in fiscal 1996.
- Comparative store sales grew 5%, and the company ended the year with 1,960 Wal-Mart stores, 344 Supercenters, and 436 Sam's Clubs in the U.S., plus 249 international Wal-Mart units and 26 international Supercenters and 39 Sam's Clubs.
- Operating cash flow surged to $5.9 billion from $2.4 billion, driven by inventory discipline, while capital expenditures were $2.6 billion.
- Balance sheet deleveraged: short-term borrowings were eliminated, long-term debt fell to $7.7 billion from $8.5 billion, and shareholders' equity rose to $17.1 billion.
- Management announced a $2 billion share repurchase program over 18 months and a 29% dividend increase to $0.27 per share for fiscal 1998.
- Gross margin pressure was limited to 0.2 percentage points, partly due to one-time third-quarter markdowns from a strategic assortment reduction; ROE eased to 19.2% from 19.9%.
- Fiscal 1998 plans include roughly 50 new Wal-Mart stores, 100 Supercenters, and 30 to 35 international units, with about $3 billion in capital spending.
03—Questions
Frequently Asked Questions
How did Wal-Mart's profitability and growth trend in fiscal 1997?
Net sales grew 12% to $104.9 billion, supported by a 5% comparative store sales increase and continued unit expansion. Net income grew 12% to $3.06 billion, and EPS rose to $1.33 from $1.19. Margins were largely stable, with cost of sales up only 0.2 percentage points, partly attributable to one-time markdowns in the third quarter.
Did Wal-Mart's balance sheet and cash generation improve?
Yes. Operating cash flow rose to $5.9 billion from $2.4 billion, largely because inventory management reduced unit inventory levels while sales grew. The company used its cash to pay down $2.5 billion of commercial paper, eliminate short-term borrowings, reduce long-term debt to $7.7 billion, and increase cash to $883 million. Shareholders' equity grew to $17.1 billion, and the current ratio was 1.6.
What capital returns are management offering shareholders?
The board authorized repurchases of up to $2 billion of common stock over the next 18 months, following $208 million of buybacks in fiscal 1997. The quarterly dividend for fiscal 1998 was increased 29% to a total of $0.27 per share, up from $0.21 in fiscal 1997.
What are the main growth plans and risks for the coming year?
Planned fiscal 1998 expansion includes about 50 new Wal-Mart stores, 100 Supercenters (roughly 70 from conversions), 5 to 10 Sam's Clubs, four distribution centers, and 30 to 35 international units, with total capital spending around $3 billion funded primarily by operations. The filing cautions that opening dates may slip and that competitive pressure, inflation, consumer debt levels, currency fluctuations, and trade or tariff changes could cause actual results to differ materially.
How significant is international business to Wal-Mart's results?
International operations remain immaterial to consolidated results, though they are growing faster than the company's other formats. International sales rose to about 4.8% of total sales from 4.0% in fiscal 1996, and the international operations as a group were profitable in fiscal 1997. Operations span Canada, Puerto Rico, and Argentina (wholly owned) and Mexico, Brazil, China, and Indonesia (joint ventures or franchises).
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