Walmart 2005 Annual Report Download - page 26

24 WAL-MART 2005 ANNUAL REPORT
Overview
Wal-Mart Stores, Inc. (“Wal-Mart” or the “company”) is a global
retailer committed to growing by improving the standard of living
for our customers throughout the world. We earn the trust of our
customers every day by providing a broad assortment of quality
merchandise and services at everyday low prices (“EDLP”) while
fostering a culture that rewards and embraces mutual respect,
integrity and diversity. EDLP is our pricing philosophy under which
we price items at a low price every day so that our customers trust
that our prices will not change erratically under frequent promo-
tional activity. SAM’S CLUB is in business for small businesses.
Our focus for SAM’S CLUB is to provide exceptional value on brand-
name merchandise at “Members Only” prices for both business and
personal use. Internationally, we operate with similar philosophies.
We intend for this discussion to provide the reader with informa-
tion that will assist in understanding our financial statements, the
changes in certain key items in those financial statements from
year to year, and the primary factors that accounted for those
changes, as well as how certain accounting principles affect our
financial statements. The discussion also provides information
about the financial results of the various segments of our business
to provide a better understanding of how those segments and their
results affect the financial condition and results of operations of
the company as a whole. This discussion should be read in con-
junction with our financial statements and accompanying notes
as of January 31, 2005, and the year then ended.
Throughout this Management’s Discussion and Analysis of Results
of Operations and Financial Condition, we discuss segment oper-
ating income and comparative store sales. Segment operating
income refers to income from continuing operations before net
interest expense, income taxes and minority interest. Segment
operating income does not include unallocated corporate over-
head. Comparative store sales is a measure which indicates the
performance of our existing stores by measuring the growth in
sales for such stores for a particular period over the correspond-
ing period in the prior year. We consider comparative store sales to
be sales at stores that were open as of February 1st of the prior fis-
cal year and have not been expanded or relocated since that date.
Stores that were expanded or relocated during that period are not
included in the calculation. Comparative store sales is also referred
to as “same-store” sales by others within the retail industry. The
method of calculating comparative store sales varies across the retail
industry. As a result, our calculation of comparative store sales is
not necessarily comparable to similarly titled measures reported
by other companies.
On May 2, 2003, we announced that we had entered into an
agreement to sell McLane Company, Inc. (“McLane”), one of our
wholly-owned subsidiaries, for $1.5 billion. On May 23, 2003, the
transaction was completed. As a result of this sale, we have clas-
sified McLane as a discontinued operation in the financial state-
ments and these discussions and comparisons of the current and
prior fiscal years. McLane’s external sales prior to the divestiture
were $4.3 billion in fiscal 2004 and $14.9 billion for fiscal 2003.
McLane continues to be a supplier to the company.
Operations
Our operations are comprised of three business segments:
Wal-Mart Stores, SAM’S CLUB and International.
Our Wal-Mart Stores segment is the largest segment of our busi-
ness, accounting for approximately 67.3% of our fiscal 2005 sales.
This segment consists of three different retail formats, all of which
are located in the United States, including:
• Supercenters, which average approximately 187,000 square feet
in size and offer a wide assortment of general merchandise and
a full-line supermarket;
• Discount Stores, which average approximately 100,000 square
feet in size and offer a wide assortment of general merchandise
and a limited assortment of food products; and
• Neighborhood Markets, which average approximately 43,000
square feet in size and offer a full-line supermarket and a limited
assortment of general merchandise.
Our SAM’S CLUB segment consists of membership warehouse
clubs in the United States and accounts for approximately 13.0%
of our fiscal 2005 sales. Our SAM’S CLUBs in the United States
average approximately 128,000 square feet in size.
Our International operations are located in eight countries and
Puerto Rico. Internationally, we generated approximately 19.7%
of our fiscal 2005 sales. Outside the United States, we operate
several different formats of retail stores and restaurants, including
Supercenters, Discount Stores and SAM’S CLUBs. Additionally,
we own an unconsolidated 37% minority interest in The Seiyu,
Ltd. (“Seiyu”), a retailer in Japan.
The Retail Industry
We operate in the highly competitive retail industry in both
the United States and abroad. We face strong sales competi-
tion from other general merchandise, food and specialty retailers.
Additionally, we compete with a number of companies for prime
retail site locations, as well as in attracting and retaining quality
employees (“associates”). We, along with other retail companies,
are influenced by a number of factors including, but not limited
to: cost of goods, consumer debt levels, economic conditions,
customer preferences, employment, labor costs, inflation, currency
exchange fluctuations, fuel prices, weather patterns, insurance
costs and accident costs.
Key Items in Fiscal 2005
Significant financial items during fiscal 2005 include:
• Net sales increased 11.3% from fiscal 2004 to $285.2 billion in
fiscal 2005, and income from continuing operations increased
15.9% to $10.3 billion. Foreign currency exchange rates favor-
ably impacted sales by $3.2 billion in fiscal 2005.
• Net operating cash provided by operating activities was $15.0 bil-
lion for fiscal 2005. During fiscal 2005 we repurchased $4.5 bil-
lion of our common stock under our share repurchase program and
paid dividends of $2.2 billion. Additionally during fiscal 2005,
we issued $5.8 billion in long-term debt securities and repaid
$2.1 billion of long-term debt.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition
W A L -M A R T