Wal-Mart Stores (WMT)

Net sales for Q4 of fiscal year 2008 were $106.269 billion, an increase of 8.3% over Q4 of fiscal year 2007. Income from continuing operations for the quarter was $4.096 billion, an increase of 4% from $3.940 billion in the fourth quarter of fiscal year 2007.

Diluted EPS from continuing operations for Q4 of fiscal year 2008 were $1.02, up 7.4% from $0.95 per share in the same prior year quarter, including a net charge of approximately $0.02 per share for certain items this year.

Net sales for the fiscal year ended Jan. 31, 2008 were $374.526 billion, an increase of 8.6% over fiscal year 2007. Income from continuing operations for the fiscal year ended Jan. 31, 2008 increased 5.8% to $12.884 billion, up from $12.178 billion in the prior year. Diluted EPS from continuing operations for the fiscal year ended Jan. 31, 2008 were $3.16, up 8.2% from $2.92 in the prior year. Wal-Mart ended the year with $5.5 billion in cash after buying back $7.691 billion in stock during the year

Wal-Mart is excelling in a dismal operating environment. They are gaining customers from Target, buying back shares at decade low prices, plowing money into rapidly growing international operations and doing a much needed make-over on domestic ones. The results are showing up on the bottom line now for investors.

The wealth loss in the US is due to one thing, housing. People still have jobs as the unemployment rate is low and wages are actually rising. It is the value of their homes, their largest expense, and the fear that illicits are creating the current environment.

Now, since housing prices have fallen at the fastest rate in almost 100 years, this wealth deficit has been dramatic. It also means that a recovery to pre-bubble levels will take years, maybe decades. People who bought homes in the last 3 years have a negative equity or, now not enough to tap for loans. Sensing this, they will spend accordingly.

If this is the reason people are running to Wal-Mart rather than the other retailers, one can only assume this trend will be in effect for the foreseeable future.

For shareholders of Wal-Mart, that is indeed good news. For holders of Target (TGT), JC Penny (JCP) and others, it means rapidly shrinking margins and the necessity to redefine themselves^[1]. Whenever you have a company improving results in an environment that sees its competition and industry faltering, it is a good idea to take a really close look.

1. ↑ ValuePlays Research

Wal-Mart's strong international performance (at stores in Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico and the United Kingdom), with a 5-week sales increase of almost 19% (see bottom chart), which might suggest that the economic slowdown in the U.S. has not spread internationally, and also suggests that U.S. companies can remain profitable from strong international sales despite a domestic slowdown.

“We are pleased with the overall performance of our International markets,” said Mike Duke, vice chairman responsible for Wal-Mart International. “We had strong sales performance in key countries, including the United Kingdom, Canada, Brazil and China.”

Wal-Mart announced July 10th, that June sales rose more than analysts’ estimates as shoppers facing soaring gasoline and food costs used $86.1 billion in tax rebate cheques to buy discounted clothing and grocery items. The retailer had said previously it was unsure if it would receive a sales boost from the rebates, but then in May, Wal-Mart reported higher than expected sales. Same store sales climbed 6.1%, faster than earlier predictions of as much as 4%.

The retailer said that profit for the July quarter would increase to $0.82-0.84 a share, higher than a May projection of $0.78-0.81.

Wal-Mart's plunge into international markets has proven to be quite successful. Since the company opened its first non-U.S. location in Mexico in 1991, international sales have grown to account for around 22% of total revenues. While the majority of sales still come from within the U.S., this could change pretty soon if current trends continue. For FY2007, domestic Wal-Mart and Sam's Club stores reported increased sales of 7.8% and 4.5%, respectively. During the same time period, international Wal-Mart locations increased revenues by 30.2%. Judging from Wal-Mart's plan to increase international square footage by 10% in calendar year 2007, it's realized that international markets (especially emerging economies) are the place to be for high growth potential. Given the size of the untapped markets available to Wal-Mart beyond the U.S. borders, as well as the risk of cannibalizing current stores if it grows too much more domestically, the chain has every incentive to continue outward expansion, which it seems poised to do.

This time Wal-Mart reported that the International Segment operating profits have risen from 21% to 23% of the company's total. They grew at 11.8% for the year and 14% for Q4. At this pace, Wal-Mart will be 50/50 domestic and international profits in 6 to 8 years.

Wal-Mart is the world's largest nongovernment employer, because it's the world's most popular retailer. A mind-boggling more than 100 million Americans shop there every week. Wal-Mart's combination of rock-bottom prices, quality and convenience -- it offers a dizzying array of household staples under one roof -- appeals strongly to shoppers who need to stretch their dollars. Estimates of the average family's annual savings from shopping at Wal-Mart range from $900 to $2,300, depending on the study you consult.

Interestingly, the folks who hate Wal-Mart are often the sort who usually make a big deal about how much they care for low-income people. They make a mistake when they turn a blind eye on the achievements of this powerhouse for the poor.

New processes for evaluating square footage expansion will diminish the effect of cannibalization and improve returns on capital expenditure.