Wal-mart Case Study Project

Wal-Mart: A Case Study Laura Bowen, Tatyana Budnikova, Ekaterina Mehaffey, and John Paul Robson

The University of Colorado at Denver BUSN 6620 – Applied Managerial Economics Professor Barbara Pelter November 16, 2009

Overview of Industry Sam Walton opened the first Wal-Mart discount store in Rogers Arkansas back in 1962, and 47 years later, Wal-Mart operates 8,159 units in 15 countries. Wal-Mart is currently the world’s largest retailer and according to the Forbes top 500 businesses lists for 2009, Wal-Mart ranks second in the nation and third in the world (behind Royal Dutch Shell and Exxon Mobil) - with a total annual sales of 405,607 million.¹ Wal-Mart employs over 2.1 million people worldwide, making them one of the largest private employers in both the US and Canada, and the largest private employer in Mexico.² Even in the midst of a recession it’s estimated that Wal-Mart stores’ retail market share has raised markedly³ and they are seeing sales gains for 2009.4 Wal-Mart has a dramatic story of success from its humble beginnings to its transformation into an industry leader; one can only wonder what the future holds for this corporate giant. Wal-Mart officially incorporated in 1969 and began selling shares of stock in 1970. In 1971 they had their first 100 percent split at $47, then again the following year for $47.50 (after being listed on the New York stock exchange). Their 11th and most recent 100 percent stock split occurred in 1999 at $95.5 One aspect of Wal-Mart’s structure that has given them a competitive edge is their efficiency in logistics. Beginning in the early 1970’s, Wal-Mart utilized a warehouse distribution strategy facilitating bulk purchasing and streamlined distribution processes enabling them to dramatically minimize distribution costs. Today Wal-Mart has 147 distribution centers with the average facility serving 75-100 stores. Their truck fleet travels about 800 million miles a year and they move over 5.5 billion cases of products. A Wal-Mart distribution center can have up to twelve miles of conveyor belts and about 5001,000 employees.2 Wal-Mart has also been able to gain competitive advantage with their embracement of technology. In 1987, Wal-Mart completed a $24 million investment in a satellite network - the largest

private network at that time. This network included voice and video communication which streamlined the company’s communication and facilitated the flow of sales and inventory information to the corporate headquarters in Bentonville, Arkansas.6During a period of slower growth in the early 21st century, WalMart made substantial technology investments that were successful in gaining more inventory control and improving company performance. In addition to their technological competitive edge, Wal-Mart continues to make smart strategic decisions to exploit potential new revenue sources as they continually to expand into new markets. WalMart opened their first Sam’s Wholesale Club in 1983 marking the inception of Wal-Mart’s second division of operations which now consists of over 700 stores. Later, Wal-Mart devised and opened the first Wal-Mart Super center in 1988. Wal-Mart Supercenters include the normal discount retail store and many extras. They include a complete super-market, garden center, pet shop, pharmacy, tire and lube express, optical center, photo processing center, and some additional smaller shops ranging from hair, nail, video, and fast-food outlets. Today there are over 2,700 supercenters in the US. By 1998 they introduced the Neighborhood market concept which catapulted them into becoming the largest US food retailer by 2001.2 By 1991, Wal-Mart began its international expansion with the introduction of its first store into Mexico. Two years later they formed Wal-Mart International - their rapidly growing third division. Today, Wal-Mart has a total of 3,859 international locations and operates in Argentina, Brazil, Canada, Chile, China, Costa Rica, El Salvador, Guatemala, Honduras, India, Japan, Mexico, Nicaragua, Puerto Rico, the United States and the United Kingdom.2 Wal-Mart is now planning on expanding their operations in Brazil and China even further.4 Some innovative products and programs Wal-Mart has created have contributed to their popularity and profitability. “Sam’s Choice” marked the launch of the first Wal-Mart brand product in 1991 (7), and today Wal-Mart has over 30 different product lines encompassing an astounding variety of

products in food, apparel, homeliness and hard lines.2 In 2006, Wal-Mart began its $4 generic prescription program - an astounding savings from the $29 average price of generic prescription drugs.8 Wal-Mart began its site to store program in 2007 which offers free shipping to a local store for purchases on their website walmart.com.9 Wal-Mart’s signage and logo have recently evolved; in 2007 they revised their long time slogan ”Always Low Prices, Always” with the current “Save Money Live Better” motto and in 2008 they unveiled a new company logo using an unhyphenated “Walmart” with stylized yellow “spark.” Wal-Mart has been updating many of their store layouts and they are increasing the pace of their remodels in the next year.4 This year, Wal-Mart has rolled out plans for a National wireless service3 and has announced plans for providing consumer electronics support and installation services which would compete with Best Buy’s “Geek Squad”.3 CEO Raul Vasquez said last month that they want to become the biggest and most valued online retailer which suggests plans for Walmart.com expansion3 and that could cause some concern at Amazon.com. Walmart’s three Basic Belief’s and Values are: “Respect for the individual, Service to our customers, and Striving for Excellence.” These long-standing belief’s haven’t stopped them from becoming the source of some controversy and damaging press over the past decade including involvement in multiple lawsuits involving questionable business practices. Notably, there have been multiple allegations of sexual discriminatory practices and cases involving unpaid wages.10 In 2006 a controversial movie debuted, “Wal-Mart, the high cost of low price.” This movie highlighted the various recent lawsuits and pointed to the effects of Wal-Mart’s alleged low wages on the usage of public assistance by Wal-Mart employees - stating that Wal-Mart is costing taxpayers over 1.5 billion dollars to support its employees.10 Currently, Wal-Mart is spending millions of dollars each year to support and improve its public image through public relations, media firms, and political consultants.11

To achieve a greater understanding of Wal-Mart Stores, Inc., it is important to analyze the industry, market structure, and supply and demand conditions affecting Wal-Mart, and by examining their past financial performance we might offer a glimpse as to what one should expect in their future performance as a company.

