Wal-Mart Stores, Inc. (WMT)
Q1 2009 Earnings Call Transcript
May 14, 2009 8:00 a.m. ET

Executives

Carol Schumacher - Vice President Investor Relations
Mike Duke - President and Chief Executive Officer
Charley Holley - Executive Vice President, Finance and Treasurer
Eduardo Castro-Wright - Vice Chairman
Doug McMillon - President and CEO International
Brian Cornell - President and CEO Sam’s Club
Tom Schoewe - Executive Vice President and Chief Financial Officer

Presentation

Welcome to the Wal-Mart Stores, Inc. earnings call for the first quarter of fiscal year 2010. This call is the property of Wal-Mart Stores, Inc. and intended solely for the use of Wal-Mart shareholders. It should not be reproduced in any way. This call will contain statements that Wal-Mart believes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended and intended to enjoy the protection of the Safe Harbor for forward-looking statements provided by that Act. These forward-looking statements generally are identified by the use of the words or phrases anticipate, are sustainable, continue to expect, estimate, expect, may impact, will continue, will also face, will also emphasize, will appreciate, will be, will broaden and accelerate, will build, will continue, will deliver, will help, will remain, will see, will stay, or will use or a variation of one of those words or phrases in those statements or by the use of words or phrases of similar import.

Similarly, descriptions of our objectives, plans, goals, targets or expectations are forward-looking statements. These statements discuss among other things our anticipated earnings per share for the current fiscal quarter, our anticipated tax rate for the fiscal year 2010, the factors that may impact that tax rate, our expected capital expenditures in fiscal 2010, the anticipated comparable store sales for each of our Wal-Mart US and Sam’s Club segments for the 13 week period ending July 31, 2009, as well as our expectations that or as to we will always emphasize our price leadership and role as an advocate for our customers and members.

Our customers will appreciate our American Summer Program to kick off in May 2009. Additional sales events will occur in the quarter ending July 31, 2009. We will continue to build our brand, reduce costs, sharpen our merchandising and remodel stores and clubs. We will continue to employ our global leverage for the benefit of our customers and members. We will broaden and accelerate our efforts on issues important to customers, members, and associates. We will continue to contribute constructively to the process on a range of issues.

The improvements made in merchandising, marketing and operations are sustainable. We will gain market share. Our investment in future capacity in the merchandising, financing, and human resources systems will build global capabilities, leverage our scale and optimize our investments in our company. Healthcare costs and labor productivity within our Wal-Mart US segment will grow faster than sales for the remainder of fiscal 2010. Wal-Mart US will see ongoing financial benefits from investments in systems and proprietary technology solutions we have developed. There will be continued moderation in food inflation that will be a challenge for our Wal-Mart US segment in the fiscal quarter ending July 31, 2009. Wal-Mart US comparable store sales in that fiscal quarter will face a headwind of cycling last year’s stimulus checks, the impact of the stimulus checks on Wal-Mart US comparable store sales in that fiscal quarter.

Our International segment will use our global leverage and responsible sourcing, quality, and sustainability. Our International segment will continue to build global talent and identify new ways to take advantage of our organizational knowledge and purchasing volume, improvement in results in China as the global economy settles down. The results of the efforts of new officer of our Sam’s Club segment, Sam’s Club will be a member driven business driving member trust and loyalty through outstanding quality at an outstanding value, continued pressure on discretionary items offered for sale at Sam’s Clubs. Certain merchandise categories at our Sam’s Clubs that were highly inflationary last year will experience a declining rate of inflation or even deflation over the next several fiscal quarters. Sam’s Club will stay focused on driving efficiencies and controlling expenses and maximizing top line sales potential. Sam’s Club will continue to be focused on where members are today and meeting their needs. We may have future upside opportunity in growing inventory less than half the rate of sales growth and improvement in operations and assortments will continue to help us provide value to customers and members, and the anticipation and expectations of Wal-Mart and its management as to future occurrences and trends.

These forward looking statements are subject to risks, uncertainties and other factors domestically and internationally including general economic conditions, including the current economic crisis and disruption in the financial markets, unemployment levels, consumer credit availability, levels of consumer disposable income, consumer spending patterns and debt levels, inflation, the cost of goods we sell, labor costs, transportation costs, the cost of diesel fuel, gasoline, natural gas and electricity, the cost of healthcare benefits, accident costs, our casualty and other insurance costs, information security costs, the cost of construction materials, availability of acceptable building sites for new stores, clubs and other formats, competitive pressures, accident related costs, weather patterns, catastrophic events, storm and other damages to our stores and distribution centers, weather related closing of stores, availability and transport of goods from domestic and foreign suppliers, currency exchange fluctuations and volatility, trade restrictions, changes in tariff and freight rates, adoption of or changes in tax and other laws and regulations that affect our business, cost of compliance with laws and regulations, the outcome of legal proceedings to which we are a party, interest rate fluctuations, changes in employment legislation, and other capital market, economic, and geopolitical conditions and events including civil unrest and terrorist attacks.

