12 August 2007

WMT: Reporting on Tuesday

On Tuesday, Wal-Mart (WMT) will report its earnings for the quarter that ended on 31 July 2007.

Wal-Mart, the world's largest retailer, has been struggling. Competition, the economy, the low single digits. Target, which appeals to a somewhat more affluent customers, has been eroding Wal-Mart's market share from above. From below, high gas prices have taken a bite out of the wallets and pocketbooks of Wal-Mart's core customers. The company is responding by cutting back on plans to open new stores and by offering generic prescriptions drugs for $4.

We no longer have to rely on Wal-Mart's prediction of 1 to 2 percent sales growth in comparable stores to estimate the total Revenue in the quarter. The company, in its most recent monthly sales report, has already reported that total net sales for the quarter that ended July 31, 2007 were approximately $92 billion. This figure is 8.9 percent above the sales in the July 2006 quarter, and it equates to year-over-year sales growth of 9.7 percent. Using the monthly data, it appears that the sales growth in comparable stores was about 1.95 percent.

Wal-Mart's Gross Margin has been steady at 23 percent of revenue. We can, therefore, assume that the Cost of Goods Sold (CGS) in the July quarter was 77 percent of $92 billion, or $70.84 billion.

Wal-Mart's Sales, General, and Administrative (SG&A) expenses as a percent of revenue have been creeping up slowly. After a long stretch at around 18 percent, the climb has resumed. We will assume 18.5 percent. Thus, we're expecting SG&A expenses to be 18.5 percent of $92 billion, or $17.02 billion.

These assumptions would result in an Operating Income of $4.14 billion.

As for non-operating expenses, we'll extrapolate on recent trends and assume $600 million net interest and other income, and a $100 million deduction for minority interests. These values would bring pre-tax income to $4.64 billion.

Wal-Mart estimated that the average income tax rate for the current fiscal year will be between 34 and 35 percent. If we assume 34.5 percent, the provisions for income taxes will be $1.6 billion, and net income will be $3.04 billion ($0.74 per share).

($ M)

July 2007
July 2006

Op expenses

CGS (70840)

SG&A (17020) (15741)

Operating Income
Other income


Interest, etc.
Pretax income

Income tax

Net Income

Discontinued ops


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