How fast is Walmart growing, and what drove the increase in fiscal 2003?

Net sales grew 12% to $244.5 billion. Roughly 5 percentage points came from a 5% increase in domestic comparable store sales, and the remainder came from new store openings in the U.S. and abroad, along with the Amigo acquisition in Puerto Rico and the full-year contribution of ASDA in the UK.

Is Walmart's profitability improving?

Yes. Net income grew 20.5% to $8.04 billion, and diluted EPS rose to $1.81 from $1.49. Gross margin expanded 32 basis points, and net interest expense fell as the company reduced inventory and benefited from lower average interest rates. Part of the year-over-year gain reflects the adoption of FAS 142, which eliminated goodwill amortization of roughly $246 million in fiscal 2002.

Is Walmart's balance sheet and liquidity position sound?

The company had total assets of $94.7 billion and shareholders' equity of $39.3 billion. Its debt-to-total-capitalization ratio was 39.2%, close to its 40% target. It reported a working capital deficit of $2.1 billion and a current ratio of 0.9, which reflects the company's reliance on supplier financing and commercial paper and is common for large-scale retailers. An A-rated credit profile and $12.5 billion in operating cash flow support access to funding.

What are the main legal and operational risks disclosed?

The filing discloses more than 30 putative wage-and-hour 'off the clock' class actions across 31 states, multiple exempt-status and pharmacy overtime suits, the Dukes gender discrimination class action (which could be material if certified and adversely decided), the COLI insurance litigation, and seven Massachusetts item-pricing class actions. Management also flags rising insurance and healthcare costs and the potential impact of German tax law changes on loss carryforwards.

What is Walmart's international strategy going forward?

Walmart is expanding internationally through acquisitions and new units. It acquired ASDA in the UK in 2000, gained control of Wal-Mart de Mexico (now about 62% owned), bought Amigo in Puerto Rico in December 2002, and took a 35% fully diluted stake in Japan's Seiyu, with warrants that could raise its ownership to 66.7% for roughly $2.1 billion. The company plans 120 to 130 new international units in fiscal 2004.

WMT 10-K FY2003 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed April 15, 2003. Cited figures are marked; the original filing is the authoritative source.

Walmart's fiscal 2003 10-K (year ended January 31, 2003) shows a company still growing rapidly on both top and bottom lines.

Net sales rose 12% to $244.5 billion^a, driven by domestic comparative store sales growth of 5% and continued expansion, including 192 new Supercenters, 43 new Wal-Mart discount stores, 18 Neighborhood Markets, and 115 International units opened, expanded or relocated. Net income increased 20.5% to $8.04 billion, or $1.81 per diluted share, with operating profit up 14.3% to $13.6 billion. Gross margin improved 32 basis points to 21.55%, driven by lower shrinkage, reduced markdowns and product mix, though management warns of ongoing pressure from rising food mix and LIFO costs.

The balance sheet expanded to $94.7 billion^b in total assets, with shareholders' equity of $39.3 billion and a debt-to-total-capitalization ratio of 39.2%, in line with the company's roughly 40% target. Operating cash flow reached $12.5 billion against $9.4 billion in capital expenditures, leaving substantial free cash flow that funded $3.4 billion in share repurchases and $1.3 billion in dividends. The company has a working capital deficit of $2.1 billion and a current ratio of 0.9, which is typical for a high-turnover retailer that relies on trade payables and commercial paper.

Management plans roughly $11.5 billion^c in fiscal 2004 capital spending and has raised the dividend 20% to $0.36 per share. Key risks flagged in the filing include rising insurance and healthcare costs, a sizable docket of wage-and-hour class actions across more than 30 states, the Dukes gender discrimination suit, and the Item Pricing litigation in Massachusetts. Growth is increasingly international, with International segment sales of $40.8 billion and operating income up 56%, aided by the ASDA acquisition in the UK, the Amigo purchase in Puerto Rico, and a stake in Japan's Seiyu that management may increase to 66.7%.

02—Key points

Key Highlights

Net sales grew 12% to $244.5 billion, with domestic comparative store sales up 5%, reflecting both same-store growth and continued store expansion.
Net income rose 20.5% to $8.04 billion, or $1.81 per diluted share, outpacing sales growth due to gross margin gains and lower net interest expense.
Gross margin improved to 21.55% from 21.23%, driven by lower shrinkage, fewer markdowns and a better product mix, though rising food sales mix and LIFO costs are expected to pressure margins going forward.
Operating cash flow of $12.5 billion comfortably funded $9.4 billion in capital spending, $3.4 billion in share repurchases and $1.3 billion in dividends.
International segment operating income increased 55.8% to $2.0 billion on 15% sales growth, aided by ASDA, Amigo and the Seiyu investment in Japan.
The dividend was increased 20% to $0.36 per share for fiscal 2004, extending a streak of annual increases that began in 1974.
Management plans 200 to 210 new Supercenters, 45 to 55 new Wal-Mart stores and 120 to 130 new international units in fiscal 2004, with total capex of about $11.5 billion.

03—Questions

Frequently Asked Questions

How fast is Walmart growing, and what drove the increase in fiscal 2003?
Net sales grew 12% to $244.5 billion. Roughly 5 percentage points came from a 5% increase in domestic comparable store sales, and the remainder came from new store openings in the U.S. and abroad, along with the Amigo acquisition in Puerto Rico and the full-year contribution of ASDA in the UK.
Is Walmart's profitability improving?
Yes. Net income grew 20.5% to $8.04 billion, and diluted EPS rose to $1.81 from $1.49. Gross margin expanded 32 basis points, and net interest expense fell as the company reduced inventory and benefited from lower average interest rates. Part of the year-over-year gain reflects the adoption of FAS 142, which eliminated goodwill amortization of roughly $246 million in fiscal 2002.
Is Walmart's balance sheet and liquidity position sound?
The company had total assets of $94.7 billion and shareholders' equity of $39.3 billion. Its debt-to-total-capitalization ratio was 39.2%, close to its 40% target. It reported a working capital deficit of $2.1 billion and a current ratio of 0.9, which reflects the company's reliance on supplier financing and commercial paper and is common for large-scale retailers. An A-rated credit profile and $12.5 billion in operating cash flow support access to funding.
What are the main legal and operational risks disclosed?
The filing discloses more than 30 putative wage-and-hour 'off the clock' class actions across 31 states, multiple exempt-status and pharmacy overtime suits, the Dukes gender discrimination class action (which could be material if certified and adversely decided), the COLI insurance litigation, and seven Massachusetts item-pricing class actions. Management also flags rising insurance and healthcare costs and the potential impact of German tax law changes on loss carryforwards.
What is Walmart's international strategy going forward?
Walmart is expanding internationally through acquisitions and new units. It acquired ASDA in the UK in 2000, gained control of Wal-Mart de Mexico (now about 62% owned), bought Amigo in Puerto Rico in December 2002, and took a 35% fully diluted stake in Japan's Seiyu, with warrants that could raise its ownership to 66.7% for roughly $2.1 billion. The company plans 120 to 130 new international units in fiscal 2004.

04—Continue

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