Walmart Inc. 10-Q Summary: Quarter Ended April 30, 1998
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended April 30, 1998 (First Quarter of Fiscal 1999). Walmart operates mass merchandising stores through three primary segments: Wal-Mart Stores (U.S. discount and Supercenters), Sam's Club (U.S. warehouse clubs), and International operations. The company reported 2,235,710,587 shares of common stock outstanding as of the period end.
Key Financial Metrics
| Metric | Q1 1998 | Q1 1997 |
|---|---|---|
| Net Sales | $29,819 million | $25,409 million |
| Net Income | $828 million | $652 million |
| Diluted EPS | $0.37 | $0.29 |
| Gross Margin % | 21.10% | 20.79% |
| Operating Cash Flow | $858 million | $1,283 million |
| Total Assets | $46,044 million | $45,384 million (Jan 31, 1998) |
| Long-Term Debt | $7,193 million | $7,191 million (Jan 31, 1998) |
| Cash and Equivalents | $771 million | $1,447 million (Jan 31, 1998) |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 17% year-over-year, driven by 9% comparable sales growth in Wal-Mart Stores, 8% in Sam's Club, and significant expansion in the International segment.
- Profitability: Net income rose 27% to $828 million. Gross margin improved to 21.10% despite competitive pricing, aided by a favorable sales mix shift away from lower-margin Sam's Club sales.
- Cash Flow: Operating cash flow decreased to $858 million from $1,283 million, primarily due to a $998 million increase in inventory levels compared to a $44 million increase in the prior year.
- Capital Allocation: The company repurchased $372 million of common stock and paid $174 million in dividends. Capital expenditures totaled $760 million.
- Debt: The company issued $527 million in commercial paper and reduced long-term debt by $765 million during the quarter.
Outlook, Risks, and Management Commentary
- Expansion: Domestic expansion included 4 new Wal-Mart stores, 17 conversions to Supercenters, and 1 new Sam's Club. International growth included acquisitions of Cifra (Mexico) and Wertkauf (Germany), which boosted sales and operating profit but are not fully comparable to the prior year.
- Liquidity: Management anticipates sufficient cash from operations and financing to meet capital needs, dividends, and debt obligations. A $500 million bond issuance occurred in June 1998 (subsequent to period end).
- Year 2000 Compliance: Approximately 72% of system conversions are complete. Total estimated cost is $12 million, with completion expected by the end of fiscal 1999.
- Risks: Forward-looking statements are subject to risks including competitive pressures, inflation, currency fluctuations, and changes in interest rates.
Investor Verification Checklist
- Verify the sustainability of the 17% sales growth given the inclusion of new acquisitions (Cifra, Wertkauf) in the International segment.
- Monitor the impact of the $998 million inventory build on future operating cash flows.
- Confirm the execution of the expanded $2 billion share repurchase program announced in March 1998.
- Track progress on Year 2000 compliance costs and potential operational disruptions.
- Review the performance of the International segment excluding acquisition impacts to assess organic growth trends.