Walmart 2014 Annual Report Download - page 21

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Overview
Wal-Mart Stores, Inc. (“Walmart,” the “Company” or “we”) operates retail
and other stores in various formats around the world and is committed
to saving people money so they can live better. Our operations consist
of three reportable segments: Walmart U.S., Walmart International and
Sam’s Club.
• The Walmart U.S. segment includes the Company’s mass merchant
concept in the United States (“U.S.”), operating under the “Walmart” or
“Wal-Mart” brand with various formats, including supercenters, discount
stores, Neighborhood Markets and other small stores, as well as
walmart.com. Of our three segments, Walmart U.S. is the largest and
has historically had the highest gross prot as a percentage of net sales
(“gross prot rate”). In addition, Walmart U.S. has historically contributed
the greatest amount to the Company’s net sales and operating income.
• The Walmart International segment consists of the Company’s operations
outside of the U.S., including various retail websites. Walmart International
operates retail, wholesale and other types of units, including restaurants
and some banks. The overall gross prot rate for Walmart International is
lower than that of Walmart U.S. because of its merchandise mix. Walmart
International has generally been our most rapidly growing segment,
growing primarily through new stores and acquisitions and, in recent years,
has been growing its net sales and operating income at a faster rate than
our other segments. However, for scal 2014, Walmart International sales
growth slowed due to uctuations in currency exchange rates, as well
as no signicant acquisitions, and operating income declined as a result
of certain operating expenses.
• The Sam’s Club segment includes the warehouse membership clubs in
the U.S., as well as samsclub.com. Sam’s Club operates as a membership
club warehouse with a lower gross prot rate and lower operating
expenses as a percentage of net sales than our other segments.
At Walmart U.S., 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 under frequent pro-
motional activities. Our focus for Sam’s Club is to provide exceptional
value on brand name and private label merchandise at “members only”
prices for both business and personal use. Internationally, we operate
with similar philosophies.
Our scal year ends on January 31 for our U.S. and Canadian operations.
We consolidate all other operations generally using a one-month lag and
on a calendar year basis. Our business is seasonal to a certain extent due
to dierent calendar events and national and religious holidays, as well as
dierent weather patterns. Historically, our highest sales volume and
operating income have occurred in the scal quarter ending January 31.
This discussion, which presents our results for the scal years ended
January 31, 2014 (“scal 2014”), January 31, 2013 (“scal 2013”) and
January 31, 2012 (“scal 2012”), should be read in conjunction with our
Consolidated Financial Statements and accompanying notes. We intend
for this discussion to provide the reader with information that will assist
in understanding our nancial statements, the changes in certain key
items in those nancial statements from period to period and the pri-
mary factors that accounted for those changes. We also discuss certain
performance metrics that management uses to assess the Company’s
performance. Additionally, the discussion provides information about
the nancial results of the various segments of our business to provide a
better understanding of how those segments and their results aect the
nancial condition and results of operations of the Company as a whole.
Throughout this Management’s Discussion and Analysis of Financial
Condition and Results of Operations, we discuss segment operating
income, comparable store and club sales and other measures. Manage-
ment measures the results of the Company’s segments using, among
other measures, each segment’s operating income, including certain
corporate overhead allocations. From time to time, we revise the
measurement of each segment’s operating income or other measures,
which include certain corporate overhead allocations, as determined
by the information regularly reviewed by our chief operating decision
maker. When we do so, the previous period amounts and balances are
reclassied to conform to the current period’s presentation. The amounts
disclosed for “Corporate and support” in the leverage discussion of the
Company’s performance metrics consist of corporate overhead and
other items not allocated to any of the Company’s segments.
Comparable store and club sales is a metric that indicates the performance
of our existing U.S. stores and clubs by measuring the change in sales for
such stores and clubs, including e-commerce sales, for a particular
period from the corresponding period in the previous year. Walmart’s
denition of comparable store and club sales includes sales from stores
and clubs open for the previous 12 months, including remodels,
relocations, expansions and conversions, as well as e-commerce sales.
We measure the e-commerce sales impact by including those sales
initiated through our websites and fullled through our dedicated
e-commerce distribution facilities, as well as an estimate for sales initiated
online, but fullled through our stores and clubs. Changes in format are
excluded from comparable store and club sales when the conversion is
accompanied by a relocation or expansion that results in a change in
retail square feet of more than ve percent. Comparable store and club
sales are also referred to as “same-store” sales by others within the retail
industry. The method of calculating comparable store and club sales
varies across the retail industry. As a result, our calculation of comparable
store and club sales is not necessarily comparable to similarly titled
measures reported by other companies.
In discussing our operating results, the term currency exchange rates
refers to the currency exchange rates we use to convert the operating
results for all countries where the functional currency is not the U.S.
dollar. We calculate the eect of changes in currency exchange rates as
the dierence between current period activity translated using the
current period’s currency exchange rates, and the comparable prior year
period’s currency exchange rates. Throughout our discussion, we refer
to the results of this calculation as the impact of currency exchange rate
uctuations. When we refer to constant currency operating results, we
are referring to our operating results without the impact of the currency
exchange rate uctuations and without the impact of acquisitions until
the acquisitions are included in both comparable periods. The disclosure
of constant currency amounts or results permits investors to understand
better Walmart’s underlying performance without the eects of cur-
rency exchange rate uctuations or acquisitions. Volatility in currency
exchange rates may impact the results, including net sales and operating
income, of the Company and the Walmart International segment in
the future.
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