Sunday, April 23, 2006

Wal-Mart in China

If you’re planning a visit to China and you want to visit a Wal-Mart Supercenter while you’re there, here is a list of the China stores along with addresses and phone numbers. (Listed by province then city.) Please take a camera with you and send me some pictures! I'll post them here on the blog.

There are now 51 Supercenters in China. (Unfortunately the site only lists the details for 41 of them.)

If you want to see company news on store openings and other Wal-Mart activities in China, click here.

Friday, April 21, 2006

Wal-Mart inventory growth compared to sales growth

Back in the 2004 10-K for Wal-Mart Stores Inc., Wal-Mart management introduced a section called Company Performance Measures (in the MD&A portion of the filing). Wal-Mart management wished to use this section to evaluate Wal-Mart’s annual performance for the year.

The four metrics that Wal-Mart listed (along with how each was to be evaluated) were as follows:

Comparative store sales   (year over year change)
Operating income growth   (greater than net sales growth?)
Inventory growth   (at a rate less than half net sales growth?)
Return on assets   (year over year change)

When I first saw this list, the one that jumped out at me was the inventory growth metric.

Wal-Mart used this sentence to describe how they evaluated the metric:

“Inventory growth at a rate less than half of sales growth is a key measure of our efficiency.”

I was quite startled by that statement. Good heavens, inventory growth at a rate less than half of sales growth! This of course means that sales growth would be twice inventory growth. That would be incredible.

Checking the numbers over the last ten years this happened four times.

I think by the time the 2006 10-K was written, though, Wal-Mart realized that this would be an unrealistic performance measurement. The sentence was changed in the 2006 10-K (and Annual Report) to remove the reference to “half” of sales growth. The sentence now reads:
“Inventory growth at a rate less than that of net sales is a key measure of our efficiency.”

That sounds a bit more realistic and attainable.

Additional note:
An April 20, 2006 article in the Wall Street Journal titled "Wal-Mart Aims To Sharply Cut Its Inventory Costs" (by Kris Hudson and Ann Zimmerman) directly addressed this issue.
Chief Financial Officer Tom Schoewe said Wal-Mart's internal goal calls for cutting its inventory growth rate to half of its sales growth rate. "If you look back at the last six or eight quarters, we have not met that objective," he said. "I think the chances of meeting that objective are greater this year than they have ever been before."

Thursday, April 20, 2006

Wal-Mart's Photo Processing business

If I am reading the Wal-Mart Stores Inc. 10K correctly, Wal-Mart did about $2 billion worth of business in photo processing last year.

Interestingly, I found a website that compares Wal-Mart's photo processing with Snapfish and Kodak EasyShare. Click here for the website.

Also, there is a review of Wal-Mart's photo processing services. Wal-Mart ranks #4 out of 27 photo processors. Impressive!

Wednesday, April 19, 2006

Conversions of Wal-Mart Discount Stores for uses by other businesses

I was researching Wal-Mart’s real estate division and I must say I became fascinated by the creative ways in which former Wal-Mart Discount Stores have been converted for other uses.

Thomas Medical Center in Daphne, Alabama

A place called Incredible Pizza in Warr Acres, OK

A Social Security Office in Baltimore, MD

First Christian Church in Miami, OK

For a full page of photos, click here.

Other former Wal-Mart stores in productive use:
School campus: Acadia Paris School System - Crowley, LA
Civic Center: City of Hillsboro - Hillsboro, TX
Regional office: State Farm Insurance - Portage, MI
Automotive dealer: Holland Cadillac - Harrisburg, IL
Assembly center: National Book Binders - Moberly, MO
Classrooms: Lake Land College - Mattoon, IL
Courtrooms / Offices: Ellis County - Waxahachie, TX
Fitness center: Chase Fitness Marketing - Georgetown, KY
Manufacturing: Novatron - Atlanta, TX
Warehouse: H. E. Butt Grocery - Austin, TX
Satellite College Campus: Weatherford College - Decatur, TX
Church: Open Bible Fellowship - Tulsa, OK
Bank: Community Trust Bank - Pikeville, KY

Monday, April 17, 2006

Wal-Mart projected growth in global retail square footage for 2006

In late October of 2005, Wal-Mart announced its square footage growth plans for calendar 2006.