Market Structure We all know Wal-Mart, the industry giant that often headlines the news with jaw breaking prices that out-perform other retailers in the industry. It is important to discuss the industry structure to truly understand the Wal-Mart edge and authority in the retail/electronic and consumer industries. Wal-Mart accounts for 29.9% of the global general merchandise stores sector, Target, Wal-Mart’s industry counterpart accounts for a mere 5.10%.12 (Exhibit 1) Shortly after entering the grocery business, WalMart now accounts for 10% of the grocery market. It is predicted by some that Wal-Mart will soon hold the top spot of the grocery chain, leading by 16.6% by 2010.12. Wal-Mart is the largest retail company in the world; it successfully operates retail stores in various formats including supermarkets, discount stores and neighborhood markets. By the end of January 2008, Wal-Mart had over 2,447 supercenters, 132 neighborhood markets and 591 Sam’s Club’s in the US alone. Internationally, it operates in Argentina, Brazil, Canada, Costa Rica, El Salvador, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico, the UK and China.13 Wal-Mart has annual sales of $405,607.00M and employs 2,100,000 employees.14 Target currently operates 1,698 stores in 49 states. Target has annual sales of $64,948.00 M and employs 351,000 employees.15 K-Mart has annual sales of $16,219.00M and employs 8,500 employees. Based on this data it is easily determined that Wal-Mart is the leading retailer trailed by Target and K-Mart.16 WalMart has a broad range of competition in the industry, particularly Target and K-Mart. All three stores emerged in the early 1960’s following the success of grocery store chains. Interactive analysis of the three giants has determined that Wal-Mart prefers to enter markets that consists of lower retail wages and more households with vehicles and children but is more or less concerned with income wages. Target has the exact opposite dimensions while K-Mart is more or less like Wal-Mart just less systematic. Wal-Mart

strength comes directly from its ability to weather competition to a greater extent than its rivals. 17 Even as a monopolist, Target requires a substantially larger population than Wal-Mart to succeed, making its campaign to overpower Wal-Mart virtually impossible. Wal-Mart can succeed over Target and K-Mart even when entering their territory. Due to these findings, Wal-Mart can be deemed the ultimate player of the industry. 12 Wal-Mart also operates a much greater percentage of Superstores (stores that feature deli’s and grocery departments) and thus has a competitive advantage as a one stop shop over Target and KMart. (Exhibit 2) However, it does need to be addressed that Wal-Mart services not only the merchandise industry but also the electronics and grocery industry as well. Therefore, competitors also include Grocery chains (King Soopers, Albertsons and Safeway in Colorado), as well as Electronics Superstores. Another unlikely competitor of Wal-Mart is Costco (the counterpart to Sam’s Club which the Wal-Mart corporation runs). Costco operates as a wholesaler, and ultimately offers the same products as Wal-Mart just in bigger quantities and perhaps greater quality. The important thing to note here is that consumers may not wish to purchase all merchandise in bulk. Nonetheless, Costco holds a 25.90B market cap as compared to Wal-Mart’s 197.66B.18 By providing merchandise, electronics and groceries, Wal-Mart offers a one stop shop that often exhibits lower prices than the leading grocery, electronics and retail stores. Because of this attribute Wal-Mart exhibits fierce competition to not only its industry rivals but also local chains that offer one type of product (King Soopers for groceries or Best Buy for electronics). Based on these observations, it can be determined that Wal-Mart is an Oligopoly. The industry is mostly dominated by Wal-Mart, Kmart, and Target. They all produce homogeneous or unique products (clothing vs. electronics, ect). There are blockades to entry/or exit because these large corporations dominate the industry in a way that makes it virtually impossible for any firm to penetrate the market. There does exist an imperfect dissemination of information, buyers are not informed of cost, price and product quality. And these firms do have opportunities for economic profits. While there are a few firms in the industry, it can be deemed that Wal-Mart is the largest firm leading its industry. However, another important factor to note is that while Wal-Mart sees competition in Target and K-Mart, their presence

does not severely impact Wal-Mart sales. In fact, both Target and K-Mart find markets in which a WalMart is present as unattractive. The effect experienced by Target as a result of Wal-Mart’s presence is much larger than the converse. 15 It can be noted that for both Target and Kmart, the implied effect of a Wal-Mart is more than twice the reverse effect of those firms on Wal-Mart.15 These findings would point to the ideology that Wal-Mart is an Oligopoly that monopolizes the industry. Through its presence it prevents entry into the market based on geographical location and Target as well as Kmart focuses on locations where a Wal-Mart is not yet present. Companies that operate in the merchandise industry offer a variety of product in order to appeal to a number of consumer tastes and preferences. This type of diversity increases the customer base of companies, while reducing overall buyer power. With this said suppliers will enter into contracts with major players and reduce overall entry into the market.13 Supplier power here is strengthened in that manufacturers and distributors are not generally “wholly reliant” on merchandise stores for their revenues. Supplier power is weakened by the fact that players have a great deal of bargaining power. The fall of tariffs, particularly in the US has allowed retailers to source goods produced in areas of low cost labor, and for Wal-Mart has ultimately meant outsourcing directly to China. Wal-Mart has huge economies of scale as they purchase quantities to supply all of their stores.12 The nature of the buyer supplier relationship is often defined by the buyer’s power in the industry. Based on Wal-Mart’s large size and huge demand for products, Wal-Mart dominates the buyer scene. Because of its sheer size and extraordinary buying power, Wal-Mart is able to pressure suppliers in offering rock-bottom prices as these suppliers depend on Wal-Mart for a high percentage of their sales.19 An example of this type of relationship is the Dial Corporation Supplier, who sells 28% of its manufactured goods to Wal-Mart annually. In order to replace Wal-Mart’s sales, it would have to double sales to its next nine customers in order to eliminate Wal-Mart from its buyer list.19 Chairman of the Board of Wal-Mart and son of the founder often defines the supplier relationship as “supplier-partners.” Walton also states that Wal-Mart wants to offer good value to customer through low prices and therefore does not accept slotting fees,

