Walmart 2015 Annual Report Download - page 21

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2015 Annual Report
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Overview
Wal-Mart Stores, Inc. (“Walmart,” the “Company” or “we”) is engaged in
the operation of retail, wholesale and other units in various formats
around the world. Our operations consist of three reportable segments:
Walmart U.S., Walmart International and Sam’s Club.
• Walmart U.S. is our largest segment and operates retail stores in all
50 states in the United States (“U.S.”), Washington D.C. and Puerto Rico,
with three primary store formats, as well as digital retail. Walmart U.S.
generated approximately 60% of our net sales in fiscal 2015 and, of our
three segments, Walmart U.S. is the largest and has historically had
the highest gross profit as a percentage of net sales (“gross profit rate”).
In addition, Walmart U.S. has historically contributed the greatest amount
to the Company’s net sales and operating income.
• Walmart International consists of operations in 26 countries outside of
the U.S. and includes retail, wholesale and other businesses. These busi-
nesses consist of numerous formats, including supercenters, supermarkets,
hypermarkets, warehouse clubs, including Sam’s Clubs, cash & carry, home
improvement, specialty electronics, restaurants, apparel stores, drug stores
and convenience stores, as well as digital retail. Walmart International
generated approximately 28% of our fiscal 2015 net sales. The overall
gross profit rate for Walmart International is lower than that of Walmart
U.S. because of its merchandise mix. Walmart International is our second
largest segment and has grown through acquisitions, as well as by adding
retail, wholesale and other units.
• Sam’s Club consists of membership-only warehouse clubs and operates
in 48 states in the U.S. and in Puerto Rico, as well as digital retail. Sam’s
Club accounted for approximately 12% of our fiscal 2015 net sales. As a
membership-only warehouse club, membership income is a significant
component of the segment’s operating income. As a result, Sam’s Club
operates with a lower gross profit rate and lower operating expenses as
a percentage of net sales than our other segments.
Each of our segments contributes to the Company’s operating results
differently, but each has generally maintained a consistent contribution
rate to the Company’s net sales and operating income in recent years.
Through the operations in each of our segments, we help people around
the world save money and live better – anytime and anywhere – in retail
stores or through our e-commerce and mobile capabilities. Through
innovation, we are striving to create a customer-centric experience that
seamlessly integrates digital and physical shopping. Physical retail
encompasses our brick and mortar presence in each of the markets we
operate. Digital retail is comprised of our e-commerce websites and
mobile commerce applications. Each week, we serve nearly 260 million
customers who visit our over 11,000 stores under 72 banners in 27 coun-
tries and e-commerce websites in 11 countries. Our strategy is to lead on
price, invest to differentiate on access, be competitive on assortment and
deliver a great experience. By leading on price 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
our customers trust that our prices will not change under frequent promo-
tional activity. Price leadership is core to who we are. Everyday low cost
(“EDLC”) is our commitment to control expenses so those cost savings
can be passed along to our customers. Our digital and physical presence
provides customers access to our broad assortment anytime and
anywhere. We strive to give our customers and members a great digital
and physical shopping experience.
Our fiscal 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 calendar events and national and religious holidays, as well as weather
patterns. Historically, our highest sales volume and operating income
have occurred in the fiscal quarter ending January 31.
This discussion, which presents our results for the fiscal years ended
January 31, 2015 (“fiscal 2015”), January 31, 2014 (“fiscal 2014”) and
January 31, 2013 (“fiscal 2013”), should be read in conjunction with our
Consolidated Financial Statements and the accompanying notes. We
intend for this discussion to provide the reader with information that will
assist in understanding our financial statements, the changes in certain
key items in those financial statements from period to period and the
primary 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
financial results of the three segments of our business to provide a better
understanding of how each of those segments and its results of operations
affect the financial 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.
Management measures the results of the Company’s segments using
each segment’s operating income, including certain corporate overhead
allocations, as well as other measures. From time to time, we revise the
measurement of each segment’s operating income, including certain
corporate overhead allocations, and other measures as determined by
the information regularly reviewed by our chief operating decision
maker. When we do so, the previous period amounts and balances are
reclassified 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 definition 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 includ-
ing those sales initiated through our websites and fulfilled through our
e-commerce distribution facilities, as well as an estimate for sales initiated
online, but fulfilled 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 five 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