01—Abstract
Summary
Summary of the 10-K filed March 31, 2008. Cited figures are marked; the original filing is the authoritative source.
Wal-Mart Stores, Inc. (WMT) reported fiscal 2008 (year ended January 31, 2008) net sales of $374.5 billiona, up 8.6% year over year, with operating income of $22.0 billion (up 7.3%) and diluted EPS from continuing operations of $3.16 (net income per diluted share $3.13).
Growth was driven largely by the International segment, which grew net sales 17.5% to $90.6 billionb (about 24% of total), helped by a $4.5 billion favorable currency impact and acquisitions such as Seiyu and BCL. U.S. comparable store sales rose only 1.6%, and Wal-Mart Stores segment comparable sales grew just 1.0%, reflecting weak traffic, softness in home and apparel, and cannibalization from new stores. Operating income grew more slowly than sales, and ROI declined to 19.5% from 19.9%.
Cash generation remained strong, with operating cash flow from continuing operations of $20.4 billionc and free cash flow of $5.4 billion, up from $4.3 billion. Management is shifting capital toward international markets and away from U.S. store expansion: capital expenditures fell to $14.9 billion and fiscal 2009 planned unit growth is 620 units, 400 of them international. Shareholder returns were significant, with $7.7 billion of share repurchases and dividends of $0.88 per share (up 31%), and the board later raised the annual dividend to $0.95.
Leverage rose, with total debt of $44.7 billiond and the debt-to-capitalization ratio increasing to 40.9% from 38.8%, though credit ratings remain strong (S&P AA, Moody's Aa2). Key risks include ongoing litigation, most notably the Dukes gender discrimination class action covering about 1.6 million current and former female associates, large wage-and-hour class actions, and a federal criminal investigation under hazardous waste laws. The company's own disclosures flag the potential for these matters to be material, though management has not quantified a loss for most of them.
02—Key points
Key Highlights
- Net sales rose 8.6% to $374.5 billion, while operating income grew 7.3% to $22.0 billion, so operating leverage was slightly negative in fiscal 2008.
- Diluted EPS from continuing operations was $3.16, up from $2.92 in fiscal 2007, helped by share repurchases that reduced the weighted average share count.
- The International segment was the growth engine, with sales up 17.5% to $90.6 billion, but its operating margin slipped to 5.3% from 5.5%.
- U.S. comparable store sales increased just 1.6% (Wal-Mart Stores segment +1.0%), a notable slowdown that management attributes to lower customer traffic and new-store cannibalization.
- Free cash flow rose to $5.4 billion from $4.3 billion as capex was cut to $14.9 billion, reflecting a planned slowdown in U.S. store expansion.
- Shareholder returns increased sharply: $7.7 billion in buybacks and a 31% dividend increase to $0.88 per share, followed by a further increase to $0.95 for fiscal 2009.
- Total debt rose to $44.7 billion, and the debt-to-capitalization ratio increased to 40.9%, while the company retained AA-range credit ratings.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Walmart Inc. kept $0.03.
- Revenue$377.02B100.0%
- Cost of revenue−$284.14B75.4%
- Gross profit$92.89B24.6%
- Operating costs−$70.93B18.8%
- Operating income$21.95B5.8%
- Interest, other & tax−$9.22B2.4%
- Net income$12.73B3.4%
Where FY2008 revenue went
$377.02B- Cost of revenue: $284.14B, 75% of revenue
- SG&A: $70.93B, 19% of revenue
- Net income: $12.73B, 3.4% of revenue
- Interest, other & tax: $9.22B, 2.4% of revenue
Kept 3.4% as net incomeNet income $12.73B · 3.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed March 31, 2008Financial Statements
| Revenue | $377.02B |
| Cost of Revenue | $284.14B |
| Gross Profit | $92.89B |
| SG&A Expenses | $70.93B |
| Operating Income | $21.95B |
| Interest Expense | $1.86B |
| Net Income | $12.73B |
| EPS (Basic) | $1.04 |
| EPS (Diluted) | $1.04 |
| Shares Outstanding (Basic) | 12.20B |
| Shares Outstanding (Diluted) | 12.22B |
05—Questions
Frequently Asked Questions
Why did Wal-Mart's operating income grow more slowly than sales in fiscal 2008?
Operating income grew 7.3% against 8.6% sales growth. In the Wal-Mart Stores segment, operating expenses grew faster than gross margin and other income. The International segment also fell short, largely due to newly acquired and consolidated entities such as Seiyu and BCL, which carry lower operating expense leverage. Operating expenses as a percentage of sales rose to 18.8% from 18.6%.
How much exposure does Wal-Mart have to the Dukes gender discrimination lawsuit?
Dukes v. Wal-Mart Stores is a class action on behalf of about 1.6 million current and former female associates alleging pay and promotion discrimination. The plaintiffs seek injunctive relief, back pay, front pay and punitive damages. The class certification ruling is under appeal at the Ninth Circuit. Management says it cannot reasonably estimate a possible loss, but it notes that an adverse outcome, a negotiated settlement, or a punitive award could be material.
Is Wal-Mart's growth now coming from U.S. stores or international operations?
Increasingly from international operations. In fiscal 2008 International net sales grew 17.5% to $90.6 billion, while Wal-Mart Stores segment sales grew 5.8% and Sam's Club grew 6.7%. Part of the International increase came from a $4.5 billion favorable currency effect. Management plans a slowdown in U.S. store growth, with fiscal 2009 projected at 220 U.S. units versus 400 international units.
Is the dividend and buyback program sustainable given rising debt?
Operating cash flow from continuing operations of $20.4 billion covered capex of $14.9 billion, leaving $5.4 billion of free cash flow. That is less than the $7.7 billion spent on buybacks plus $3.6 billion in dividends, so the gap was funded with borrowing. Total debt rose to $44.7 billion and the debt-to-capitalization ratio increased to 40.9%. Management says it plans to use commercial paper and long-term debt to fund shortfalls, and it expects continued access to capital markets given its ratings.
What regulatory risks does the filing disclose beyond litigation?
The filing discloses several environmental matters. These include a federal grand jury investigation by the U.S. Attorney's Office for the Central District of California, where Wal-Mart is a target for potential violations of the Resource Conservation and Recovery Act and related statutes over how it handles returned merchandise. Additional state and local investigations are under way in California and Nevada. There are also EPA inquiries into ozone-depleting products and a Notice of Violation in Missouri. Management says none of these is expected to have a material effect on its financial condition or results of operations.
06—Continue