display allowances or deal money from suppliers. Typically speaking, by shopping around for the lowest bidder, Wal-Mart is able to pass along the deal breakers to consumers. Walton also contends that longterm relationship sustainability with supplies is a practice that benefits small and medium sized supplies.20 Wal-Mart has the power, as an industry giant to either hurt or help the suppliers in their concessions. Past data has determined that Wal-Mart’s suppliers that hold a small share of their respective markets do not perform as well as other small share suppliers that do not identity Wal-Mart as a primary customer.21 However, large share suppliers perform much better when listing Wal-Mart as a primary customer. This implies that suppliers have the power to benefit from the successes of Wal-Mart, rather than become victims.18 Due to these supplier relationships Wal-Mart continues to dominate the global market, with its transition to online retail; Wal-Mart now dominates internet commerce as well. Wal-Mart continues to dominate the market, superseding the current economic situation that encompasses most nations. Ultimately, Wal-Mart has become corporate America's recessionary resource in a time when it's most needed. 22 Demand for Wal-Mart is analytical. It is deemed that over 200 million shoppers visit the WalMart US stores each year.23 They use over 60,000 suppliers and have 55+ countries in their network, the demand for while Wal-Mart has made the company the largest company in the world.19 And because Wal-Mart holds its position as a power buyer in the industry it is able to effectively and efficiently supply the demand for its products, as the economy worsens, more individuals turn to money saving deals and thus to Wal-Mart. Net sales are on a gradual increase ($344,759 in 2007, $374,307 in 2008 and $401,244 in 2009 in millions)24 and therefore demand is also on the rise. Wal-Mart is able to meet demand with its abundant supply of merchandise that they are able to obtain at low prices due to their supplier relationships. By overpowering the suppliers in this industry, Wal-Mart has a competitive edge that is unattainable by most companies. This can be related back to the discussion of Wal-Mart holding a monopoly over the industry. Because they are able to maintain discretion over suppliers they can virtually control the market and create entry barriers. Therefore, Wal-Mart is able to meet demand as it comes up and has outsourced suppliers to China and India, where labor is much cheaper. Unfortunately, this also

makes Wal-Mart susceptible to currency changes, ie; the value of the dollar drops as compared to Chinese Yuan, when the dollar weakness as compared to the Yuan, the price of imports rises for Wal-Mart.19 Foreign competition is prevalent for Wal-Mart particularly since their entry into foreign lands with both retail and grocery chains. Wal-Mart has three major foreign competitors; Wal-Mart's major international competitors are Britain's Tesco, France's Carrefour, and Germany's Metro, all three companies have a strong presence in China, Wal-Mart’s top supplier.19 Tesco, has annual sales of $98,327.00M and employs 470,000 employees. It was founded in 1924, roughly 40 years before WalMart made its debut.14 Carrefour has annual sales of $124,353.00M and employs 490,000 employees. It was founded in 1965 and therefore has the same senior standing as Wal-Mart.26 Metro has annual sales of $10,153.60 and employs 281,455 employees. It was founded in 1879 and has the senior standing of the three foreign companies.27 With these competitors in tow and with their selling power it goes to show that Wal-Mart will not monopolize foreign territory. In order to truly understand the foreign market we must also discuss the entry and exit of Wal-Mart on other foreign soils. Wal-Mart entered the United Kingdom in 1999 through its take-over of Britain’s third largest retailer, Asda. Through its entry into the foreign market Wal-Mart inevitably exerted downward pressure on market forces and therefore, on market price.28 Wal-Mart also has supplier benefits in foreign territory, as a leading industry giant and therefore poses as a threat to local competitors, in terms of supplier relations.23 Unfortunately, Wal-Mart was not so lucky in the South Korean market. Wal-Mart ventured onto South Korea’s soil in the late 1990s in hopes of further expanding territory and revenue. Wal-Mart left South Korea in 2005 as the American way of doing marketing did not translate well in Korea.29 Korean consumers had significantly different tastes and preferences than American consumer and the everyday low price concept did not translate well in Korean. Wal-Mart’s competitive advantage of low cost and low price was not suitable for the Korean market and consumption context.24 The case here shows that even Wal-Mart is susceptible to competition, more so in the foreign markets. The same situation presented in Japan. We also need to discuss Wal-Mart’s entry into foreign markets with grocery ventures. Wal-Mart entered the German market through acquisition,

