Walmart Inc. 10-Q Summary: Quarter Ended April 30, 1995
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended April 30, 1995, for Walmart Stores, Inc. The company operates a chain of discount stores (Wal-Mart), supercenters, and membership-only warehouse clubs (Sam's Club) in the United States, Puerto Rico, Canada, Mexico, and Hong Kong. As of the reporting date, the company operated 1,984 Wal-Mart stores, 162 Supercenters, and 430 Sam's Clubs domestically, alongside significant international operations.
Key Financial Metrics
| Metric | Q1 1995 | Q1 1994 |
|---|---|---|
| Net Sales | $20,440 million | $17,686 million |
| Net Income | $553 million | $498 million |
| Earnings Per Share | $0.24 | $0.22 |
| Gross Profit Margin | 20.76% | 20.48% |
| Operating Expenses (% of Sales) | 16.52% | 16.09% |
| Net Cash from Operating Activities | $17 million | $923 million |
| Total Assets | $34,382 million | $32,819 million (Jan 31, 1995) |
| Long-Term Debt | $8,119 million | $7,871 million (Jan 31, 1995) |
| Working Capital | $5,666 million | $5,365 million (Jan 31, 1995) |
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 15.6% year-over-year, driven by a 7% increase in comparable Wal-Mart/Supercenter sales, a 3% increase in Sam's Club comparable sales, and new store openings.
- Profitability: Net income rose 11% to $553 million. Gross profit margin improved to 20.76%, aided by a shift in sales mix toward higher-margin international units and away from lower-margin Sam's Club sales.
- Cash Flow Volatility: Operating cash flow dropped significantly to $17 million from $923 million in the prior year. This was primarily due to a $484 million increase in inventory levels without a corresponding increase in accounts payable.
- Expansion: The company added 5 Wal-Mart stores, 5 Supercenters, and 2 Sam's Clubs domestically, plus 13 international units. International sales now represent 3% of total sales, up from 1% the previous year.
- Debt and Interest: Interest expense increased $43 million due to higher borrowing rates and additional debt financing expansion. Long-term debt increased by $248 million during the quarter.
Outlook, Risks, and Management Commentary
Management attributes the decline in operating cash flow to strategic inventory buildup. To fund capital expenditures of $759 million and international expansion, the company utilized commercial paper increases of $573 million and long-term debt proceeds of $250 million. Subsequent to the quarter-end, the company issued an additional $500 million in notes (European and domestic shelf registration) to take advantage of favorable rates. Management believes current cash flows and available debt capacity are adequate to fund future expansion.
Risks and Contingencies: The filing notes that interim results are not necessarily indicative of full-year results. Inventory valuation relies on LIFO assumptions regarding year-end levels and inflation rates. The company also notes that notes sold outside the U.S. are not registered under the Securities Act of 1933 and cannot be offered in the U.S. without registration.
Investor Verification Checklist
- Verify the sustainability of the $484 million inventory increase and its impact on future working capital requirements.
- Confirm the actual utilization of the $751 million remaining shelf registration capacity for debt issuance.
- Monitor the trend of operating expenses as a percentage of sales, which rose to 16.52% due to the shift in sales mix.
- Assess the performance of international operations, which now comprise 3% of sales but have higher expense ratios than domestic units.
- Review the LIFO reserve adjustments ($8 million increase in the quarter) to understand the impact of inflation assumptions on reported inventory costs.