Saturday, September 17, 2005

Wal-Mart operating margins

Digging into the annual report is necessary to break out the margins of each segment. Operating margin is the only margin by segment that one can derive from disclosures in Wal-Mart's documents. (Gross margin by segment and net margin by segment are impossible to derive at this time.)

Operating Margins by segment   

fiscal years
Jan 2005Jan 2004  Jan 2003
Wal-Mart Stores   7.38%  7.41%    7.54%
Sams Club   3.45%  3.26%    3.23%
International   5.31%  4.98%    4.90%

Operating margin is segment operating income as a percentage of segment sales. This is also known as EBIT/Sales (Earnings before interest expense and tax expense divided by sales).

Remember that the "Wal-Mart Stores" segment includes all U.S. discount stores, supercenters, and Neighborhood Markets. It should be noted that the operating margins in this area are PHENOMENAL, and that this is really the white hot core of all of Wal-Mart's operations. In retailing, operating margins north of 7% are astounding. I need to put in some comparable margins from other retailers to highlight the stupendous aspect of this.

[There is one slight caveat that needs to be mentioned here. Remember that all corporate overhead expenses for Wal-Mart are slotted into the "Other" operating segment (i.e. a segment not included above). Eventually I am going to need to "normalize" the above margins to take the missing corporate overhead into account. Corporate overhead includes things like salaries and bonuses to Wal-Mart execs and insurance. I still have some work to do on the "Other" segment before I can perform this step.]


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