International stokes WMT's growth fires

Don Hogsett, February 24, 2003

Fourth-quarter profits at Wal-Mart Stores climbed by 15.5 percent, to $2.5 billion from $2.2 billion last year, as a growing contribution from the rapidly expanding international business more than offset slowing growth in the core U.S. retailing operation.

Sales expanded by 10.7 percent, to $71.1 billion from $64.2 billion last year. Same-store sales grew by 2.7 percent, with 3.2 percent growth in the Wal-Mart Store operation offsetting a 0.4 percent decline at Sam's Club. International sales grew by 12.7 percent, to $12.2 billion from $10.8 billion.

At the bottom line, growth from international, while still a small piece of the pie, far outpaced growth in the core U.S. business. International operating profits raced ahead by 37.6 percent, to $757 million last year.

By comparison, operating profits in U.S. Wal-Mart stores grew only half as fast, by 15.8 percent, to $3.6 billion. And the low-margin Sam's Club warehouse business lost ground in the quarter, with profits slipping by 0.7 percent, to $295 million.

Domestic sales and profit growth has slowed substantially in recent years as Wal-Mart has saturated the U.S. landscape with its stores, leaving little room for growth through expansion. In sharp contrast to today's results, it was not uncommon less than a decade ago for Wal-Mart to report quarterly sales and earnings gains in the range of 30 percent as it opened new stores and rolled like a juggernaut across the map.

Lee Scott, Wal-Mart president and ceo, commented, "In a challenging retail environment with slowing comparable sales growth, we achieved another year of record sales and earnings." And for the first time, he pointed out, profits exceeded $8 billion, while overall sales grew by almost $27 billion.

Average gross margin widened modestly during the holiday quarter, to 20.9 percent from 20.7 percent the preceding year. Operating costs held steady at 15.6 percent of sales.

Providing a lift to the bottom line, interest expense was substantially pared back during the period, by 18.1 percent, to $254 million from $310 million. Interest expense declined both for debt and capital leases. At the same time, Wal-Mart generated interest income of $37 million, down slightly from $40 million a year ago.

Reining in its stockpiles, Wal-Mart grew its inventories at a somewhat slower pace than sales, by 10.1 percent vs. 10.7 percent, saving even more money.

For all of last year, Wal-Mart increased its profits by 20.5 percent, to $8.0 billion from $6.7 billion. Sales expanded by 12.3 percent, to $244.5 billion from $217.8 billion.

Wal-Mart Stores Inc.

Qtr. 1/31 (x000) 2002 2001 % change
a-Fourth-quarter results include $514 million in other income, compared with $523 million in the prior-year period; and a $64 million loss from the company's minority interest in a joint venture, compared with a $78 million loss last year.
b-12-month results include $2.0 billion in other income, compared with $1.9 billion the preceding year; and a $193 million loss from Wal-Mart's minority interest in a joint venture, compared with a $183 million loss a year ago.
Sales $71,073,000 $64,211,000 10.7
Oper. income (EBIT) 3,713,000 3,275,000 13.4
Net income 2,529,000a 2,189,000a 15.5
Per share (diluted) 0.57 0.49 16.3
Average gross margin 20.9% 20.7%
SG&A expenses 15.6% 15.6%
12 months
Sales 244,524,000 $217,799,000 12.3
Oper. income (EBIT) 11,643,000 10,065,000 15.7
Net income 8,039,000b 6,671,000b 20.5
Per share (diluted) 1.81 1.49 21.5
Average gross margin 21.5% 21.2%
SG&A expenses 16.8% 16.6%

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