Walmart 2007 Annual Report Download - page 34

Wal-Mart 2007 Annual Report 32
At January 31, 2007, our International segment was comprised of
wholly-owned operations in Argentina, Brazil, Canada, Puerto Rico
and the United Kingdom, the operation of joint ventures in China
and the operations of majority-owned subsidiaries in Central
America, Japan and Mexico.
The  scal 2007 increase in the International segment’s net sales
primarily resulted from:
• the consolidation of Seiyu and CARHCO and the acquisition of
Sonae, all of which added 17.1 percentage points to the increase in
 scal 2007 net sales,
• net sales growth from existing units,
• our international expansion program which added 576 units, net of
relocations and closings, consisting of 20.4 million, or 12.0%, of
additional unit square footage (this includes the consolidation of
CARHCO, which added 372 stores and 6.5 million square feet in
February 2006) and
• the $1.5 billion favorable impact of changes in foreign currency
exchange rates during  scal 2007.
The  scal 2006 increase in the International segment’s net sales primarily
resulted from improved operating execution, our international expan-
sion program and the impact of changes in foreign currency exchange
rates. In  scal 2006, the International segment added 701 units, net
of relocations and closings, which added 53 million, or 45.1%, of addi-
tional unit square footage. This includes the acquisition of Sonae in
Southern Brazil, which added 139 stores and 11 million square feet
in December 2005, and the consolidation of Seiyu in Japan, which
added 398 stores and 29 million square feet in December 2005.
Additionally, the impact of changes in foreign currency exchange
rates favorably a ected the translation of International segment net
sales into U.S. dollars by an aggregate of $1.4 billion in  scal 2006.
Fiscal 2007 net sales at our United Kingdom subsidiary, Asda, were 37.4%
of the International segment net sales. Net sales for Asda included in
our Consolidated Statements of Income during  scal 2007, 2006 and
2005 were $28.9 billion, $26.8 billion and $26.0 billion, respectively.
Fiscal 2007 International segment operating income as a percentage
of segment net sales was down from  scal 2006, primarily due to the
impact of the acquisition of Sonae and the consolidation of Seiyu
and CARHCO. These acquisitions and consolidations increased gross
margin by 0.4 percentage points, increased operating expenses as a
percentage of segment net sales by 1.2 percentage points, and reduced
operating income as a percent of segment net sales by approximately
Consistent with past periods, segment operating income as a percentage
of segment net sales increased slightly in  scal 2007 when compared
to  scal 2006. The increase was due to an improvement in gross mar-
gin and membership revenue as a percentage of segment net sales,
partially o set by an increase in operating expenses as a percentage
of segment net sales. Gross margin as a percentage of segment net
sales increased due to strong sales in certain higher-margin categories,
including pharmacy and jewelry, during  scal 2007. Operating expenses
as a percentage of segment net sales increased primarily due to a
slight increase in employee-related costs in  scal 2007 when com-
pared to  scal 2006. Fiscal 2007 also included an $11 million charge
related to the closing of three clubs during the year.
Segment operating income as a percentage of segment net sales
increased slightly in  scal 2006 when compared to  scal 2005. The
increase was due to an improvement in operating expenses and other
income as a percentage of segment net sales, partially o set by a
slight decrease in gross margin as a percentage of segment net sales.
Operating expenses as a percentage of segment net sales improved
primarily due to lower wage and accident costs as a percentage of seg-
ment net sales in  scal 2006 when compared to  scal 2005, partially
o set by increased utility costs. The increase in other income as a
percentage of segment net sales was primarily the result of income
recognized from higher membership sales in  scal 2006. Gross margin
as a percentage of segment net sales decreased due to strong seg-
ment net sales in certain lower-margin categories, including fuel and
tobacco, during  scal 2006.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
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 Net Sales
2007 30.2% $4,259 21.5% 5.5%
2006 12.7% 3,506 9.7% 5.9%
2005 19.3% 3,197 22.8% 6.1%
Wal-Mart International Total Unit Count(1)
05
In the past three years, Wal-Mart
International has almost doubled
its total unit count both through
acquisitions and new store openings.
(1) Unit counts are as of December 31, of the years shown
for all countries, except Canada and Puerto Rico, which
are as of January 31.
2,800
0
700
1,400
06 07
2,100
Fiscal Year
Units