Walmart Inc. 10-Q Summary: Quarter Ended April 30, 1996
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended April 30, 1996 (Fiscal 1997 Q1). The quarter consisted of 90 days, compared to 89 days in the prior year period. Walmart operates a global network of retail stores, including Wal-Mart, Supercenters, and Sam's Clubs in the U.S. and internationally (Canada, Mexico, Puerto Rico, Brazil, Argentina).
Key Financial Metrics
| Metric | Q1 1996 | Q1 1995 |
|---|---|---|
| Net Sales | $22,772 million | $20,440 million |
| Net Income | $571 million | $553 million |
| Net Income Per Share | $0.25 | $0.24 |
| Gross Profit Margin | 20.67% | 20.76% |
| Operating Expenses (as % of sales) | 16.73% | 16.52% |
| Operating Cash Flow | $1,640 million | $17 million |
| Capital Additions | $733 million | $759 million |
| Total Assets | $38,249 million | $37,541 million (Jan 31, 1996) |
| Long-Term Debt | $8,508 million | $8,508 million |
| Commercial Paper | $1,575 million | $2,458 million |
| Working Capital | $6,109 million | $5,877 million (Jan 31, 1996) |
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 11.4% year-over-year, driven by an extra sales day, a 4% increase in comparable store sales, and continued expansion.
- Profitability: Net income rose 3.3% to $571 million. However, gross profit margin declined slightly from 20.76% to 20.67% due to a higher mix of consumable goods with lower markups.
- Expense Ratio: Operating expenses as a percentage of sales increased from 16.52% to 16.73%, attributed to a shift in sales mix toward international units (higher expense rate) and a lower proportion of Sam's Club sales (lower expense rate).
- Cash Flow: Operating cash flow surged to $1,640 million from $17 million in the prior year, primarily due to a significant increase in accounts payable and a smaller inventory build-up.
- Debt: Commercial paper decreased by $883 million, while long-term debt remained stable. Interest expense increased $20 million due to additional long-term borrowings for expansion.
Outlook, Risks, and Management Commentary
- Expansion: Domestic expansion included 8 new Wal-Mart stores, 2 Supercenters, 3 Sam's Clubs, and 26 conversions to Supercenters. International growth added 3 stores in Canada and 4 in Mexico.
- Liquidity: Management states that operating cash flow, available debt under shelf registrations ($751 million), and short-term financing capabilities are adequate to fund expansion and operational needs.
- Accounting Changes: The company adopted SFAS No. 121 (Impairment of Long-Lived Assets) and SFAS No. 123 (Stock-Based Compensation). Neither had an effect on financial position or results for this period.
- Risks: Forward-looking statements are subject to risks including competitive pressures, inflation, consumer debt levels, currency fluctuations, trade restrictions, and political instability.
Investor Verification Checklist
- Verify the sustainability of the 4% comparable store sales growth rate.
- Monitor the trend in gross profit margins given the shift toward lower-margin consumable goods.
- Assess the impact of international expansion on overall operating expense ratios.
- Review the utilization of the $751 million shelf registration for debt issuance.
- Confirm the accuracy of inventory valuation under the LIFO method and the associated reserve adjustments.