Walmart Inc. 10-Q Summary: Period Ended July 31, 1995
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended July 31, 1995, and the six-month period ended on that date for Walmart Stores, Inc. The financial statements are unaudited. As of July 31, 1995, the company operated 1,977 Wal-Mart stores, 188 Supercenters, and 431 Sam's Clubs in the United States, alongside international operations in Canada, Mexico, Brazil, Puerto Rico, and Hong Kong. International sales represented 3.4% of total sales for the six-month period.
Key Financial Metrics
| Metric | Six Months Ended July 31, 1995 | Six Months Ended July 31, 1994 |
|---|---|---|
| Net Sales | $43,163 million | $37,628 million |
| Net Income | $1,187 million | $1,063 million |
| Diluted EPS | $0.52 | $0.46 |
| Gross Profit Margin | 20.56% | 20.21% |
| Operating Expenses (as % of sales) | 16.38% | 15.99% |
| Net Cash from Operating Activities | $853 million | $1,000 million |
| Capital Expenditures | $1,710 million | $1,394 million |
| Total Assets | $35,318 million | $32,819 million (Jan 31, 1995) |
| Total Debt (Long-term + Commercial Paper) | $10,414 million | $9,666 million (Jan 31, 1995) |
| Working Capital | $5,586 million | $5,365 million (Jan 31, 1995) |
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 14.7% year-over-year for the six-month period, driven by a 7% increase in comparable Wal-Mart/Supercenter sales and a 3% increase in Sam's Club comparable sales.
- Profitability: Net income rose 11.7% to $1.187 billion. Gross profit margin improved to 20.56% from 20.21%, aided by a shift in sales mix toward higher-margin international units and away from lower-margin Sam's Clubs.
- Expense Pressure: Operating, selling, and general administrative expenses increased as a percentage of sales to 16.38% from 15.99%, attributed to the higher expense rate of international operations.
- Interest Costs: Interest expense increased by $82 million year-over-year due to additional borrowings for expansion and higher short-term borrowing rates.
- Cash Flow: Operating cash flow decreased by $147 million to $853 million, primarily because inventory growth outpaced the increase in accounts payable.
Outlook, Management Commentary, and Risks
Expansion Strategy: Management highlighted aggressive domestic and international expansion. In the first six months, the company opened 30 new Wal-Mart stores, six Supercenters, and five Sam's Clubs domestically, plus 18 international units. The company converted 35 Wal-Mart stores to Supercenters and relocated or expanded 46 stores.
Liquidity and Capital: The company raised $750 million in long-term debt during the period (including $450 million in European markets and $300 million via shelf registration) to fund expansion. Management stated that operating cash flow and available debt capacity are adequate to fund future needs. Subsequent to the reporting date, the company repaid $100 million of high-interest debentures.
Shareholder Matters: At the June 2, 1995 annual meeting, shareholders rejected two proposals: one regarding employee diversity reporting and another regarding cumulative voting for directors.
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 noted that notes sold outside the U.S. are not registered under the Securities Act of 1933.
Investor Verification Checklist
- Verify the sustainability of the 7% comparable store sales growth rate in a competitive retail environment.
- Monitor the trend of operating expenses as a percentage of sales, which rose to 16.38% due to international expansion costs.
- Assess the impact of rising interest rates on future debt service costs, given the $10.4 billion total debt load.
- Review the LIFO reserve adjustments ($13 million increase in the quarter) to understand the potential impact on reported inventory values and cost of sales.
- Confirm the execution of the $1.7 billion capital expenditure plan and its return on investment in new store formats.