05 September 2008

WMT: Financial Analysis through July 2008 (Update)

We previously posted an analysis of Wal-Mart's preliminary financial statements for the quarter that ended on 31 July 2008, which was the second quarter of the company's fiscal year.  Wal-Mart has now submitted a complete 10-Q quarterly report, which we have examined.

Discounter Wal-Mart Stores, Inc. (NYSE: WMT) has annual sales of $375 billion, close to one-twelfth of U.S. retail sales.  It garnered the top spot on the 2008 edition of the Fortune 500 list of America's largest corporations, edging ahead of Exxon Mobil (NYSE: XOM).  In today's slow U.S. economy, consumers are worried about their jobs, homes, and by high food and energy prices.  Super-efficient Wal-Mart has the advantage of selling the merchandise shoppers can't do without, and it does so at prices difficult for competitors, such as Target (NYSE: TGT), Kohl's (NYSE: KSS), and Sears Holdings (NASDAQ: SHLD), to match.

The additional data in the 10-Q did not change the gauge scores from those we computed using the preliminary report.

Our examination of Wal-Mart's second-quarter Income Statement was unaffected.

A couple of other interesting tidbits from the 10-Q:

The company has three operating segments: Wal-Mart U.S., International, and Sam's Club.  In the recent quarter, Wal-Mart U.S. brought in 63 percent of total Revenue, but it contributed 81 percent of Operating Income.  The percentages were very similar in the second quarter of 2007.

Wal-Mart's sale of a UK subsididiary, Gazeley, closed in July 2008, and the company estimated that it earned $200 million on the transaction.  Wal-Mart's third-quarter results will benefit from this gain, which will be recorded as earnings from discontinued operations.

Effective this fiscal year, Wal-Mart has revised its definition of comparable store sales, which is sometimes referred to as "same-store sales."  The new definition "include[s] sales from stores and clubs open for the previous 12 months, including remodels, relocations and expansions." The company deems the impact of the change to be "inconsequential," but it seems like it might have a small positive effect.

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