which proved unsuccessful because of the problems associated with integrating two disparate chains with different organizational cultures and a different variety of stores.30 The highly competitive atmosphere present in the German grocery market has precluded Wal-Mart from reaching its full value chain goals and from realizing a key element of its global strategy, which is everyday low prices concept.25 The countries discounters maintain a competitive advantage over the Wal-Mart name and thus strive in environments that Wal-Mart has chosen to enter on their soil. As discussed earlier, Wal-Mart was much more successful in the UK with its acquisition of Asda. This was good strategic fit for the company and the UK has embraced aspects of the Wal-Mart retail proposition and corporate culture, prior to the 1999 acquisition.25 The entry of Wal-Mart has restructured the UK grocery market with low prices and value for the consumer’s money.25 It can be seen through these examples that in some instances Wal-Mart not had the same successes it exhibits here in the US. Some cultures embrace Wal-Mart for value savings deals and one stop shop appeal, other cultures repeal the giant for the same reasons. In the future, it would be in Wal-Mart’s best interest to research the cultural aspects of the territory prior to making its official launch onto foreign land. One issue facing Wal-Mart today is that the consumer’s opinions, needs and goals are ultimately changing. The lowest price is no longer the only demand to attract consumers. Wal-Mart is now encountering problems that have long plagued its rivals such as Kmart; clustered stores, unattractive merchandise and ultimately poor service are just a few of the problems. Target, which is significantly smaller, is able to unionize the store in such a way that the aisles are attractive and organized for consumers. Wal-Mart is failing to bring in products that attract today’s consumers, particularly in apparel, home furnishings and consumer electronics, while Target is bringing designers into the apparel department to attract higher income consumers. The current economy has also hurt the Wal-Mart stores. With rising gas prices and job uncertainty, lower income consumers are spending less on average.31 Employee and consumer morale for the Wal-Mart brand is not as high as it once was because Wal-Mart has had to defend itself from unions and community activist groups. These groups contend that Wal-Mart

takes advantage of workers and hampers competition.31 Wal-Mart has also found itself in highly publicized lawsuits, some of which contended that underage workers operate dangerous machinery and others that the cleaning contractors had hired illegal immigrants.31 Another major issue facing Wal-Mart is the continued allegations of gender discrimination.31 Lastly, another issue currently facing Wal-Mart, as mentioned earlier, is its high dependence on Chinese suppliers. This makes Wal-Mart susceptible to currency changes and ultimately price uncertainty. This goes hand in hand with the ideology that because Wal-Mart is so dependent on foreign suppliers, it is also susceptible to tariffs and taxes on foreign imports. If taxes are increased, price increases will be turned over to the consumers. Wal-Mart has taken over America. With its financial and structural standing in the consumer community, Wal-Mart has taken the industry by storm. Its history and current standing with suppliers, consumers and competitors Wal-Mart leads both intellectually and financially. The following is a discussion of Wal-Mart’s financial status.

Wal-Mart’s Financial Performance for the last 5 years Overview Wal-Mart Stores, Inc. (NYSE: WMT) is the world’s largest retailer by sales and in the U. S. it is responsible for 7.5% and 21% of consumer’s total annual expenditures on retail goods and groceries, respectively. 32 In 2008 Wal-Mart’s sales revenue was almost 406 billion dollars.

Wal-Mart has a strong

reputation as a discount store, providing merchandise and services at every day low prices (“EDLP”). The biggest chunks of Wal-Mart’s revenue are groceries, health and beauty products and Wal-Mart’s markups are small. Therefore, Wal-Mart is driving its high sales numbers by encouraging consumers to buy from them due to low prices.

In 2008 Wal-Mart ranked #2 in Fortune 500; previous year ranking was #1. 33 Wal-Mart may have fallen to second place, but with credit-crunched consumers looking for bargains, Wal-Mart has emerged as a rare recession buster while consistently growing same store sales at the expense of Target and other higher priced rivals. Wal-Mart earned 401.2 billion in revenue during 2009 (Wal-Mart recognizes its fiscal year as the 12 month period ending January 31), a 7.2% increase from 2008. Wal-Mart has 3,000 stores in international markets where the average annual growth rate has been around 30% between 2005 and 2009. 34 Wal-Mart stores segment (domestic stores), is responsible for 63.7% of revenues and 79.6% of operating income in 2009. During 2009, Wal-Mart stores enjoyed a 3.5% increase in store sales compared to 1.6% growth in 2008, 2% in 2007, 3.4% in 2006 and 3.3% in 2005.

35

The slowdown in 2008 spending

can be attributed to the economic slowdown. Sam’s Club is responsible for 11.7% of revenues and 7.4% of operating income in 2009. Sam’s Club generated 46.8 billion in total sales during fiscal year 2009 which represents a 5.6% increase from 2008. Wal-Mart’s international segment is responsible for 24.6% of revenues and 21.7% of operating income in 2009. Wal-Mart International generated 98.6 billion in revenues in 2009 which represents 9.1% increase from 2008. Furthermore, in fiscal year 2009 Wal-Mart’s sales were 401.2 billion which represents a 43% increase since 2005. The increase in revenues is attributed to global store expansion as well as positive annual comparable store sales growth for the last 10 years. In 2009 Wal-Mart had 23.7% gross margin, up slightly from 23.5% in 2008 and 23.4% in 2007.

