Walmart 2014 Annual Report Download - page 27

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Walmart U.S. Segment
(Amounts in millions, Fiscal Years Ended January 31,
except unit counts) 2014 2013 2012
Net sales $279,406 $274,433 $264,186
Percentage change from
previous scal year 1.8% 3.9% 1.5%
Calendar comparable
store sales (0.6)% 2.0% 0.3%
Operating income $ 22,351 $ 21,491 $ 20,381
Operating income as a
percentage of net sales 8.0% 7.8% 7.7%
Unit counts at period end 4,203 4,005 3,868
Retail square feet at
period end 659 641 627
Net sales for the Walmart U.S. segment increased 1.8% and 3.9% for scal
2014 and 2013, respectively, when compared to the previous scal year.
For scal 2014, the increase in net sales was due to year-over-year growth
in retail square feet of 2.9%, partially oset by a decline in comparable
store sales of (0.6)%. Our comparable store sales were negatively impacted
by lower consumer spending primarily due to the slow recovery in
general economic conditions, the 2% increase in the 2013 payroll tax
rate, and the reduction in government food benets and severe winter
storms that occurred in the fourth quarter. For scal 2013, the increase in
net sales was due to a 2.0% increase in comparable store sales as a result
of higher average ticket and an increase in customer trac, combined
with a 2.2% increase in retail square feet.
The scal 2014 gross prot rate declined slightly when compared to
the previous scal year primarily due to our commitment to low price
leadership, especially during scal 2014’s highly competitive holiday
sales season, partially oset by cost of goods savings initiatives and
supply chain productivity. Gross prot rate declined 16 basis points for
scal 2013, when compared to the previous scal year, primarily due
to our strategic focus on price investment and low price leadership.
Walmart U.S. leveraged operating expenses for scal 2014 and 2013,
as operating expenses as a percentage of segment net sales declined
18 and 27 basis points, respectively, compared to the previous scal
year. The decrease in operating expenses as a percentage of segment
net sales was driven by productivity initiatives in both years, as well
as lower incentive expenses in scal 2014.
As a result of the factors discussed above, segment operating income
was $22.4 billion, $21.5 billion and $20.4 billion during scal 2014, 2013
and 2012, respectively, and Walmart U.S. grew operating income faster
than sales during scal 2014 and 2013.
Walmart International Segment
(Amounts in millions, Fiscal Years Ended January 31,
except unit counts) 2014 2013 2012
Net sales $136,513 $134,748 $125,435
Percentage change from
previous scal year 1.3% 7.4% 15.3%
Operating income $ 5,454 $ 6,617 $ 6,113
Operating income as
a percentage of net sales 4.0% 4.9% 4.9%
Unit counts at period end 6,107 5,783 5,287
Retail square feet at period end 358 346 326
Net sales for the Walmart International segment increased 1.3% and 7.4%
for scal 2014 and 2013, respectively, when compared to the previous
scal year. For scal 2014, the increase in net sales was due to year-over-
year growth in retail square feet of 3.6% and the impact of scal 2013
acquisitions, which accounted for $730 million of the net sales increase.
In addition, higher e-commerce sales in each country with e-commerce
operations, particularly in the United Kingdom, Brazil and China,
contributed to the increase in net sales. The increase in net sales was
partially oset by $5.1 billion of negative impact from uctuations in
currency exchange rates. For scal 2013, the increase in net sales was
due to year-over-year growth in retail square feet of 5.9% and positive
comparable sales. In addition, net sales from scal 2012 acquisitions
accounted for $4.0 billion of the increase in net sales. The increase in
net sales was partially oset by $4.5 billion of negative impact from
uctuations in currency exchange rates.
Gross prot rate decreased 10 basis points for scal 2014 and was at for
scal 2013, when compared to the previous scal year. The scal 2014
decrease in gross prot rate was primarily due to price investments in
certain countries, including Brazil, Canada and Mexico.
Walmart International did not leverage operating expenses for scal 2014
as operating expenses as a percentage of segment net sales increased
80 basis points, when compared to the previous scal year. Operating
expenses as a percentage of segment net sales were impacted by lower
than anticipated net sales, increased wages and strategic investments,
including investments in e-commerce initiatives. In addition, we incurred
nearly $1.0 billion of aggregated expenses for the following matters that
contributed to the increase in our operating expenses as a percentage
of segment net sales:
• Charges for contingencies for non-income taxes and employment
claims in Brazil;
• Charges for the closure of 29 units in China and 25 units in Brazil due
to poor performance;
• Store lease expenses in China and Mexico to correct a historical
accounting practice that did not conform to our global accounting
policies; and
• Expenses for the termination of the joint venture, franchise and
supply agreements related to our former partner’s retail store operations
in India.
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