This summary is based on the second quarter fiscal 2009 earnings call conducted by Wal-Mart Stores Inc. (WMT) on August 14, 2008.
Management:
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President and Chief Executive Officer: Lee Scott
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Executive Vice President and Chief Financial Officer: Tom Schoewe
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Wal-Mart Stores U.S. President and Chief Executive Officer: Eduardo Castro-Wright
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Executive Vice President Finance and Treasurer: Charles Holley
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Sam’s Club President and Chief Executive Officer: Doug McMillon
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Vice President of Investor Relations: Carol Schumacher
Key Investors Issues
- Income was $3.385 billion or 86 cents a share, an increase of 9.3% from $3.097 billion or 75 cents per share in the prior year.
- Sales were $101.6 billion, up 10.4%.
- The firm repurchased $845 million of stock, which represented 14.7 million shares.
Half Year Highlights:
- Sales were up 10.6% to $198 billion from $179 billion in the prior year.
- Net income at $6.5 billion or $1.64, was up 12% from $5.8 billion or $1.41 a share in 2007.
Second Quarter Highlights
Total net sales for the company were $101.6 billion, up 10.4% from $92 billion in the prior year as U.S. comp store sales were a positive 4.5%, and that’s without fuel in the second quarter.
- The improvements made in the business, along with the sales generated by the economic stimulus checks, contributed to the U.S. businesses outperforming comp guidance for the quarter.
- Operating income was up 9.7%, with income from continuing operations before taxes and minority interest for the second quarter increasing 9.5%.
- Last year’s second quarter results included a net benefit of approximately 4 cents per share from accruals for general liability and workers compensation claims, which were reduced by $196 million.
The company closed the sale of Gazeley Limited Group, a commercial property subsidiary of ASDA in the United Kingdom, this July and anticipates recording a gain from the sale of Gazeley in the upcoming third quarter of fiscal 2009.
- In addition, discontinued operations include a $63 million gain which resulted from the resolution of a tax contingency related to the McLane Company.
- Consolidated gross margin was up 32 basis points, due primarily to the improvements Wal-Mart U.S. made in inventory management and merchandising flow.
- Consolidated inventories were up 3.5% against a year-to-date sales increase of 10.4%, a good performance again driven primarily by Wal-Mart U.S.
- Payables as a percentage of inventories for the company were 84.6% at the end of the second quarter, which is up 3.6% from last year.
- Membership and other income were up approximately 6% for the second quarter over last year.
Operating expenses as a percentage of sales were up 31 basis points due to higher bonus payments for store and field associates and the favorable adjustments to general liability and worker’s compensation claim accruals.
- Expenses in the ""Other"" segment were up approximately 23% from the second quarter of fiscal 2008, again due primarily to investment in transformation programs.
- Investments in information systems for merchandising, finance and human resources will continue to be a headwind for the rest of this fiscal year and several years to come.
- Income from continuing operations was $3.385 billion or 86 cents a share, an increase of 9.3% from $3.097 billion or 75 cents per share in the prior year.
Net interest expense was up 12.9% over last year’s second quarter due to higher debt levels to fund increased share repurchase over the last year.
- Debt to total capitalization was 40.0% at the end of the second quarter of this fiscal year, slightly reduced from the 40.9% reported at the same time last year.
- Cash flow from operations to average debt was approximately 44%.
- The firm repurchased approximately $845 million of stock, which represented approximately 14.7 million shares.
Perspectives on The Economy:
- Inventory management continues to be a great story, driven by strong performance again from Wal-Mart U.S. as well as some of the Wal-Mart international operations including Mexico, Brazil and the United Kingdom.
- In the U.S., the firm is gaining market share in each of the six merchandise units and is also increasing share in many markets within Wal-Mart International.
- The global economy is difficult, and it started in North America and then spread to Europe.
- The economic difficulties are now showing up in some of the developing countries as well.
While some of them live paycheck to paycheck, customers represent a broad income segment and they are all challenged today.
- When energy and oil prices go up - on top of inflation and health care and core food items there’s a great deal of pressure on the customer.
- The Wal-Mart and Sam’s Club associates are focused every day on carrying out Sam Walton’s vision to improve the lives of everyday people by making everyday things more affordable.
- Customers in many areas are buying cheaper cuts of meat for dinner, and, similar to the United States, people in other countries are eliminating vacations and entertaining more at home.
Customer in Mexico, whose paycheck is being stretched, still wants a top quality branded TV and it may take just a little longer to be able to make the purchase.
- The common thread is that they can rely on Wal-Mart to deliver products at the lowest price.
- While commodity prices have decreased recently, food inflation continues to be a factor in the markets as energy costs are increasing the cost of raw materials and transportation.
- Labor costs are rising in some markets as well, suppliers are experiencing cost increases and are passing them along to retailers.
- The firm continues to leverage the global purchasing capability to keep cost increases down as much as possible.