Essential ratio analysis

Current ratio measures a company’s ability to pay current debts as they become due and equals to current assets divided by current liabilities. Wal-Mart’s current ratio is relatively low and it is due to high current liability amounts. The number is around 0.88-0.9 and it did not fluctuate much in the five year period presented for analysis. Acid-test ratio equals quick assets divided by current liabilities. It is relatively low ratio that is around 0.16-0.2 due to high accounts payable, commercial paper and long-term debt due within one year. Debt ratio is total liabilities divided by total assets. Wal-Mart’s debt ratio has been around 60% because of the high amount of long-term debt. Shareholder’s equity is increasing which might indicate a positive outlook for the future; commercial paper amounts have been decreasing and will be eliminated by 2011. ROI is return on investment and is calculated by dividing net income by average total assets. Average ROI is 8-12%. Wal-Mart’s ROI has been steady and around 8%. ROE is return on equity and it is equal to net income divided by average owner’s equity. WalMart’s ROE is around 20 % in the five year period presented for analysis. Average ROE for American companies is around 10-15%. Profit Margin is the amount of profit earned per dollar of sales. Wal-Mart’s profit margins in the last five years have been a little over 3%. Net income has been increasing steadily although it slowed a little in 2008 and that can be attributed to a global economic slowdown. The ability of the company to pay its creditors, times interest earned, has decreased slightly since fiscal year 2005. The main reasons are the company’s increased amounts of long term debt and increased interest associated with it. The times interest earned has decreased from 14.6 in 2005 to 11.1 in 2009. The number of a days sales in accounts receivable indicates that the numbers overall are very good. Accounts receivable settle quickly because Wal-Mart’s customers use credit cards to make purchases.

NDS in inventory has declined since 2005 and is an indication of better inventory management. Wal-Mart has to maintain high inventory levels to be able to provide a wide range of goods to its customers. Property, plant and equipment turnover has not fluctuated much. Sales have been steadily increasing in the last five years, so did the average property and equipment. Wal-Mart requires many locations, distribution centers and transportation equipment for success of its business. Earnings per share (EPS) are generally considered to be the single most important variable in determining a share's price. Wal-Mart’s EPS has been growing steadily in the last 5 years as did its stock price. Wal-Mart’s EPS increased from 2.46 in 2005 to 3.35 in 2009.

Cash Flow Cash flow from operations has been steadily increasing in the five year period provided for analysis. In all five years presented cash flow from operations has exceeded net income. Wal-Mart has been investing in international operations and the amounts invested are increasing steadily while making payments for property, equipment, etc. Net cash used in investing activities has decreased since 2008. The amounts of cash used in financing activity have been increasing steadily in the time frame presented but Wal-Mart has decreased commercial paper amounts, paying of long term debt, paying dividends and has a large stock repurchase program. Although we see net decrease in cash and cash equivalents in fiscal 2008 (2,198 million), which was mostly due to large amounts spent on the stock repurchase and payment of long-term debt, cash and cash equivalents amounts are positive at the end of each of the five years presented for analysis.

Forecasts

"As goes General Motors, so goes the nation," was the old adage followed by investors. That could easily be replaced now by "As goes Wal-Mart (WMT), so goes the nation."36 Now when almost every neighborhood has a Wal-Mart or two, the company has to get more creative in finding ways to reach new markets and new customers. When a company gets this massive, it becomes increasingly difficult to grow. Wal-Mart foresees sales increases of 1% to 2% this fiscal year, lower than its prior 5% to 7% forecast. Analysts expected revenue to be up 1.1% over that same period. But the company expects a more robust 4% to 6% growth next year. Wal-Mart also said it plans to boost its square footage growth rate to 4% this fiscal year and next. In 2009 75% of new stores are being opened outside the United States. The most growth occurred in Mexico, China and Central America. About 76% of Wal-Mart’s planned stores for 2010 will be outside the United States. Wal-Mart Stores Inc. is a large-cap value company in the consumer services sector. The term “large-cap” is used by the investment community to refer to companies with a market capitalization value of more than $10 billion. Large cap is an abbreviation of the term "large market capitalization". Market capitalization is calculated by multiplying the number of a company's shares outstanding by its stock price per share. Wal-Mart’s stock is expected to outperform the market over the next six months with very low risk. 37 Wal-Mart purchases approximately $27 billion of its inventory directly from China every year. 38 As a result of its dependency on Chinese manufacturing, Wal-Mart is vulnerable to fluctuations in the value of the dollar compared to the Chinese Yuan. If the dollar weakens compared to Yuan, the price of Wal-Mart’s Chinese imports will rise. Therefore Wal-Mart

would either have to raise its prices or would have to settle for narrower gross margins which would reduce its profitability. Wal-Mart is faced with considerable pressure from number of politicians, labor groups, and lawsuits attacking the company on issues such as employee wages, benefits, discrimination and negatively impacting communities and small businesses. These actions affect Wal-Mart’s reputation, which in turn could affect Wal-Mart’s ability to expand into new areas or attract new customers. 39 Wal-Mart has enjoyed steady growth in the last 5 years. All financial ratios didn’t fluctuate much and the 2008 recession changed everything. Wal-Mart’s competitors such as Target and K-Mart have declining sales making 2008 the hardest year for those retailers so far. On the other hand, Wal-Mart’s sales are increasing. Wal-Mart's 2008 bottom line rose 5.9% to $ 13.5 billion while Target and K-Mart have been getting trounced. Wal-Mart has an insatiable appetite for growth and although the company is faced with numerous challenges and pressures, we believe that the company will thrive.

