Walmart 2005 Annual Report Download - page 29

WAL-MART 2005 ANNUAL REPORT 27
fiscal 2005 when compared to fiscal 2004. The segment’s operat-
ing expenses in fiscal 2005 as a percentage of segment net sales
were higher than fiscal 2004 primarily due to expense pressures
from associate wages and accident costs. Wages primarily increased
due to our new job classification and pay structure, which was
implemented in the second quarter of fiscal 2005.
The fiscal 2004 decrease in segment operating income as a per-
centage of segment net sales compared with fiscal 2003 resulted
from a 0.4% increase in segment operating expenses, which was
partially offset by a 0.3% increase in gross margin for the segment
when compared with fiscal 2003. The gross margin improve-
ment was driven primarily by a favorable shift in the mix of prod-
ucts sold and our global sourcing efforts, despite increased apparel
markdowns in the second half of the year. Segment operating
expenses in fiscal 2004 as a percentage of segment net sales were
higher than fiscal 2003 primarily due to increased insurance and
advertising costs.
Growth in net sales for the SAM’S CLUB segment in fiscal 2005
and fiscal 2004 resulted from comparative club sales increases of
5.8% in fiscal 2005 and 5.3% in fiscal 2004, along with our expan-
sion program. Comparative club sales in 2005 increased at a higher
rate than in 2004 primarily as the result of continued focus on small
business members, along with improved sales in fresh and specialty
categories, including fuel. Segment expansion consisted of the open-
ing of 13 new clubs in both fiscal 2005 and fiscal 2004. Our total
expansion program added approximately 3 million of additional club
square footage, or 3.7%, in fiscal 2005 and approximately 2 million,
or 3.6%, of additional club square footage in fiscal 2004.
Segment operating income as a percentage of segment net sales
increased slightly in fiscal 2005 when compared to fiscal 2004.
The increase is due to an improvement in gross margin, partially
offset by an increase in operating expenses as a percentage of seg-
ment net sales and the impact of the adoption of EITF 02-16 in
fiscal 2004. The improvement in gross margin is primarily a result
of strong sales in higher margin categories. Operating expenses
as a percentage of segment net sales increased due primarily to
higher wage costs resulting from our new job classification and pay
structure, which was implemented in the second quarter of fiscal
2005. The adoption of EITF 02-16 resulted in a decrease to the
segment’s operating income in fiscal 2004 of $44 million.
Segment operating income as a percentage of segment net sales
increased slightly in fiscal 2004 when compared to fiscal 2003,
due to a reduction in operating expenses resulting from working
more closely with the Wal-Mart Stores segment.
Our International segment is comprised of wholly owned opera-
tions in Argentina, Canada, Germany, South Korea, Puerto Rico
and the United Kingdom, the operations of joint ventures in
China and operations of majority-owned subsidiaries in Brazil
and Mexico.
The fiscal 2005 increase in the International segment’s net sales pri-
marily resulted from improved operating results, our international
expansion program and the impact of foreign currency exchange
rate changes. In fiscal 2005, the International segment opened 232
units, net of relocations and closings, which added 18 million, or
15.6%, of additional unit square footage. This includes the acquisi-
tion of Bompreço S.A. Supermercados do Nordeste (“Bompreço”)
in Brazil, which added 118 stores and 7.5 million square feet
in February 2004. Additionally, the impact of changes in for-
eign currency exchange rates favorably affected the translation of
International segment sales into U.S. dollars by an aggregate of
$3.2 billion in fiscal 2005.
The fiscal 2004 increase in International net sales primarily
resulted from both improved operating results and our interna-
tional expansion program. In fiscal 2004, the International seg-
ment opened 83 units, net of relocations and closings, which
added 9 million, or 8.5%, of additional unit square footage.
Additionally, the impact of changes in foreign currency exchange
rates favorably affected the translation of International segment
sales into U.S. dollars by an aggregate of approximately $2.0 bil-
lion in fiscal 2004.
International Segment
Segment Net Sales Increase Segment Operating Segment Operating Income Operating Income as a
Fiscal Year from Prior Fiscal Year Income (in millions) Increase from Prior Fiscal Year Percentage of Segment Sales
2005 18.3% $ 2,988 26.1% 5.3%
2004 16.6% 2,370 18.6% 5.0%
2003 15.0% 1,998 57.2% 4.9%
SAM’S CLUB Segment
Segment Net Sales Increase Segment Operating Segment Operating Income Operating Income as a
Fiscal Year from Prior Fiscal Year Income (in millions) Increase from Prior Fiscal Year Percentage of Segment Sales
2005 7.5% $1,280 13.7% 3.4%
2004 8.9% 1,126 10.1% 3.3%
2003 7.8% 1,023 0.0% 3.2%