Walmart Inc. 10-Q Summary: Period Ended October 31, 1995
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Walmart Stores, Inc. for the period ended October 31, 1995. The company operates a chain of discount stores (Wal-Mart), supercenters, and membership-only warehouse clubs (Sam's Club). As of the reporting date, the company operated 1,965 Wal-Mart stores, 234 Supercenters, and 432 Sam's Clubs in the United States, with significant international presence in Canada, Mexico, Puerto Rico, Brazil, Argentina, and Hong Kong.
Key Financial Metrics
| Metric | Three Months Ended Oct 31, 1995 | Nine Months Ended Oct 31, 1995 | Nine Months Ended Oct 31, 1994 |
|---|---|---|---|
| Net Sales ($ millions) | $22,913 | $66,077 | $58,046 |
| Net Income ($ millions) | $612 | $1,798 | $1,651 |
| Diluted EPS ($) | $0.27 | $0.78 | $0.72 |
| Gross Profit Margin (%) | 20.67% | 20.60% | 20.36% |
| Operating Expenses (% of Sales) | 16.59% | 16.45% | 16.12% |
| Cash from Operations ($ millions) | N/A | $544 | $1,137 |
| Total Assets ($ millions) | $40,018 | N/A | N/A |
| Total Liabilities ($ millions) | $25,927 | N/A | N/A |
| Shareholders' Equity ($ millions) | $14,091 | N/A | N/A |
Liquidity and Debt: Cash and cash equivalents stood at $13 million. Commercial paper increased to $3,686 million, and long-term debt was $8,327 million. Working capital was $5,388 million with a current ratio of 1.4 to 1.0.
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 12.2% for the nine-month period compared to the prior year, driven by a 6% increase in comparable Wal-Mart/Supercenter sales and a 2% increase in Sam's Club comparable sales.
- Profitability: Net income rose 8.9% year-over-year for the nine-month period. Gross profit margin improved slightly to 20.60% from 20.36%, aided by a shift in sales mix away from lower-margin Sam's Clubs.
- Expense Pressure: Operating expenses as a percentage of sales increased to 16.45% from 16.12%, attributed to the higher expense rates of international operations and the changing sales mix.
- Interest Costs: Interest expense increased by $128 million for the nine-month period due to additional borrowings for expansion and higher short-term rates.
- Cash Flow: Operating cash flow decreased significantly to $544 million from $1,137 million in the prior year, primarily due to inventory growing faster than accounts payable.
Guidance, Outlook, and Risks
Expansion Strategy: The company continues aggressive domestic and international expansion. Domestic activity included 54 new Wal-Mart stores, 10 new Supercenters, and 77 store conversions. International expansion included entry into Brazil and Argentina, with international sales rising to 3.6% of total sales.
Liquidity Outlook: Management states that cash flow from operations, combined with commercial paper and shelf registration debt capacity ($751 million remaining), is adequate to fund the expansion program and operational needs.
Accounting Changes: The company noted the issuance of SFAS No. 121 (Impairment of Long-Lived Assets) and SFAS No. 123 (Stock-Based Compensation), effective for the fiscal year ending January 31, 1997. Management does not expect these to have a material effect on financial position or results.
Risks: The filing highlights the impact of LIFO inventory valuation on reported earnings and the reliance on debt financing for capital expenditures.
Investor Verification Checklist
- Verify the sustainability of the 6% comparable store sales growth rate in a competitive retail environment.
- Monitor the trend of operating cash flow, which declined significantly due to inventory buildup relative to payables.
- Assess the impact of rising interest rates on the company's substantial debt load ($8.3 billion long-term + $3.7 billion commercial paper).
- Review the profitability margins of new international stores in Brazil, Argentina, and Mexico as they scale.
- Confirm the execution of the planned conversion of 77 Wal-Mart stores to Supercenters and its effect on same-store sales metrics.