Appendix 1 Exhibit 1

Exhibit 2

Appendix 2 We thought this video has a lot of interesting information:

http://www.cnbc.com/id/15840232?video=1302753654&play=1 ANNUAL REPORT TO SHAREHOLDERS

Five-Year Financial Summary Wal-Mart Stores, Inc. (Dollar amounts in millions except ratios and per share data) Fiscal Year Ended January 31,

2009

2008

2007

2006

2005

$401,2 44

$374,3 07

$344,7 59

$308,9 45

$281,4 88

Operating Results Net sales Net sales increase Comparable store sales increase in the United States (1) Cost of sales Operating, selling, general and administrative expenses Interest expense, net Effective tax rate Income from continuing operations

7.2%

8.6%

11.6%

9.8%

11.4%

3.5%

1.6%

2.0%

3.4%

3.3%

$306,1 58

$286,3 50

$263,9 79

$237,6 49

$216,8 32

76,651

70,174

63,892

55,724

50,178

1,900

1,794

1,529

1,180

980

34.2%

34.2%

33.5%

33.1%

34.2%

$13,25 4

$12,86 3

$12,18 9

$11,38 6

$10,48 2

13,400

12,731

11,284

11,231

10,267

$3.35

$3.16

$2.92

$2.72

$2.46

Net income, diluted

3.39

3.13

2.71

2.68

2.41

Dividends

0.95

0.88

0.67

0.60

0.52

Net income Per share of common stock: Income from continuing operations, diluted

Financial Position

Current assets of continuing operations

$48,75 4

$47,05 3

$46,48 9

$43,47 3

$37,91 3

34,511

35,159

33,667

31,910

29,419

Property, equipment and capital lease assets, net

95,653

96,867

88,287

77,863

66,549

Total assets of continuing operations

163,23 4

162,54 7

150,65 8

135,75 8

117,13 9

Current liabilities of continuing operations

55,307

58,338

52,089

48,915

42,609

31,349

29,799

27,222

26,429

20,087

3,200

3,603

3,513

3,667

3,073

65,285

64,608

61,573

53,171

49,396

0.9

0.8

0.9

0.9

0.9

8.4%

8.5%

8.8%

9.3%

9.8%

21.2%

21.0%

22.0%

22.8%

23.1%

Inventories

Long-term debt Long-term obligations under capital leases Shareholders’ equity Financial Ratios Current ratio Return on assets

(2)

Return on shareholders’ equity

(3)

Other Year-End Data Walmart U.S. Segment Discount stores in the United States Supercenters in the United States Neighborhood Markets in the United States

891

971

1,075

1,209

1,353

2,612

2,447

2,256

1,980

1,713

153

132

112

100

85

3,615

3,098

2,734

2,158

1,480

602

591

579

567

551

International Segment Units outside the United States Sam's Club Segment Sam’s Clubs in the United States

01/31/2009

01/31/2008

01/31/2007

01/31/2006

01/31/2005

Current ratio

0.88

0.82

0.9

0.89

0.89

Acid-test ratio

0.2

0.16

0.2

0.2

0.2

Debt ratio

0.6

0.6

0.59

0.61

0.59

01/31/2007

01/31/2006

01/31/2005

01/31/2009 ROI (A)

01/31/2008

8.1%

8.2%

7.8%

8.3%

8.7%

ROE

20.6%

20.2%

19.7%

21.5%

NI Margin

3.3%

3.26%

3.4%

3.4%

3.41%

13.2

14.6

Times Interest Earned

11.1

11.95 01/31/2009

Number of days sales in A/R

3.5

12.5

01/31/2008 3.5

21.2%

01/31/2007

01/31/2006

01/31/2005

2.97

3.1

2.98

Number of days sales in inventory

41.1

44.8

46.6

47

46.9

PPE Turnover

4.35

4.23

4.35

4.29

4.3

Income Statement

Financial data in U.S. Dollars Values in Millions (Except for per share items)

2009 2008 2007 2006 2005 Period End Date

Period Length

Stmt Source

Stmt Source Date

Stmt Update Type

01/31/2009 01/31/2008 01/31/2007 01/31/2006 01/31/2005

12 Months

12 Months

12 Months

12 Months

12 Months

10-K

10-K

10-K

10-K

10-K

04/01/2009 04/01/2009 04/01/2009 03/27/2007 03/27/2007

Updated

Restated

Restated

Restated

Restated

Revenue

Other Revenue, Total

Total Revenue

401,244.0

374,307.0

344,759.0

308,945.0

281,488.0

4,363.0

4,169.0

3,609.0

3,156.0

2,822.0

405,607.0 378,476.0 348,368.0 312,101.0 284,310.0

Cost of Revenue, Total

306,158.0

286,350.0

263,979.0

237,649.0

216,832.0

Gross Profit

95,086.0

87,957.0

80,780.0

71,296.0

64,656.0

Selling/General/Administrative Expenses,

76,651.0

70,174.0

63,892.0

55,739.0

50,178.0

Research & Development

0.0

0.0

0.0

0.0

0.0

Depreciation/Amortization

0.0

0.0

0.0

0.0

0.0

Interest Expense (Income), Net Operating

0.0

0.0

0.0

0.0

0.0

Unusual Expense (Income)