We discuss certain of these matters more fully in our filings with the SEC including our most recent annual report on Form 10-K and the information on this call should be read in conjunction with that annual report on Form 10-K and together with all our other filings including current reports on Form 8-K we have made with the SEC through the date of this call. We urge you to consider all of these risks, uncertainties and other factors carefully in evaluating the forward-looking statements we make in this call. As a result of these factors, changes in facts, assumptions not being realized or other circumstances, our actual results may differ materially from anticipated results, expressed or implied in these forward-looking statements. The forward-looking statements made in this call are made on and as of the date of this call and we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances. The comp store sales for our total US operations and for our Sam''s Club segment discussed on this call exclude the impact of fuel sales in our Sam''s Club segment.

That measure, our net sales on a constant currency basis, our return on investment, free cash flow, and cash flow from operations to average debt as discussed in this call may be considered non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most directly comparable GAAP measures are available for review on the investor relations portion of our corporate website at www.Wal-MartStores.com/Investors.

Carol Schumacher – Vice President of Investor Relations

Welcome to the Wal-Mart Stores, Inc first quarter earnings call for fiscal year 2010. This is Carol Schumacher, Vice President of Investor Relations and thanks for joining us today. The replay of this call and related materials about the quarter are available on our website. Here’s the lineup for today’s call. Mike Duke, Wal-Mart Stores, Inc. President and CEO will begin the call with comments on the company’s overall performance. Charles Holley, Executive Vice President, Finance and Treasurer will cover the consolidated financial details for the quarter. Eduardo Castro-Wright, Vice Chairman Wal-Mart Stores, Inc. will discuss the results for Wal-Mart US. Doug McMillon, President and CEO of Wal-Mart International will cover our operations outside the United States with details on our countries with the largest revenues. Brian Cornell, new to our company as President and CEO of Sam’s Club, will discuss that operating segment and Tom Schoewe, Executive Vice President and Chief Financial Officer will close with a report card on our financial metrics as well as guidance for the second quarter.

Before Mike kicks it off we want to share details about changes to our reporting practices. As announced last week, we will no longer report sales results on a monthly basis. Our company will now provide comp store sales guidance and results on a 13 week basis in our quarterly earnings releases like we’re doing today. Instead of total US comp guidance, Wal-Mart US and Sam’s Club each will provide separate guidance for the 13 week period. You will hear more about this from Eduardo and Brian.

We will continue to provide comp store sales results on a fiscal calendar basis in our Form 10-Q and 10-K filings with the SEC. Our investor communications policy which is posted on our website has been updated to reflect these changes. During today’s discussion please keep in mind that our first quarter last fiscal year, what we call, FY2009 included the benefit of one extra day, February 29th due to a leap year. This year’s first quarter has 91 days versus 92 days last year so in essence one less selling day. Effective February 1, 2009, Wal-Mart Stores, Inc. adopted Statement of Financial Accounting Standard Number 160 “Non-Controlling Interest in Consolidated Financial Statements.” This standard requires some accounting changes and minor modifications to financial statement presentation for minority interests and subsidiaries. These changes are reflected in our first quarter financial statements we’re releasing today. As a result during this call all references to income from continuing operations or earnings per share from continuing operations refer to income from continuing operations attributable to Wal-Mart or diluted income per share from continuing operations attributable to Wal-Mart respectively. Also, diluted net income per share from continuing operations refers to diluted income per share from continuing operations attributable to Wal-Mart.

As a reminder, we consolidate and report our International business as follows. Canada and Puerto Rico report on the same calendar as our US operations which means that our first quarter runs from February 1st through April 30th. All other markets in Wal-Mart International report on the regular calendar basis meaning the first quarter news we are reporting today represents results from January 1st through March 31. Note that sales and other financial metrics are pegged to local currencies when referring to the specific international markets.

Store counts, square footage updates and information on our financial metrics are available on our website www.WalMartStores.com/Investors under the reconciliation and financial measures. And a full transcript of this call is posted approximately an hour after our call starts. Thanks for listening to our news about Wal-Mart’s first quarter of fiscal 2010. Mike lets get started.

Mike Duke – Chief Executive officer

Thank you, Carol and welcome everyone. I appreciate your joining us today. We’re pleased to report that fiscal year 2010 is off to a very good start. Even though this is the most challenging economy we’ve faced in decades, certainly we feel good about the business. Wal-Mart continues to outperform the market. We’re strengthening customer loyalty and attracting and retaining millions of customers. Our company is stronger than ever because we deliver price leadership and value and help our customers save money so they can live better. Our success this quarter is due to the dedication and contributions of our over two million hard working associates around the world. We appreciate each and every one of them. I’m also proud of the depth and talent of our leadership team. They continue to make Wal-Mart a better company. We’re also broadening and accelerating our efforts to drive positive change on issues that matter to customers and associates.