"Globally, the company expects to add over 60 million square feet of gross retail space, which is over an 8% increase from the estimated current fiscal year-end square footage."

Net additions
Supercenters:    275
Discount stores:    -135
Neighborhood Markets:    17
Sam’s Clubs:    15

(The above numbers are the median of store range numbers released by Wal-Mart. Also they are net of relocations.)

Using a calculator and the above store numbers, domestically they will add approximately 40,100,000 square feet ... a 7.0% increase in domestic retail space from last year.

This leaves about 19,900,000 square feet they will need to add abroad.

Joe Hatfield over in China recently announced they were going to open 20 new stores there this year. At about 183,000 square feet per store that comes to 3,665,000 new square feet in China.

This leaves at least 16,200,000 million square feet that will be added mainly in Mexico, Canada, Brazil and the UK.

To sum up, this means retail square footage growth rates approximately as follows for this year:

United States:      7.0%
International:    12.7%

(For the numbers released by Wal-Mart, click here.)

Saturday, April 15, 2006

FY 2006 Wal-Mart financial statements - Part One

The first thing I always look for when viewing a new set of annual financial statements from Wal-Mart is how did things change due to restatements or reclassifications?

Reclassifications happen for example when Wal-Mart buys or sells a business. The sale of McLane is the most recent historical example. (In FY 2004, Wal-Mart sold McLane to Berkshire Hathaway and so McLane’s assets and liabilities were removed from Wal-Mart’s balance sheet.)

Let’s quickly look at what happened in FY 2006…

The main thing that occurred was the consolidation of Seiyu (Japan) and Sonae Distribuicao (Brazil) onto Wal-Mart’s balance sheet. This consolidation happened for FY 2006.

I noticed, though, that numbers also changed on the FY 2005 balance sheet.

Wal-Mart notes that “Certain reclassifications have been made to prior periods to conform to current presentations.” I wish we had a better explanation of what happened, though. I always like to keep everything neat and tidy.

The 2005 balance sheet changed in the 2006 10-K, but I guess since the change was small enough it was considered immaterial and did not require specific explanation. Inventory increased by 315 million on the left side of the balance sheet offset by a similar increase in accounts payable on the right side …Did a percentage of Seiyu’s balance sheet and a percentage of Sonae Distribuicao’s balance sheet get applied to FY 2005? I guess we won’t know. All I can do is just post spreadsheets of the restatements before moving on.

2006 Restatements for FY 2005

    Restated 2005 Wal-Mart Balance Sheet
    Restated 2005 Wal-Mart Income Statement
    Restated 2005 Wal-Mart Cash Flow Statement

2006 newly updated Financial Statements

    2006 (multi-year) Wal-Mart Balance Sheet
    2006 (multi-year) Wal-Mart Income Statement
    2006 (multi-year) Wal-Mart Cash Flow Statement

Introduction to the fiscal 2006 Wal-Mart financial statements

I have finally taken the time to read and digest Wal-Mart’s 2006 Annual Report as well as its 2006 10-K filing. The next series of posts on this blog will be simply be observations I made while reading these documents in detail. Please note that these observations will almost assuredly be considered incredibly boring by casual Wal-Mart observers. … If I were to review this blog as an outsider, I would probably say something along the lines of the following: “Mainly a highly technical look at Wal-Mart’s financial statements with some material on overall operations. Blog apparently run by a bookish type who probably spends way too much time poring over Wal-Mart’s filings when he should instead be outside enjoying a fine weekend.”

With that said, let’s begin now on Wal-Mart’s filings for fiscal 2006.

It is important to remember that Wal-Mart’s fiscal year ends on January 31st. This means that Wal-Mart’s fiscal 2006 = 11 months of calendar 2005 plus one month of calendar 2006. In essence, we are really looking at the numbers for calendar 2005 when we examine the annual report for 2006. (Easy, however, to become confused by the 2006 title.)