0.0

0.0

0.0

0.0

0.0

Other Operating Expenses, Total

0.0

0.0

0.0

0.0

0.0

22,798.0

21,952.0

20,497.0

18,713.0

17,300.0

0.0

0.0

0.0

0.0

0.0

Gain (Loss) on Sale of Assets

0.0

0.0

0.0

0.0

0.0

Other, Net

0.0

0.0

0.0

0.0

0.0

20,898.0

20,158.0

18,968.0

17,535.0

16,320.0

Income Tax - Total

7,145.0

6,889.0

6,354.0

5,803.0

5,589.0

Income After Tax

13,753.0

13,269.0

12,614.0

11,732.0

10,731.0

-499.0

-406.0

-425.0

-324.0

-249.0

0.0

0.0

0.0

0.0

0.0

Total

Operating Income

Interest Income (Expense), Net NonOperating

Income Before Tax

Minority Interest

Equity In Affiliates

U.S. GAAP Adjustment

Net Income Before Extra. Items

0.0

0.0

0.0

0.0

0.0

13,254.0

12,863.0

12,189.0

11,408.0

10,482.0

146.0

-132.0

-905.0

-177.0

-215.0

13,400.0

12,731.0

11,284.0

11,231.0

10,267.0

Total Extraordinary Items

Discontinued Operations

Net Income

Balance Sheet Financial data in U.S. Dollars Values in Millions (Except for per share items)

2009

2008

2007

2006

2005

01/31/2009

01/31/2008

01/31/2007

01/31/2006

01/31/2005

10-K

10-K

10-K

10-K

10-K

Stmt Source Date

04/01/2009

04/01/2009

03/31/2008

03/27/2007

03/29/2006

Stmt Update Type

Updated

Reclassified

Restated

Reclassified

Restated

7,275.0

5,492.0

7,767.0

6,193.0

5,488.0

3,642.0

2,840.0

2,575.0

1,715.0

Period End Date

Stmt Source

Assets

Cash and Short Term Investments

Cash & Equivalents

Total Receivables, Net

3,905.0

Accounts Receivable - Trade, Net

Total Inventory

34,511.0

35,159.0

33,685.0

31,910.0

29,762.0

3,063.0

2,760.0

2,690.0

2,468.0

1,889.0

195.0

967.0

0.0

679.0

0.0

Total Current Assets

48,949.0

48,020.0

46,982.0

43,825.0

38,854.0

Property/Plant/Equipm

95,653.0

96,867.0

88,440.0

77,865.0

68,118.0

15,260.0

15,879.0

13,759.0

12,097.0

10,803.0

Intangibles, Net

0.0

0.0

0.0

0.0

0.0

Long Term

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

3,567.0

2,748.0

2,406.0

4,400.0

2,379.0

0.0

0.0

0.0

0.0

0.0

163,429.0

163,514.0

151,587.0

138,187.0

120,154.0

Accounts Payable

28,849.0

30,344.0

28,484.0

25,101.0

21,987.0

Payable/Accrued

0.0

0.0

0.0

0.0

0.0

18,112.0

15,725.0

14,675.0

13,274.0

12,120.0

1,506.0

5,040.0

2,570.0

3,754.0

3,812.0

6,163.0

6,229.0

5,713.0

4,879.0

3,982.0

Prepaid Expenses

Other Current Assets, Total

ent, Total - Net

Goodwill, Net

Investments

Note Receivable - Long Term

Other Long Term Assets, Total

Other Assets, Total

Total Assets

Liabilities and Shareholders' Equity

Accrued Expenses

Notes Payable/Short Term Debt

Current Port. of LT Debt/Capital Leases

Other Current

760.0

1,140.0

706.0

1,817.0

1,281.0

55,390.0

58,478.0

52,148.0

48,825.0

43,182.0

34,549.0

33,402.0

30,735.0

30,096.0

23,258.0

Liabilities, Total

Total Current Liabilities

Total Long Term Debt

Long Term Debt

Capital Lease Obligations

Deferred Income Tax

6,014.0

5,087.0

4,971.0

4,501.0

2,978.0

Minority Interest

2,191.0

1,939.0

2,160.0

1,465.0

1,340.0

0.0

0.0

0.0

129.0

0.0

98,144.0

98,906.0

90,014.0

85,016.0

70,758.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

393.0

397.0

413.0

417.0

423.0

3,920.0

3,028.0

2,834.0

2,596.0

2,425.0

63,660.0

57,319.0

55,818.0

49,105.0

43,854.0

-2,688.0

3,864.0

2,508.0

1,053.0

2,694.0

65,285.0

64,608.0

61,573.0

53,171.0

49,396.0

163,429.0

163,514.0

151,587.0

138,187.0

120,154.0

Other Liabilities, Total

Total Liabilities

Redeemable Preferred Stock

Preferred Stock - Non Redeemable, Net

Common Stock

Additional Paid-In Capital

Retained Earnings (Accumulated Deficit)

