01—Abstract
Summary
Summary of the 10-K filed April 23, 1998. Cited figures are marked; the original filing is the authoritative source.
Wal-Mart Stores, Inc.'s Form 10-K for the fiscal year ended January 31, 1998 shows a company still growing strongly on both top and bottom lines.
Net sales rose 12% to $117.96 billiona, driven by an expansion program and comparable store sales growth of 6%. Net income climbed 15% to $3.526 billion, and diluted EPS reached $1.56, up from $1.33. Return on shareholders' equity was 19.8%, and the company ended the year with $1.45 billion in cash, no short-term borrowings, and total assets of $45.4 billion.
Growth came from both domestic and international expansion. Domestically, the company operated 1,921 discount stores, 441 Supercenters and 443 Sam's Clubs. International sales rose to about 6.4%b of total sales, helped by the consolidation of a 51% controlling stake in Mexico's Cifra, the acquisition of 21 Wertkauf hypermarkets in Germany, and the purchase of the minority stake in its Brazilian joint venture.
Those acquisitions, along with capital spending of $2.6 billionc, were funded largely by operating cash flow of $7.1 billion, which also covered $611 million in dividends and $1.6 billion in share repurchases. Balance sheet and capital allocation signals were constructive. Long-term debt declined to $7.2 billion from $7.7 billion, and the company announced a plan to repurchase up to $2 billion of stock over 12 to 18 months along with a 15% dividend increase to $0.31 per share for fiscal 1999.
Risks flagged in the filing include competitive pressure, inflation, currency fluctuations, and international exposure, while management reported no material pending legal proceedings. Year 2000 remediation was estimated at $12 milliond and expected to finish in fiscal 1999. Management planned about $4 billion in fiscal 1999 capital expenditures, to be funded primarily from operations.
02—Key points
Key Highlights
- Net sales of $117.96 billion, up 12% year over year, with comparable store sales up 6%
- Net income of $3.53 billion, up 15%, and diluted EPS of $1.56 versus $1.33 in fiscal 1997
- Return on shareholders' equity of 19.8% and total shareholders' equity of $18.5 billion
- Operating cash flow of $7.12 billion, which funded $2.6 billion in capex, $1.9 billion in acquisitions, $1.6 billion in buybacks and $611 million in dividends
- International sales rose to about 6.4% of total sales, boosted by the Cifra (Mexico) consolidation and the Wertkauf (Germany) acquisition
- Board-authorized plan to repurchase up to $2 billion of stock over 12 to 18 months, plus a 15% dividend increase to $0.31 per share
- Long-term debt reduced to $7.19 billion from $7.71 billion, with no short-term borrowings outstanding at year-end
03—Questions
Frequently Asked Questions
How fast is Wal-Mart growing and what is driving it?
Net sales grew 12% to $117.96 billion in fiscal 1998. About 6 points came from comparable store sales growth, and the rest came from store expansion and acquisitions. The company opened 37 Wal-Mart stores, 97 Supercenters and 8 Sam's Clubs domestically, and added 289 international units.
Did the international acquisitions materially change the company's profile?
Yes, somewhat. International sales rose to about 6.4% of total sales from 4.8%. The company gained a 51% voting interest in Cifra, Mexico's largest retailer, by merging its joint ventures there, and acquired 21 Wertkauf hypermarkets in Germany, whose results begin in fiscal 1999. The company also bought out the 40% minority stake in its Brazilian joint venture.
How is management returning capital to shareholders?
The company repurchased about 47 million shares for $1.6 billion in fiscal 1998 and announced a plan to buy back up to $2 billion more over the following 12 to 18 months. The quarterly dividend rose to $0.0675 per share in fiscal 1998 and the annual dividend will increase 15% to $0.31 in fiscal 1999.
What are the main risks identified in the filing?
The filing cites cost of goods, competitive pressures, inflation, consumer debt levels, currency exchange fluctuations, trade restrictions, tariff and freight rate changes, and interest rate and capital market conditions. It also notes that foreign operations in Brazil and Mexico are in highly inflationary economies, and that Brazil will switch to local-currency reporting in fiscal 1999.
Is Wal-Mart's balance sheet stable enough to support its expansion plans?
Yes, based on the disclosures. Long-term debt fell to $7.19 billion, the company had $1.45 billion in cash and no short-term borrowings at year-end, and it had $1.87 billion in committed credit lines plus $1.95 billion in informal lines. Management expects operating cash flow to fund its roughly $4 billion of planned fiscal 1999 capex and its buyback program without new debt for capex.
04—Continue