Other Equity, Total

Total Equity

Total Liabilities & Shareholders’ Equity

Cash Flow 200

2008 2007 2006 2005

9 Period End Date

01/31/200

01/31/2008

01/31/2007

01/31/2006

01/31/2005

12 Months

12 Months

12 Months

12 Months

10-K

10-K

10-K

10-K

10-K

04/01/200

04/01/2009

04/01/2009

03/31/2008

03/27/2007

Reclassified Reclassified

Restated

Reclassified

9

Period Length

12 Months

Stmt Source

Stmt Source Date

9

Stmt Update Type

Updated

Net Income/Starting Line

13,400.0

12,731.0

11,284.0

11,231.0

10,267.0

6,739.0

6,317.0

5,459.0

4,645.0

4,185.0

0.0

0.0

0.0

0.0

0.0

Deferred Taxes

581.0

-8.0

89.0

-129.0

263.0

Non-Cash Items

1,122.0

1,042.0

2,171.0

688.0

468.0

1,305.0

560.0

1,232.0

1,806.0

-139.0

Cash from Operating Activities

23,147.0

20,642.0

20,235.0

18,241.0

15,044.0

Capital Expenditures

-11,499.0

-14,937.0

-15,666.0

-14,530.0

-12,803.0

Depreciation/Depletion

Amortization

Discontinued Operations

Other Non-Cash Items

Changes in Working Capital

Accounts Receivable

Inventories

Accounts Payable

Accrued Expenses

Purchase of Fixed Assets

Other Investing Cash Flow Items, Total

757.0

-733.0

1,203.0

344.0

452.0

-

-15,670.0

-14,463.0

-14,186.0

-12,351.0

267.0

-622.0

-510.0

-349.0

113.0

Total Cash Dividends Paid

-3,746.0

-3,586.0

-2,802.0

-2,511.0

-2,214.0

Issuance (Retirement) of Stock, Net

-3,521.0

-7,691.0

-1,718.0

-3,580.0

-4,549.0

Issuance (Retirement) of Debt, Net

-2,918.0

4,477.0

-92.0

4,018.0

4,041.0

Cash from Financing Activities

-9,918.0

-7,422.0

-5,122.0

-2,422.0

-2,609.0

-781.0

252.0

97.0

-101.0

205.0

1,706.0

-2,198.0

747.0

1,532.0

289.0

Sale of Fixed Assets

Sale/Maturity of Investment

Other Investing Cash Flow

Cash from Investing Activities

10,742.0

Financing Cash Flow Items

Other Financing Cash Flow

Foreign Exchange Effects

Net Change in Cash

Income Statement - 10 Year Summary (in Millions)

Depreciatio

01/09

Sales

EBIT

401,244.

20,898.

0

0

n

EP Total Net Income

S

Tax Rate (%)

3. 6,700.0

13,254.0

35

34.19

374,307.

20,158.

01/08

0

0

6,300.0

12,863.0

16

3. 34.18

01/07

344,759.

18,968.

5,500.0

12,189.0

2.

33.5

01/06

01/05

01/04

01/03

01/02

01/01

0

0

308,945.

17,535.

0

0

281,488.

16,320.

0

0

256,329.

14,193.

0

0

229,616.

12,368.

0

0

204,011.

10,396.

0

0

191,329.

10,116.

0

0

92

2. 4,645.0

11,408.0

72

4,185.0

10,482.0

46

3,852.0

8,861.0

03

3,364.0

7,818.0

76

2,700.0

6,448.0

44

2.

0

34.25

2. 36.06

1. 35.23

1. 36.22

1. 2,868.0

6,295.0

165,013. 01/00

33.09

4

36.5

1. 9,083.0

2,375.0

5,575.0

25

36.75

Balance Sheet - 10 Year Summary (in Millions)

Current Assets

Current Liabilities

Long Term Debt

Shares Outstanding

01/09

163,429.0

98,144.0

34,549.0

3.9 Bil

01/08

163,514.0

98,906.0

33,402.0

4.0 Bil

01/07

151,587.0

90,014.0

30,735.0

4.1 Bil

01/06

138,187.0

85,016.0

30,096.0

4.2 Bil

01/05

120,154.0

70,758.0

23,258.0

4.2 Bil

01/04

105,405.0

61,782.0

20,099.0

4.3 Bil

01/03

94,808.0

55,347.0

19,597.0

4.4 Bil

01/02

83,527.0

48,425.0

18,732.0

4.5 Bil

01/01

78,130.0

46,787.0

15,655.0

4.5 Bil

01/00

70,349.0

44,515.0

16,674.0

4.5 Bil

Financial Condition Comp

Indus

S&P

any

try

500

0.68

0.68

0.91

Current Ratio

0.9

1.1

1.2

Quick Ratio

0.3

0.4

1.0

12.1

33.6

29.0

2.5

2.5

3.5

Debt/Equity Ratio

Interest Coverage Leverage Ratio Book Value/Share

17.37

17.9

16.13

2

Wal Mart’s Investment Returns % Comp

Indus

S&P

any

try

500

Return On Equity

19.9

18.3

16.1

Return On Assets

8.2

7.5

6.2

Return On Capital

12.6

11.5

8.7

21.3

19.5

19.4

8.8

8.2

8.0

13.8

12.7

10.7

Return On Equity (5-Year Avg.) Return On Assets (5-Year Avg.) Return On Capital (5-Year Avg.)

Wal Mart’s growth rates

Last

5

FY

FY

Next

2010

2011

Years

Compan +10.50

+4.60

+8.80

y

%

%

+12.4

+12.2

0%

0%

+9.80

+28.8

%

0%

Years

%

Industry +7.10%

S&P 500 -2.70%

5

P/E

+11.20%

+13.00%

NA

10

13. 90 13. 90 19. 10

10 year Summary

01/0 9 01/0 8 01/0 7 01/0 6 01/0 5 01/0 4 01/0 3 01/0 2 01/0 1 01/0 0

Book Value/

Debt/

Return on Equity

Return on Assets

Interest

Share

Equity

(%)

(%)

Coverage

$16.63

0.65

20.3

8.1

10.4

$16.26

0.69

19.9

7.9

10.4

$14.91

0.63

19.8

8.0

11.3

$12.77

0.73

21.5

8.3

13.2

$11.67

0.63

21.2

8.7

14.6

$10.12

0.61

20.3

8.4

15.1

$8.98

0.64

19.8

8.2

12.6

$7.88

0.62

18.4

7.7

8.6

$7.01

0.71

20.1

8.1

8.2

$5.80

0.85

21.6

7.9

9.9

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